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Target profit crumbles as inflation-weary consumers shun discretionary spending

Stock Markets Aug 17, 2022 01:40PM ET
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© Reuters. FILE PHOTO: Shoppers exit a Target store during Black Friday sales in Brooklyn, New York, U.S., November 26, 2021. REUTERS/Brendan McDermid/File Photo GLOBAL BUSINESS WEEK AHEAD
 
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By Uday Sampath Kumar

(Reuters) -Target Corp reported a bigger-than-expected 90% fall in quarterly earnings on Wednesday and missed estimates for comparable sales as it struggled to lure inflation-hit shoppers with steep discounts on apparel, electronics and home goods.

A host of U.S. retailers have issued profit warnings in recent weeks as consumers squeezed by higher prices for everything from toothpaste to gas curtailed spending on non-essential items.

As Target (NYSE:TGT) relies more on discretionary categories, it is prone to take a bigger hit during tougher times than its rivals such as Walmart (NYSE:WMT) Inc, where groceries and packaged food items get more shelf space.

Walmart beat profit estimates as its core base of low-to-middle income shoppers flocked to its stores for bargains on groceries.

Minneapolis-based Target's operating margin rate tumbled to 1.2% in the second quarter from 9.8% a year earlier, due to costs related to clearing out excess merchandise.

Shares of the big box retailer fell 3% in premarket trading.

Still, Target reiterated it would return to an annual operating margin rate of about 6%.

"The vast majority of the costs to get our inventory where we wanted it are behind us ... we're well positioned to see improved profit performance in the back half of the year," finance chief Michael Fiddelke said on a media call.

Target's second-quarter comparable sales rose 2.6%, below analysts' estimates of a 3.3% increase, according to IBES data from Refinitiv.

The company reported quarterly earnings of $183 million, or 39 cents per share, missing estimates of 72 cents.

Despite heavy discounts, inventory rose 1.6% to $15.3 billion at the end of the quarter from the prior period.

The increase in inventory was due to the company expediting product shipments for the back-to-school and holiday shopping periods in a still "choppy" supply chain environment, Chief Executive Brian Cornell said.

"Target is now in a better position from a profitability standpoint but it is going to take some time to work through inventory, said John Tomlinson, global director of research at M Science.

"The magnitude of the disconnect between inventory and sales growth is something I haven't seen in a really long time, maybe ever," he added.

Target profit crumbles as inflation-weary consumers shun discretionary spending
 

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Comments (7)
Joseph Lee
Joseph Lee Aug 17, 2022 11:07AM ET
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Yup. Inflation
Baer Markit
Baer Markit Aug 17, 2022 9:24AM ET
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Now target needs to go to suppliers and tell them that their price increases aren't working and they need to cut their wholesale prices.
Tyrone Jackson
Tyrone Jackson Aug 17, 2022 9:07AM ET
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Can’t spend on ****when gas was 5.00 last few months. Why did he stop the pipeline?
Baer Markit
Baer Markit Aug 17, 2022 9:07AM ET
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Just as much oil in system as ever had been.
Baer Markit
Baer Markit Aug 17, 2022 9:07AM ET
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Refineries at Max capacity.. no need for pipeline.
Jai Haugen
Jai Haugen Aug 17, 2022 9:07AM ET
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pipeline would have put gas at $2 but Biden hates the American People. that's all
Gary Moses
Gary Moses Aug 17, 2022 9:07AM ET
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Does donald trump still have you under his Spell.
Brad Albright
Brad Albright Aug 17, 2022 9:07AM ET
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@Tyrone: Educate yourself: The United States of America is energy independent AND a net exporter of oil: https://www.forbes.com/sites/rrapier/2022/03/08/surprise-the-us-is-still-energy-independent/?sh=519389b530b6
Tre Hsi
Tre Hsi Aug 17, 2022 9:06AM ET
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"Shares of the big box retailer fell 3% in premarket trading."  -- just 3%?  I guess the market wasn't completely surprised by this.....
Sylvia Doloff
Sylvia Doloff Aug 17, 2022 7:29AM ET
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target is not a bad store it does well earning estimates are too high they make alot of money they miss tge number and it gives the impression they are slumping ridiculous look at thier revenue
Peter Agh
Peter Agh Aug 17, 2022 7:07AM ET
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Wall street push down and manipulate brutaly expectation as low as possible and even so they miss it. Not as good as CNBC present.
The stock Alley
The stock Alley Aug 17, 2022 6:49AM ET
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Funny how this article leaves out how Lowes beat expectations by a good amount. Home depot beat, walmart beat and Lowes. Target is the one who didnt. 3/4 in this alleged “recession” is pretty well given the bearish narrative you guys like post. Point is consumers are not worried aboit inflation. In a perfeft world one of the four conpanies would have missed expectations still. Traders need to ignore these articles. They are publish by bears.
Samer Diab
Samer Diab Aug 17, 2022 6:49AM ET
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actually, I read the articles to do the opposite
Ty VM
2ADV Aug 17, 2022 6:49AM ET
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It's actually good news tbh. Means people are spending less, lowering prices and reducing inflation. Win for market.
mustafa vickery
mustafa vickery Aug 17, 2022 6:49AM ET
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Who are you kidding. People are really worried about inflation. Inflation destroys economies and peoples ability to spend.
Brad Albright
Brad Albright Aug 17, 2022 6:49AM ET
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LOL. This article left out a bunch of other companies and a recipe for apple pie too. Just because it didn't include the companies you cherry pick doesn't mean the author's motives are suspect.
 
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