Target Reports Profit Drop of 52%

Target‘s profit took a stunning 52% hit in the first quarter, missing Wall Street’s expectations badly. The company blamed higher expenses due to supply chain disruptions and consumers holding back on nonessential purchases because of rampant inflation as well. The shares of Target fell 25% on Wednesday, its worst day since 1987.

The broader market was not as adversely affected by Target’s bad news. The Dow Jones Industrial Average fell over 1,160 points (or 3.6%) but many retail stocks like Dollar Tree(DLTR), Costco(COST), and Best Buy BBY went down as well. The S&P 500 was down 4%.

Walmart’s earnings and stock price continue to fall as the company struggles with rising shipping costs. The biggest retailer in America, WalMart (WMT), is currently down 7%.

Target’s CEO, Brian Cornell released the following statement regarding their financial performance for this past year. “We faced unexpectedly high costs driven by a number of factors which SBAction resulting in profitability that came in well below our expectations and even lower than where we expect to operate over time,” said Mr. Cornell during an earnings call Wednesday morning with analysts present.

Target’s Chief Executive Officer (CEO) Brian Cornell recently issued an apology for the company’s latest earnings release which showed that they had been much lower than expected. The statement read, “We faced unexpectedly high costs due to factors outside our control resulting in profitability coming far below what we anticipated and where Target expects itself to operate over time.”

With prices for big-ticket items skyrocketing, consumers are choosing to spend their money on smaller luxuries. According to the report from Target’s CEO last month – “lower than expected sales” in discretionary categories led them into writing down excess inventory stuck within warehouses that has no demand or future prospects at this point.”

Target shoppers are becoming more concerned with “the high and persistent inflation they’ve been experiencing,” according to Cornell.

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The latest data has shown that inflation is still a major issue for many retailers. This week, TJ Maxx and Marshalls owner TJX(TJS) reported earnings below estimates in sales compared to last month while also lowering their revenue outlooks.

The retail industry has been struggling with a shortage of workers, which is leading to higher pay for those who can find jobs. Target announced last week that it would be increasing its hourly rate in order to attract more employees as the company’s supply chain continues having problems due to this summer’s hurricanes and winter storm season combined with workforce outages at several distribution centers around America.

Last year’s earnings were boosted by federal stimulus checks from the government, but this has largely disappeared in 2022. Stifel analyst Mark Astrachan warned that “we view these results as disappointing” and against a backdrop of heightened costs or weakening discretionary spending, especially lapping the 2021 stimulus.”

During the earnings call, Cornell said that while they expected a post-stimulus slow down they didn’t anticipate just how much of a shift this would be. Home Depot reported strong sales on Tuesday thanks to the continued boom in housing, and rival Lowe’s also posted better than expected results Wednesday morning too.