Target Plummets After Cutting its 2022 Margin Forecasts
2022.05.18 14:37
By Geoffrey Smith
Investing.com — Target (NYSE:TGT) stock plummeted in premarket trading on Wednesday after the retailer followed rival Walmart (NYSE:WMT) in slashing its forecasts for the year due to rampant inflation.
The big-box retailer badly missed estimates for profit in the three months through April, reporting adjusted earnings per share of only $2.19, over 40% below consensus estimates of $3.06. Comparable sales, by contrast, rose by 3.3% – more than expected – as the retailer passed on higher prices to its customers.
By 8:15 AM ET (1215 GMT), Target stock was marked down 21% in premarket trading, putting it on course to open at a two-year low.
Walmart had reported a similar pattern on Tuesday, warning that higher input costs, for labor among other things, were hitting its bottom line.
Earnings were down by nearly half from a year earlier, as discounting to shift excess inventory, along with a surge in freight and transportation costs, reduced Target’s operating margin to 5.3%, well below its medium-term aspiration of 8%.
Chief executive Brian Cornell said he doesn’t expect any meaningful improvement in margins in the current quarter, and even an improvement in the second half will probably only take the full-year margin back up to around 6%.
Target’s earnings also mirrored Walmart’s in reflecting a sharp slowdown in online sales growth, as the reopening of stores across the U.S. allowed consumers to revert to previous habits. Comparable digital sales were up 3.2% on the year, having risen 50% a year earlier.
Target has built its online channel to a large degree around its physical store network, getting the stores to function as fulfilment centers for online orders. Target’s same-day services, which include Order Pickup, Drive Up and Shipt, continued to gain traction: sales through those channcels grew 8%, with Drive Up sales growing “in the mid-teens” after more than doubling last year.
