Inflation hit Target Corp. during the first part of the year.
The Minneapolis-based retailer has faced both higher costs – related to rising freight costs, supply chain issues, higher wages and an increase in the number of employees in fulfillment centers – and reducing discretionary spending by customers.
Target shares fell more than 20% in premarket trading on Wednesday morning after reporting earnings for February, March and April well below analysts’ expectations.
“Throughout the quarter, we faced surprisingly high costs, driven by a number of factors, which resulted in profitability well below our expectations and well below what we expect to operate. over time,” Target CEO Brian Cornell said in a statement.
Target saw revenue rise 4% to $25.2 billion in the first quarter. But net profit fell by half to just over $1 billion from $2.1 billion a year ago.
Adjusted earnings came in at $2.19 per share, far missing Wall Street analysts’ consensus estimate of $3.07. It was the first time Target had missed analyst forecasts since the fall of 2018, Bloomberg reported.
Same-store sales were still up 3.3%, with in-store and online traffic up nearly 4% from a year ago.
Analysts had long predicted that Target’s explosive growth during the pandemic would begin to level off this year. And with inflation at high levels for decades and consumers no longer supported by government stimulus checks, Target has seen shoppers spend less on categories like homewares and electronics.
Target saw strong sales in categories such as toys with more kids’ birthday parties, luggage as more people travel, and apparel as more people go out.
Sales growth this quarter was driven by frequently purchased areas such as food and beverage, beauty and household essentials.
According to data analytics firm Placer.ai, Target actually saw an average monthly increase of more than 6% in visits to its stores in 2022 compared to the same period last year. Compared to the pre-pandemic figures of 2019, visits were even more impressive, up 10.5% on average in the first four months of the year.
Target executives have listed several factors against it this spring. They included: higher freight and transportation costs, greater discounts, shortages of certain items, increased compensation, and more hiring at its fulfillment centers.
Target executives lowered their outlook for the company’s full-year operating profit margin rate to about 6% from the 8% they had previously forecast. They kept their full-year revenue growth forecast in the low to mid-single digit range.
On Tuesday, Walmart said it was also grappling with food and fuel inflation and rising supply chain costs.
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