Target reported quarterly results Wednesday.Charles Krupa/The Associated Press
Target Corporation’s quarterly profit halved and it warned on Wednesday of a bigger margin hit this year due to rising fuel and freight costs, in a clear sign there would be no immediate relief for U.S. retailers from surging inflation.
Shares tumbled 26 per cent following the bleak results that came a day after larger rival Walmart Inc. cut its annual profit view and its shares logged their worst day since 1987, although both retailers clocked better-than-expected quarterly sales.
“We have a lot of work ahead of us to restore profitability to the level where we expect to operate over time,” Target chief executive officer Brian Cornell said on a post-earnings call.
The company said costs will rise by an additional US$1-billion, more than it had anticipated for the year.
Costs have also remained elevated for companies due to pandemic disruptions to shipping channels and the crisis in Ukraine. Target executives said the supply-chain woes would remain until at least 2023.
The company now expects annual operating margins to be around 6 per cent compared to a prior outlook of 8 per cent or higher.
Target’s quarterly gross margin dipped to 25.7 per cent from 30 per cent, as a four-decade high inflation pushed consumers to spend more on food and household essentials instead of high-margin discretionary items, like television sets and apparel.
“After Walmart’s [results] ... we shouldn’t be surprised to see Target post a larger miss to the bottom line given its greater mix of discretionary products compared to Walmart,” CFRA analyst Arun Sundaram said.
Target said it sold some bulky items, such as kitchen appliances and television sets, on discount to make more shelf space for food and other essentials.
At an 18-month low of US$159, the retailer’s shares were on course to shed about a quarter of its US$100-billion market capitalization after its adjusted earnings per share of US$2.19 missed estimates of US$3.92 for the three months ended April 30.
“With macro volatility, commodity and freight-related headwinds ongoing, regaining investor trust will likely require some input cost relief and solid cost-cutting/productivity gains,” Evercore analyst Greg Melich said.
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