Target Stock Plunges After Warning Profits Will Take A Hit As It Fights Inflation And Ramps Up Discounts
Shares of Target collapsed Tuesday after the brick-and-mortar retailer announced its profits will take a hit this quarter as it ramps up discounts to cut back on rising inventory—adding to concerns looming over the retail industry as consumers fed up with rising prices shift spending habits away from discretionary items.
Target stock plunged 8% to less than $148 as markets opened Tuesday—pushing shares near their lowest point in nearly two years after the company said it would take several actions in the second quarter—including markdowns, removing excess inventory and canceling orders—to help ease supply chain constraints and curb the impact of rising prices.
The company expects the measures will hurt profitability this quarter, saying its operating margin will likely be around 2%—far less than the 6% it expects for the back half of the year.
The plunge comes less than a month after shares crashed 30% after the company reported earnings that fell “well below” expectations due in part to higher freight, transportation and inventory costs, with CEO Doug McMillon saying the firm has ramped up discounts to help spur sales.
Walmart shares also took a hit after the announcement, falling nearly 3% to $121 Tuesday morning.
The SPDR S&P Retail ETF, which counts Walmart and Target as holdings, shed 1% Tuesday and has tumbled 28% this year—far more than the broader S&P 500’s decline of 14%.
Though retail sales have been largely resilient during the pandemic, retailers’ first-quarter earnings reports have revealed rising costs are starting to hit company profits. Less than a week before Target’s disappointing report last month, Walmart posted worse-than-expected earnings that pushed the stock down 11%. In a note, analyst Tom Essaye of the Sevens Report pointed out customers are buying less high-margin merchandise (like apparel and electronics) to instead spend more on lower-margin food (like bread and eggs), and also shifting spending away from brand names to cheaper private labels—signs that “consumers are starting to get squeezed by inflation.” Now dealing with the consequences of those shifting habits, some retailers have accumulated a glut of discretionary items that were popular earlier in the pandemic.