Target Stock Sinks 20% on Earnings Miss, High Costs

Target shares tumbled roughly 20% to about $170 in premarket trading Wednesday on the results.

Target management said fuel and freight costs will be $1 billion higher this year than it had expected, with little sign of their easing throughout 2022. The company said it would try not to pass those cost increases to consumers through higher prices for its goods, trading short-term profit for what it hopes will be longer-term market-share gains.

“Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time,” Target Chief Executive

Brian Cornell

told reporters.

Target and other retailers had benefited from rising sales of higher-margin goods such as kitchen appliances, television sets and furniture during the pandemic, and profits increased. On Wednesday, the company said earnings for the April quarter were hurt by higher markdown rates and inventory impairments, and lower-than-expected sales in those discretionary categories.

Mr. Cornell said customers were buying fewer big items such as bicycles, TVs and kitchen items than in the past two years. Shoppers are “moving from buying small kitchen appliances and maybe replacing that with gift cards to restaurants and entertainment as they return to a more normalized lifestyle,” he said.

Comparable sales, including sales from Target stores or digital channels operating for at least 12 months, rose 3.3% from the prior year, the company said. Digital sales climbed 3.2%—its slowest growth since the beginning of the pandemic.

While total revenue increased 4% to $25.2 billion, operating income was $1.3 billion, down from $2.4 billion for the same quarter in 2021. Target reported earnings per share of $2.16, down 48% from a year earlier, and below Wall Street forecasts.

The retailer had already flagged revenue and earnings per share to increase at a slower rate from 2021, when revenue crossed the $100 billion mark as shoppers flocked back to stores, but acknowledged that costs were surprisingly high in the most recent quarter.

Target said that while some prices had risen, wider price increases would continue to be the last lever it would pull to improve profit because it was aware that its customers were seeking affordability.

“While we don’t like the impact to our profitability in the short term, we know it is the right thing to do for our guests and our business over the long term,” said Chief Financial Officer

Michael Fiddelke.

Target’s operating income margin rate was 5.3%, compared with 9.8% in 2021, with the retailer saying it expected a similar level of profitability in its second quarter. For the full year, the company said it continues to expect an operating margin rate in a range centered around 6%.

Target said it had no plans to cut its planned annual capital expenditure of $4 billion to $5 billion. It has opened seven new stores so far in 2022 and plans to open 30 throughout the year.