Retail giant Target Corporation on Wednesday reported worse than expected first-quarter earnings missing on major metrics. $TGT shares fell over 26%. Competitor Walmart reported yesterday and also sold off on its earnings miss for its largest single-day percentage decrease since 1987. 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.
Target Corporation NYSE: TGT Reported Earnings Before Market Open Wednesday
$1.09 Missed $1.11 EPS and $17.59B Missed $17.812 billion forecast in revenue
Target said it would try not to pass 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.
Earnings
Target Corporation NYSE: TGT reported earnings per share of $2.16, down 48% from a year earlier, and below Wall Street forecasts of $3.00. Total revenue increased 4% to $25.2 billion missing the forecast 24,528 million. Operating income was $1.3 billion, down from $2.4 billion for the same quarter in 2021.
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.
Target’s debit card penetration contracted 50 basis points (bps) to 11.6%, while credit card penetration increased 30 bps to 8.7%. Total REDcard penetration declined to 20.3% from the year-ago quarter’s 20.5%.
“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 Corporation NYSE: TGT
Market Reaction – $158.60-26.33%
Outlook
Mr. Cornell said 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”.
“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 the year-earlier period, with the retailer saying it expected a similar level of profitability in the current 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.
Source: Target, AlphaStreet