Here’s Why Target Shares Are Tumbling Today

Target’s shares are tumbling on the heels of a disappointing earnings report.

The big box retailer reported Q1 adjusted earnings per share of $2.19 that fell short of analysts’ estimates of $3.06. Revenues for the quarter came in at $25.17 billion versus an expected $24.49 billion.

Target shares were down over 24% by early Wednesday afternoon.

Target said its weak Q1 results were a result of high fuel and transportation costs as well as excess inventory in its supply chain. Target saw an unexpected sales slowdown in categories such as home, electronics, sporting goods and apparel as consumers spent most actively across essential categories like food and beverage.

“We saw much higher-than-expected rate and transportation costs and a more dramatic change in our sales mix than we anticipated,” said CEO Brian Cornell. “This resulted in excess inventory, much of it in bulky categories, which put additional strain on an already stretched supply chain.”

As a result, the company had to pursue temporary storage capacity options to manage the excess of inventory.

Target’s results highlighted a general consumer shift away from from discretionary to non-discretionary categories such as groceries, given the highly inflationary environment. Consumer prices rose by 8.3% in April compared to a year ago, according to the Bureau of Labor Statistics’ monthly report. Specifically, the food index rose 9.4%, marking the largest 12-month increase since the period ending April 1981.

“Some of this shift is a consequence of a change in the wider consumer economy which has seen people pull back on spending on things like homewares and electronics as they balance their budgets and normalize spending after two-years of pandemic disruption,” said GlobalData managing director Neil Saunders in a statement.

On Wednesday, Walmart reported a similarly disappointing earnings report as a result of increased wage expenses and fuel costs in the supply chain, as well as a decrease in general merchandise sales due to inflation. With commodities like food and gas up so high, Walmart said consumers were spending less in general merchandise categories like apparel, which contributed to higher levels of inventory than desired, similar to Target.

Walmart said it planned to roll back prices on certain items, like apparel, to keep inventory flowing. Target also said it would introduce higher markdowns as well.

Despite the disappointing quarter, Target still reaffirmed its fiscal year 2022 guidance and expects low- to mid- single digit revenue growth.

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