Since 1987, inflation has fallen sharply as a target

(Bloomberg) – Target Corporation is on track for its worst stock drop since becoming the second-largest retailer in two days to cut its profit forecast since the 1987 Black Monday crash.

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Chief executive Brian Cornell said the first quarter showed little signs of easing spending growth. Operating profit will be only 6% of sales this year, 2 percentage points lower than previously forecast, the target said Wednesday. And the company’s first-quarter consolidated profit missed the lowest of 23 analyst estimates compiled by Bloomberg.

“We were less profitable than we expected or wanted to be over time,” the colonel said in a briefing. “Looking ahead, it’s clear that a lot of these cost pressures will continue in the near term.”

Target’s growing outlook echoes Walmart Inc.’s dark panorama, which lowered its profit forecast on Tuesday and also posted its biggest stock fall since 1987. Target fuel and freight costs rose in the first quarter, while consumer spending changed more than sharply. -The expected downturn in clothing and household goods sales prompted the company to identify inflated inventories.

“For the past two years, these guys have done nothing but blow up expectations,” said Brian Yarbro, a retail analyst at Edward Jones. “A quarter, all that has been removed. Now this is a ‘show-me’ story. “

At 12:04 pm in New York, the target fell 25% to 1 161.84. If that skid lasts until the end of the session, it will be the worst full day immersion since the infamous market collapse known as Black Monde on October 19, 1987. Shares fell 7% this year before the result, surpassing a 26% drop in the S&P 500 index of consumer-oriented stocks.

Target is now trading at its lowest level by the end of 2020, which has reversed many of its pandemic-era gains. Costco Wholesale Corporation fell as much as 12%, Dollar General Corporation as much as 14% and Dollar Tree Inc. as much as 18%. These agencies will report the results next week.

“The target margin deficit is more dramatic than what Walmart posted on Tuesday, and obviously some industry / macro problems are happening,” said Adam Chrisfully, a Vital Knowledge analyst, in a report. “Food / gas inflation is pushing the dollar away from prudent / general commodities, forcing aggressive discounts to clean up commodities.”

In a conference call to discuss earnings, Barclays PLC analyst Karen Short questioned why Target was cutting her outlook so quickly after a meeting of enthusiastic investors in early March. The colonel said the company had not “expected a rapid change of heart” since then.

The Minneapolis-based retailer said in a statement that adjusted revenue fell to 2. 2.19 in the three months to the end of April. Analysts were expecting an average of $ 3.06.

Like Walmart, Target also reported strong sales as U.S. consumers remain ahead despite the highest inflation in four decades. Target comparative sales rose 3.3% in the first quarter, nearly three times the analyst estimates compiled by Bloomberg. Revenue rose 4% to 25.2 billion. Wall Street expected 24.3 billion.

‘Dramatic change’

However, strong demand for food and beverages, beauty products and household necessities was accompanied by “expected-less sales in the discretionary segment”, the target said. This is a sign that buyers are falling behind because they are struggling to buy basic products. Cornell says consumers are buying more than the target store brand, a common bargaining strategy for shoppers.

CEO Kovid-19 noted a “dramatic change in sales mix” as the product mix changes as the epidemic subsides. Customers who bought television sets or kitchen appliances last year can buy restaurant gift cards or luggage for upcoming trips this year, he said.

Target inventory value increased by 8.5% from the previous quarter and 43% from a year earlier. Retailers usually try to avoid inventory accumulation because it can be costly.

Target said one of the reasons for the company’s lower-than-expected profits was inventory weakness, and Chief Financial Officer Michael Fidel said there was a possibility of additional markdown in the current quarter.

Freight, wages

“Unexpectedly high costs” is another challenge, says Target. According to the Minneapolis-based company, during the current quarter, operating margins will be similar to the first quarter results of 5.3%. Analysts had expected 9.5%.

Colonel and Chief Financial Officer Michael Fidel have regained their confidence in the long-term potential of the 8% operating margin target, although they have abandoned that target for this year. Fidel said the company has raised some prices, although it is also trying to avoid closing customers with the big increase.

“We’ve seen prices rise, but that’s the last lever of our pull,” he said. “You will see all our levers continue to be used.”

(Updates with other retailers dropped to Article 7)

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