A surge in costs during the first quarter shows little sign of easing, said Chief Executive Officer Brian Cornell. Operating profit will amount to only about 6% of sales this year, 2 percentage points below the previous forecast, Target said Wednesday. And the company’s first-quarter adjusted profit missed the lowest of 23 analyst estimates compiled by Bloomberg.
“For the last two years, these guys have done nothing but blow out expectations,” said Brian Yarbrough, a retail analyst at Edward Jones. “In one quarter, that’s all wiped away. Now it’s a ‘show-me’ story.” “The Target margin shortfall is more dramatic than what Walmart posted on Tuesday and clearly there are some industrywide/macro problems occurring,” Adam Crisafulli, an analyst at Vital Knowledge, said in a report. “Food/gas inflation are drawing dollars away from discretionary/general merchandise, forcing aggressive discounting to clear out product.”
Like Walmart, Target reported robust sales as US consumers powered ahead despite the highest inflation in four decades. Target’s comparable sales climbed 3.3% in the first quarter, almost three times the average of analyst estimates compiled by Bloomberg. Revenue rose 4% to $25.2 billion. Wall Street had expected $24.3 billion.But strong demand for food and beverages, beauty products and household essentials went along with “lower-than-expected sales in discretionary categories,” Target said.
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