Inflation hits Target, leading to worst one-day sale since 1987

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The pandemic has drastically changed the way Americans spend money, and they are now rekindling retailers as they return to pre-pandemic behavior.

This dynamic has only intensified in recent months as inflation has soared sharply and Target’s latest financial report has highlighted the challenges.

Target reported Wednesday that its profits fell 52% year-on-year amid rising costs for things like fuel, as well as a lightning-fast return to more normalized spending by consumers. Major purchases of TVs and appliances loaded by Americans during the pandemic have dwindled, leaving a bloated inventory at Target that needs to be flagged for sale.

Target’s quarterly financial report comes a day after shares of rival Walmart fell nearly 17% for similar reasons. published quarterly results. Both companies missed profit expectations by a wide margin. Walmart shares fell an additional 8% on Wednesday.

Shares of Target Corp. closed Wednesday, down 25%, the biggest one-day sell-off since the Black Monday market crash of 1987.

What hasn’t changed is that Americans are willing to spend money. inflation fluctuation near the peak of forty years. Target said revenue rose 4% in its most recent quarter to $24.83 billion, which was slightly better than expected.

Big-box retailers have become a lifeline during the pandemic, with millions of people spending money on big-ticket electronics as well as groceries to make at home. Grocery spending remains strong, but these sales are on a lower margin compared to luxury home made products. Consumers are also spending more on things like luggage as they start traveling again.

Still, while consumer spending remains strong, costs are rising for large retailers.

“Things have changed dramatically even from 13 weeks ago,” said Brian Cornell, Chief Executive Officer. “We did not project, I did not project the significant increases we will see in freight and transportation costs.”

This hits the bottom line of companies that have been successful over the past two years.

Target reported Wednesday that first-quarter net income fell to $1.01 billion, or $2.16 per share, for the quarter ended April 30. Adjusted for one-time costs, earnings per share were $2.19, far from Wall Street’s expectations of $3.07 per share. By industry analysts surveyed by FactSet.

And there doesn’t seem to be any way to increase costs in the near future.

Those freight costs will be $1 billion higher this year than Target estimated, but the company also said it will work hard to avoid passing price increases to customers, it said on Wednesday.

The behavioral change among American consumers is wide and has negatively impacted companies that have made huge profits over the past two years.

Laura Veldkamp, ​​a professor of finance at Columbia University, says the constant “yo-yo demand” also contributes to pushing up inflation because it makes it harder for businesses to plan.

As a result, a shifting mix of goods results in a supply gap, which drives prices up as demand unexpectedly jumps.

“This roller coaster ride, where one day everybody wanted a bike and then everybody wanted to go to a restaurant when we felt safe, created complete chaos,” Veldkamp said. “This kind of volatility really drives up the cost of doing business.”

Amazon reported first quarter loss It has stalled since 2015 last month, amid a slowdown in online shopping driven by the pandemic, as well as a steep drop in its investment in an electric vehicle startup.

At Walmart, higher inventory levels along with higher labor and fuel costs dragged down the company’s profits. Walmart said customers spend on food and other essential goods, and it’s moving away from discretionary items that previously added to its bottom line.

Neil Saunders, managing director of GlobalData Retail, said that the fact that both Walmart and Target are heavily oriented towards grocery items is a plus that spending is still heavy there.

Still, the same things that have driven Target’s growth in recent years, successfully promoting instant purchases of on-demand goods, have been negative to start the year.

“As consumers become more cautious, the ‘Target effect’ of spending hundreds of dollars on a task that initially involves buying a tube of toothpaste can quickly fade,” Saunders said.

That looked like the sentiment on Wall Street on Wednesday, when Target’s shares fell from $53.67 to $161.61.

The last time Target shares fell this hard was October 19, 1987, one of the worst days in history for US markets, when the Dow fell more than 20%. However, Target shares cost less than $4 later.

Other pandemic benchmarks are being turned upside down.

Sales at Target stores that have been open for at least a year increased 3.4% in the last quarter. It had increased by 18% in the same quarter of last year. Online sales increased 3.2% compared to 50.2% growth from the previous year.

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