Inflation is taking a bite out of Target’s bottom line as the “cheap chic” discount retailer revealed customers were buying fewer groceries and discretionary goods, sending its shares tumbling as much as 10%.
The Minneapolis-based retailer fell short of Wall Street estimates for the quarter on Wednesday — another blow for the company that has seen its stock price decline by more than 40% since it reached an all-time high in November 2021.
Earlier this week, Target announced a plan to gradually slash prices on 5,000 of the most frequently bought items in hopes of enticing inflation-weary customers back to their stores.
This followed its move in January, where it introduced “dealworthy,” a new line of 400 products starting below $1 and most products under $10.
Inflation has dampened consumer confidence, according to a Fed survey which found that more adults are feeling worse about their finances due to the rate of price increases on everyday household items.
Target said on Wednesday that it expects comparable sales in the second quarter will recover from its four straight quarterly declines, being flat to up 2%.
It expects adjusted earnings of $1.95 to $2.35 per share. Analysts on average had anticipated a comparable sales increase of 1.4% and profit of $2.19 per share.
Target’s quarterly performance fell behind that of its larger rival, Walmart, which reported better-than-expected results and raised its annual outlook as wealthier customers hunt for bargains.
“This performance is significantly worse than the overall market, which underlines that Target is losing share,” said Neil Saunders, Managing Director of GlobalData. “All in all, the picture painted by today’s figures is of a business that has run out of steam.”
In the first quarter which ended May 4, Target’s comparable sales declined 3.7%, in line with expectations.
Strong beauty sales partially offset a slowdown in discretionary items such as home entertainment, furniture and appliances. Apparel sales were a bright spot, the company said.
“Our first quarter financial performance was in line with our expectations on both the top and bottom line, tracking the trajectory we outlined for this year and setting up a return to growth in the second quarter,” Target CEO Brian Cornell said.
Target plans to win back customers “through lower prices, a seasonally relevant assortment, ease and convenience…as we keep investing in our strategy and efficiency initiatives to get back to growth and deliver on our longer-term financial goals,” the chief executive added.
The company maintained its full-year target, with comparable sales seen flat to up 2%, and earnings of $8.60 to $9.60 per share.
“We remain cautious in our near-term growth outlook and we expect consumer discretionary trends to remain pressured in the short term,” Christina Hennington, Target’s chief growth officer, said on a media call.
Shares of Target were trading at around $143 per share — down 8% from its close on Tuesday.
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