Target profit falls 90% as inflation repels weary shoppers

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But Target reported that its price cuts did little well: It ended the quarter with 1.5% more inventory than it did three months ago and 36% more than a year ago.

The company said it reduced the amount of discretionary items it holds in warehouses, but noted Target’s sales of those items “put significant pressure on our near-term profitability.”

shares of target ,TGT, It fell 3% in morning trading on the report.

Falling earnings, once again

Target’s quarterly net income fell to $183 million, down significantly from $1.8 billion during the same period a year ago.

Also, adjusted earnings per share of 39 cents was well below the 72 cents forecast by analysts surveyed by Refinitiv. Sales of $26 billion were up slightly from a year ago and roughly in line with forecasts.

After seven quarters of strong profit growth, it marks the second-straight quarter of falling earnings On target — and that decline was far more significant than the 40% drop last quarter.
One of the factors increasing the pull of consumers on the demand for discretionary goods is fear of recessionBecause consumer spending accounts for about three-quarters of the country’s economic activity.
Walmart's results allay some recession fears
The goal’s disappointing results came in contrast to the bigger opponent’s more robust results. walmart ,wmt,, which reported Tuesday that profit was slightly lower than a year ago. Walmart also said it expects annual earnings to decline 8% to 10%, though it’s a narrower drop than previously forecast.

‘Feeling the effect of inflation’

The environment remains “challenging” for Target and similar retailers, CEO Brian Cornell told investors Wednesday. But Target is seeing “an encouraging start to back-to-school” shopping season, he said.

He believes the impact on earnings in the recent quarter should not be repeated: “The high-level story is: The vast majority of the financial impact of these inventory actions is now behind us.”

Still, this is a difficult time to be a retailer, given the unpredictability of consumer spending activity and the impact of macro factors such as inflation.

The goal is to “hear from our guests that they still have spending power but are increasingly feeling the effects of inflation,” said Christina Hennington, the company’s chief development officer. He said drop in gas prices However, the last two months were “encouraging”.
These trends are not unique to Target. A recent government report echoed Hennington’s comments, showing Retail Sales General merchandise stores like Target fell 0.7% in July compared to June when adjusted for seasonal factors — even though overall retail sales remained essentially flat over the same period.

And spending at gas stations fell $1.2 billion in July compared to June, which was cited by Hennington as lower gas prices.

Target’s Heavy Reliance on Discretionary Versus Walmart

These trends are giving Target a tougher competition than rival Walmart, which derives a greater share of its sales and profits from essentials like groceries. Target usually relies more on those discretionary items.

Walmart has a reputation for offering the lowest prices among big-box retailers across multiple categories — but in its earnings report on Tuesday, the company said sales to middle- and high-income shoppers increased.

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