May 18, 2022, 01:04pm
Target's stock plummeted after the retailer posted disappointing first-quarter earnings that were spurred by unexpectedly high costs that offset rising sales.
One expert suggests that inflation is starting to happen.
Target stock plunged as much as 26% to less than $160 on Wednesday, hitting its lowest point since late 2020, as investors digest the retail giant's morning earnings report.
Brian Cornell, the firm's Chairman and CEO, said the high costs pushed the first-quarter earnings down by 48.2%.
Target's shortfall was more pronounced than Walmart's worse-than-expected earnings, which pushed the stock down on Tuesday, according to Adam.
Like Target, the world's largest brick-and-mortar retailer blamed rising fuel costs and higher levels of inventory, with CEO Doug McMillon saying the firm increased the number of price cuts to help spur sales.
In a morning note, market analyst Tom Essaye of the Sevens Report pointed out retail customers are buying less high-margin merchandise like apparel and electronics to instead spend more on lower-margin food like bread and eggs, and also shifting spending away from brand names to cheaper private labels.
Walmart and Target are included in the SPDR S&P RetailETF, which has lost more than the S&P 500 this year.
Middle and lower-end consumers are starting to get squeezed by inflation, and they are beginning to cut back on nonessential items, Essaye said Wednesday.
The Walmart and Target results could be a sign of more negative earnings to come from retailers, as well as a potential threat to higher-end consumer goods companies and consumer staple stocks.
Retail sales have been strong this year despite the worst inflation rate in 40 years. Retail sales increased 8.2% on a yearly basis in April.
The stock market selloff continues as major retailers are concerned about rising cost pressures.
The World's largest retailers help Amazon cement its lead.
Companies are raising prices while they can.
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