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Target stock plummets 25.0% as inflation puts pressure on profits

18:36 18 May 2022
  • Target (TGT.US) stock cratered over 25% after the big-box retailers reported disappointing quarterly earnings and rising price pressures had a negative impact on company's profits; 
  • Company earned $2.19 per share, well market estimates of $3.07 per share.

  • Revenue of $25.17 billion beat analysts estimates of$24.49 billion;

  • Target said its operating margin of 5.3% "was well below expectations" due to rising cost of fuel and supply chain disruptions. Its operating margin was 9.8% in the same quarter in 2021;  

  • Comparable sales jumped 3.3% in Q1 beating analysts estimates of 0.8%, however these figures look bleak compared with a 23% increase in the year-ago quarter; 

  • The brick-and-mortar retailer said the quarterly performance was hurt by higher freight and transportation costs and expects them to be $1 billion more this year than it had anticipated; 

  • Recent retail sales figures showed that customers are still spending, however Target clients were mostly buying daily essentials, such as food and beverages. Customers are also shifting away from brand names to cheaper private labels, while holding back on nonessential purchases because of surging inflation and lack of stimulus checks;

  • For the full-year 2022 company forecasts operating income margin rate around 6%, compared to previous projections of 8%. Company expects operating income margin rate in the second quarter in a wide range centered around 5.3%. 

Target's earnings miss came one day after Walmart (WMT.US) released disappointing quarterly earnings and lowered its full-year financial outlook, as surging costs ate into the bottom line of the world's biggest retailer. Shares of other retailers like Lowe’s (LOW.US) or Costco (COST.US) also moved lower today.

Target (TGT.US) stock fell over 26% on Wednesday, the lowest level since November 2020. Price is currently testing a major support zone around $158.00 which is marked with lower limit of the 1:1 structure and 61.8% Fibonacci retracement of the upward wave launched in March 2020. The next potential support and resistance levels are determined by other Fibonacci retracements. Source: xStation5

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