Target and Walmart spoil investors' mood

Shares of retail chains Target and Walmart are losing ground today and are down nearly 2,0% respectively. Black clouds have been gathering over the retailer's stock recently. Weaker forecasts, inventory problems and concerns about consumer health are weighing on investor sentiment and adding fuel to the declines.

• Target (TGT.US) is already trading nearly 2,2% lower, while Walmart (WMT.US) is losing nearly 2.5%. Costco (COST.US) is also weakening.;

• Target suffered its biggest price drop in nearly 35 years on May 18, slipping nearly 25%. The company surprised analysts with a lackluster Q1 profit due to rising fuel and transportation prices, less favorable promotional policies and a shift away from consumer electronics items that enjoyed high margins;

• Target announced a short-term decline in profits due to order cancellations and discounting of unwanted merchandise. The company indicated a weaker operating margin guidance for Q2, at nearly 2%. That compares with a Q1 margin of 5.3%. The result takes into account the influx of merchandise that will hit store shelves at discounts or directly on sale;

• The company reported that it had nearly $15.1 billion in inventory at the end of Q1, which is about 43% higher than the same period in 2021;

• The director pointed out that despite high traffic in stores and on the website, activity in Covid's pandemic-related categories has dropped to almost zero;

• The company is taking aggressive steps, including cancelling orders and significantly discounting unwanted products to free up space in stores. Chief Executive Officer Brian Cornell said Target intends to free up space for grocery and back-to-school products, which regularly experience better sales;

• At the same time, Target continues to maintain its annual sales growth projections and announced an improvement in margins in the second half of the year to 6%. This is still better than the average for the pre-pandemic fall sales season.

• It is worth noting that revenue growth in 2022 will remain low or at best at an average level, so the company does not expect a revolution;

WalMart is also experiencing problems, the company is struggling with a significant increase in inventory.

• WalMart's inventory is up nearly 33% from the same period in 2021;

• At a recent investor meeting, CEO John Furner conveyed that nearly 20% of the inventory is unwanted goods and pointed to a minimum of several quarters as the time needed to recover from this situation;

• The company has been losing recently following the release of weaker earnings and growing concerns around the prospect of US consumers cutting back on spending. The excess inventory is being impacted by declining interest in categories popular during the pandemic;

• According to the company, customers are also making less casual purchases due to rising fuel prices and inflation. The summer season has always not been the best for retailers due to increased consumer spending in the restaurant and travel sectors;

• Retailers may experience a shock in the face of a radical change in consumer shopping habits when they find that warehouses become overstocked or inventories fail to keep up with seasonal market demands.

Target (TGT.US) stock chart, W1 interval. The stock has been moving in an uptrend since the outbreak of the Covid pandemic and has seen a near 300% increase from the low near $85 at the peak. The company has already managed to fall by more than 40% from the peak valuations, although recently we have seen a strong demand reaction in the zone near $140, where there is also 71.6 Fibonacci retracement. In the current situation the opening nearly 8 USD lower, i.e. another test of the 145 USD area may also end with strong demand in the zone, but if the support does not hold, a dynamic decline due to liquidation of the key demand is not excluded. At the moment company's shares are trying to rebound and negate most of the declines from the beginning of the session. Source: xStation5