The retail giant reported a stunning 52% drop in profit for the first quarter, badly missing Wall Street’s forecasts. The company blamed higher expenses due to continued supply chain disruptions. Consumers also are holding back on nonessential purchases because of rampant inflation.
“We faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time,” said Target CEO Brian Cornell in the earnings press release Wednesday.
It appears that Target shoppers are still spending on daily essentials, such as food and beverages and beauty products. Target said overall sales for the company were up 4% from a year ago, topping analysts’ estimates.
Target shoppers are concerned about “the high and persistent inflation they’ve been experiencing, particularly in food and energy,” Cornell added during a conference call with analysts.
The continued problems in the supply chain are hurting retail profits. Target, like many other retailers, has needed to boost hourly pay to attract workers. The company said higher compensation costs for employees in its stores and distribution centers put a dent into earnings.
Big retail chains are also grappling with the fact that last year’s earnings were boosted by federal stimulus checks from the government, a phenomenon that has largely disappeared in 2022.
“We view the result as disappointing…and against a backdrop of heightened costs and weakening discretionary spending, especially lapping 2021 stimulus,” said Stifel analyst Mark Astrachan in a report Wednesday morning.
Cornell said during the earnings call that “while we anticipated a post-stimulus slowdown…we didn’t anticipate the magnitude of that shift.”