Target Corp's first-quarter profit halved, and it warned of a bigger margin hit on Wednesday due to rising fuel and freight costs, a sign that deep-pocketed U.S. retailers are no longer immune to surging inflation.
The results came a day after Walmart Inc cut its annual profit view, even though both retailers clocked better than expected quarterly sales.
Target's shares fell 12% to $190.27 in premarket trading. Walmart's stock closed down 11.4% on Tuesday, its worst day since 1987.
Brian Cornell, Target Chief Executive, said that we were less profitable than we expected to be over time.
It is going to abate over time. Target said rising fuel and freight expenses will add nearly $1 billion more than originally expected in annual cost. Its gross margin fell to 25.7% from 30%.
Many companies have dealt with inflation by raising product prices, but the Minneapolis-based retailer has looked to undercut peers by doing that only for some products.
Finance chief Michael Fiddelke said that pricing continues to be the last lever we pull. We know it is the right thing to do, because we don't like the impact on our profitability in the short term. Target's comparable sales increased by 3.3% in the three months ended April 30, above expectations of a 0.5% increase, according to Refinitiv data.
The company maintained its full-year sales forecast, but it predicted that the operating margin would grow at a slower pace of around 6%, compared to a previous forecast of 8% or higher.
Target's total revenue rose by 4% to $25.17 billion in the quarter. Net profit fell by 52% to $1.01 billion. The retailer made $2.19 per share, excluding items.