Consumers shift, flummoxing big box retailers like Target
The pandemic vastly changed the way Americans spend money and now as they return to pre-pandemic behavior, they’re tripping up retailers again.
That dynamic has only been intensified in recent months as inflation jumps sharply, and the latest financial report from Target underscore the challenges.
Target reported Wednesday that its profit tumbled 52% compared with the same period last year in an environment of rising costs for things like fuel, and also a lightening quick return by consumers to more normalized spending. Purchases of big TVs and appliances that Americans loaded up on during the pandemic have faded, leaving Target with a bloated inventory that must be marked down to sell.
Target’s quarterly financial report comes a day after shares of rival Walmart tumbled about 17% for similar reasons after it posted quarterly results. Both companies missed profit expectations by a wide margin. Shares of Walmart fell another 8% Wednesday.
Shares of Target Corp. plunged 25%, the biggest one-day sell-off since the Black Monday market crash of 1987.
What hasn’t changed is the willingness of Americans to spend, even with inflation hovering near four-decade highs. Target said that revenue rose 4% to $24.83 billion in its most recent quarter, which was a little better than expected.
Big box retailers became a lifeline during the pandemic with millions of people splurging on food to make at home, as well as bigticket electronics. The spending on groceries continues to be strong, but those sales are lower margin compared with those luxuries for the home. Consumers are also spending more on things like luggage as they begin to travel again.
Yet even though consumer spending continues to be strong, costs are rising for major retailers.
“Things have changed significantly from even 13 weeks ago,” said CEO Brian Cornell. “We did not project, I did not project, the kind of significant increases we would see in freight and transportation costs.”
Target reported Wednesday that first-quarter net income tumbled to $1.01 billion, or $2.16 per share, in the quarter that ended April 30. Per-share earnings adjusted for one time costs were $2.19, far from Wall Street projections of $3.07 a share expected by industry analysts polled by FactSet.