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50% Drop In Target’s Profits Due To Inflation Hitting Margin, Shares Plummet

Target Corp's quarterly earnings halved and the company warned of a greater margin impact due to rising fuel and freight costs on Wednesday, sending the stock down 21 percent in a clear hint that investors no longer believe major U.S. retailers will be immune to inflation.
Even while both shops reported better-than-expected quarterly sales, the disappointing results came a day after larger rival Walmart Inc lowered its annual profit forecast and saw its stock drop to its lowest level since 1987.
"We were less profitable than we expected to be or intend to be over time," Target Chief Executive Brian Cornell said.
"These (costs) continue to grow almost on a daily basis and there is no sign right now...that it is going to abate over time."
Yearly operating margins are estimated to be approximately 6 per cent, down from an earlier forecast of 8% or higher, and rising gasoline and freight costs would add nearly $1 billion to annual costs, according to the business.
Due to sluggish demand and supply-chain difficulties, the store was obliged to sell various products such as kitchen appliances and televisions at discounted prices, lowering its quarterly gross margin to 25.7 per cent from 30 percent.
Many corporations are responding to four decades of high inflation by boosting product prices, but Target has sought to undercut competitors by doing so exclusively for certain categories.
"(Pricing) continues to be the last lever we pull," finance chief Michael Fiddelke said. "While we don't like the impact to our profitability in the short term, we know it is the right thing to do."
Target's revenue increased by 4 per cent to $25.17 billion in the first quarter as a result of the company managing to keep a major portion of its products at cheap rates.
Target's total net profit dropped by around 52 per cent to $1.01 billion. The store earned $2.19 per share excluding items, considerably below the market target of $3.92.

Christopher J. Mitchell

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