Target shares sink more than 20% after company says high costs, inventory woes hit profits

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Target will report earnings before the bell Wednesday, shedding light on consumer spending as prices rise from inflation and pre-pandemic expenses like commutes, dining out and summer vacations return.

Here’s what Wall Street is expecting for the fiscal first quarter, according to consensus estimates by Refinitiv:

Earnings per share: $3.07 expectedRevenue: $24.49 billion expected

So far, retailers have sent mixed signals this week about consumer sentiment. Home Depot raised its full-year outlook and put up a strong first quarter, as homeowners traded up to premium products and hired professionals for projects. Walmart missed on earnings as shoppers spent more on food and less on higher-margin discretionary purchases — with some opting for cheaper brands or smaller sizes, such as half-gallons of milk.

Target has argued it can keep demand going, even as the Ukraine war and inflation create uncertainty and as consumers get out and about. At an investor day in March, the company shared its full-year outlook. It said it expects revenue growth in the low to mid single digits and adjusted earnings per share to rise by high single digits.

Compared with Walmart, Target’s revenue comes from a bigger mix of merchandise. About 20% of Target’s annual sales came from food and beverage in fiscal 2021, according to its annual report. Beauty and household essentials drove 26% of annual revenue, and other major categories like apparel and accessories drew roughly 20% apiece. Walmart U.S., on the other hand, gets a little more than half of its annual revenue from groceries.

Target has teamed up with popular brands by opening mini shops for Apple, Disney and Ulta Beauty in its stores. It has also launched its own trend-forward, but budget friendly brands. That has helped the retailer win new customers during the pandemic, including middle- and higher-income households that may be able to keep spending even as food and gas prices rise.

As of Tuesday’s close, Target shares have fallen about 7% so far this year. Shares closed at $215.28 on Tuesday, down 1.41%. Target’s market value is $99.82 billion.

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