A mistake in Target‘s

TGT -26.44%

salary sends an arrow through the heart of the retail sector.

The company on Wednesday said comparable sales were up 3.3% in the quarter ended April 30, which was better than expected by analysts polled by Visible Alpha, by 0.24%. But while total revenue grew, net income more than halved. Over the past five years, Target has been ahead of Wall Street net profit expectations only three times, with the biggest deficit so far being 3.5%. It was 31% on Wednesday.

Retail operating margin, which last year was more like Macy’s department store than Walmart‘s

, came down to earth. Its operating margin was 5.3% last quarter – a significant drop from 9.8% recorded for the same period a year earlier and its long-term target of 8%. Target’s underperformance led to a fall in shares by a quarter on Wednesday, which would be the worst one-day decline in interest since the stock market crash in 1987. The sell-off came a day after rivals Walmart’s disappointing results also led to the biggest loss since.

Rising fuel costs and bottlenecks in supply chains have damaged Target margins, and consumer demand has changed. Inventories rose 43% last quarter from a year earlier, leading to higher markdowns in some categories. While Target typically takes an average of less than 60 days to sell its stock, last quarter it took more than 70 days.

In general, the current environment remains unsafe for retailers. They face unpredictable shifts in consumer demand at a time when they need to plan stocks earlier to offset longer lead times. Target said the greatest demand was for food and essentials, as well as for elective leisure categories such as beauty, where sales rose 45% compared to the same period in 2019. Luggage sales increased by more than 50% compared to the previous year. More bulky items, such as appliances and furniture, went bad, as did clothing, although trend-based clothing sold much better than basic clothing.

Target’s results are a worrying sign for other retailers due to earnings reports in the coming weeks. On the one hand, this shows that the full-blown sales boom is over, as the two pillars that support it – low total stock and thick wallets – are weakening. Both Target and Walmart have warned of additional promotions and discounts. On the other hand, the days when shoppers continued to load up on discretionary purchases with higher profits are over as they began to selectively spend on goods. And if retailers of this magnitude can’t cope with the pressure on freight and costs, it’s a bad omen for smaller companies with weaker negotiations.

Not surprisingly, the retailer’s remarks led to the fall of other retailers in the pandemic era, sparing no category other than low-priced sellers such as TJX Cos. Electronics Specialist Best Buy‘s

shares fell 8%, while major retailers Costco and BJ’s Wholesale fell 11% and 16% respectively. Kohl’s department store,

due to earnings report on Thursday, fell 10%. Four major retailers – Walmart, Target, Costco and BJ’s – are on track to lose more than $ 120 billion in total market value in two trading sessions.

The results of Walmart and Target show that the winds that blew in favor of retailers are turning and hitting hard on profits. While this will attract investors ’attention in the next couple of weeks, stores that can hold back sales and evoke customer loyalty like Target may ultimately benefit in the long run. Smaller competitors are a different story.

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