On Wednesday, Target reported quarterly earnings that did not meet Wall Street expectations as the retailer coped with expensive freight costs, higher discounts and lower-than-expected sales of discretionary goods from TVs to bicycles.

Shares fell about 22% in pre-market trading.

Here is what Target reports for the first fiscal quarter ended April 30, compared to Refinitiv’s consensus estimates:

  • Earnings per share: $ 2.19 adjusted against $ 3.07 expected
  • Revenue: $ 25.17 billion versus expected $ 24.49 billion

The national retailer, known for its cheap chic brands of clothing, home decor and more, has spent a particularly high period of sales. A year ago, shoppers had extra dollars in their pockets from incentive checks, and they reflected a sense of optimism in their purchases when they received their first Covid-19 vaccine.

Compared to the same period last year, sales increased. Comparative sales, a key indicator that tracks sales in stores open for at least 13 months and online, rose 3.3% in the first quarter. This is 23% compared to similar sales growth last quarter and higher than Wall Street forecasts by 0.8%, according to StreetAccount estimates. In Target stores and on its website, traffic grew by 3.9%.

Despite this, CEO Brian Cornell said the company did not reach the mark because its profits were “accompanied by unusually high costs”.

“While we have seen healthy height growth this quarter, we have been less profitable than we expected or were going to be over time,” he told reporters.

Among the problems, Target said the profits were affected by stocks that arrived too early and too late, compensation and the number of employees who grew up in distribution centers, and a combination of sales of goods that looked different than before.

Target’s results reflect Walmart’s quarterly performance. Walmart said Tuesday it also made no profit, also citing rising inventories and heavy pressure on spending. On Tuesday, Walmart shares fell more than 11% to a 52-week low.

Target reiterated its revenue forecast, which assumes average unambiguous growth this year and beyond. He did not estimate earnings per share.

Target’s net income for the quarter fell to $ 1.01 billion, or $ 2.16 per share, from $ 2.1 billion, or $ 4.17 per share, a year earlier. Excluding commodities, the retailer earned $ 2.19 per share, down 88 cents from the $ 3.07 expected by analysts surveyed by Refinitiv.

These adjusted earnings per share fell sharply – by almost 41% over the same period last year.

Total revenue rose to $ 25.17 billion from $ 24.20 billion a year ago, above analysts’ expectations of $ 24.49 billion.

Target v. Walmart

Although Target and Walmart were ahead of profit expectations by a wide margin, they diverged in descriptions of the American consumer.

Walmart chief financial officer Brett Biggs told CNBC that a retailer with a big box saw some of the limited budget customers trade in brand name stores for meat varieties and buy half a gallon of milk instead of whole. Some others, he said, are looking for new game consoles and patio sets.

Meanwhile, Target CEO Brian Cornell told the media that the company sees a healthy consumer, but someone who lives – and spends – differently, restoring some pandemic habits.

For example, Cornell said toy sales were excellent in the first quarter and grew to high single digits when families resumed big children’s birthdays. According to him, luggage sales increased by more than 50%.

On the other hand, sales of goods such as TVs, kitchen appliances and bicycles declined as consumers shifted their costs toward experience-based purchases such as booking travel and buying gift cards for restaurants, he said.

Cornell, however, warned that the pressure on spending “will continue soon”, stressing that some are beyond the company’s control. One of these factors is the price of gas, which reached an average of $ 4,523 per gallon on Tuesday, according to the AAA.

However, he said, he will continue to invest in the business, open new stores and said Target’s bright long-term trajectory remains the same.

With inflation at a nearly four-decade high, CFO Michael Fidelke told reporters that Target will focus on offering value, even if it means absorbing some costs. He said the price increase “remains the last lever we pull”.

“We’ve earned so much trust over the last few years thanks to the investments we’ve made in price, and we’re not going to trade that in the current environment,” he said.

As of Tuesday’s close, Target shares have fallen about 7% this year. Shares closed at $ 215.28 on Tuesday, bringing the company’s market value to $ 99.82 billion.

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