|
|
In last week’s stock market rout, Target’s share price suffered its worst single-day plunge since the Black Monday crash on 19 October, 1987, after the company cut its profit outlook from 8 percent of sales to 6 percent.
Also, the company’s first-quarter profit fell below the lowest estimate among 23 analysts Bloomberg has surveyed.
CEO Brian Cornell blamed rising costs that have no end in sight.
“We were less profitable than we expected to be, or intend to be over time,” he said in a press briefing. “Looking ahead, it’s clear that many of these cost pressures will persist in the near term.”
Walmart also was pounded after cutting its 2022 profit prediction, citing rising costs for food and fuel.
Like Target, its share price fell the most in one day since 1987’s Black Monday, ending 18 May down 11 percent at $131.35.
Costs rose faster than the company could pass the increases to consumers, CEO Doug McMillon told analysts.
Although the chain will raise consumer prices, it will minimize the bump in staple food items and still aims to price below competitors, McMillon added.
“Price leadership is especially important right now,” he noted.
Walmart still expects to see profits grow this year, he said.
The company’s first-quarter profit dropped to $1.30 a share, worse than the lowest of 29 estimates from analysts surveyed by Bloomberg.
Walmart’s revenue grew through the quarter, but grocery sales accounted for the bulk of the increase. Groceries have a slimmer margin than general merchandise, sales of which shrank.
The company’s performance is a “clear negative,” Vital Knowledge analyst Adam Crisafulli wrote in a note to clients.
“One of the world’s largest and most sophisticated companies proved unable to escape the same corporate margin pressures hurting most firms and even the sales performance isn’t as good as it looks,” he said.
Walmart’s first-quarter revenue growth was “driven mostly by food inflation, while the discretionary merchandise category slumped 10 to 11 percent,” he noted.
“The operating backdrop has become increasingly complex,” Wells Fargo analyst Edward Kelly wrote in a research note.
Walmart’s earnings in this quarter will be “flat to up slightly,” McMillon said. Previously, the company had forecast a boost in the low- to mid-single-digits.
Target’s share price dove 29 percent last week; Walmart’s was down 19 percent.
“For the last two years, [Target and Walmart] have done nothing but blow out expectations,” Brian Yarbrough, who studies the retail industry for Edward Jones, told Bloomberg. “In one quarter, that’s all wiped away.”
Kohl’s, a mid-price retail chain, also was roughed up.
It reported net first-quarter income of $14 million, or 11 cents per share; analysts were looking for 70 cents.
Kohl’s shares gave up 7 percent of their value on the news and fell 19 percent last week overall.
“Sales considerably weakened in April as we encountered macro headwinds related to lapping last year’s stimulus and an inflationary consumer environment,” CEO Michelle Gass said to analysts.
The company now predicts net sales this year to be up 1 percent, if at all, compared to last year; it previously had forecast a gain of 2 to 3 percent.
Earnings per share are likely to be $6.45 to $6.85 for 2022, not the $7.00 to $7.50 the company had foreseen earlier.
The company is up for sale, pressured by activist investors, and will gather final bids over the next few weeks, Gass said.
The chief marketing and merchandising officers have now resigned, Kohl’s reported in a regulatory filing.
Retail chains Costco, Dollar General, and Dollar Tree also are reporting falling sales. Bath & Body Works has cut its profit outlook.
“Clearly, there are some industry-wide and macro problems occurring,” Crisafulli said last week in a research report. “Food and gas inflation are drawing dollars away from discretionary and general merchandise, forcing aggressive discounting to clear out product.”
The chains have posted sale prices on some big-ticket staples, such as kitchen appliances.
Consumers and retailers “are in an “uncharted transition period following months of COVID-related lockdown measures,” CNBC said, with a European war, tangled global supply chains, and inflation rampaging at record rates.
At Walmart, consumers were trading down to store brands and cheaper options in groceries and bought fewer items per visit. However, shoppers bought more patio furniture and pricey gaming consoles, company data showed.
Consumers “are still shopping,” Target’s Cornell told CNBC, “but they’re starting to spend dollars differently.”
Home Depot reported a trend among customers to trade up, not down, buying battery-powered lawn mowers instead of less-expensive gas-fueled models, for example.
However, the company reported many shoppers see the purchases as a way to save money on gas.
The company’s customers are mostly homeowners or contractors working for homeowners, CFO Richard McPhail noted in an analysts call.
Still, homeowners have seen their equity soar during the last two years and are using some of the proceeds to maintain or upgrade their homes, he said.
Lowe’s CEO Marvin Ellison echoed the view in his conversation with analysts.
“Home improvement is a unique retail sector” which can still do well in “a macro environment where there are a lot of questions about the health of the consumer,” he said.
TREND FORECAST: The gloomy first-quarter figures were booked before Russia’s invasion of Ukraine and Western sanctions sharpened inflation and snarled global supply lines further. This quarter’s numbers are unlikely to be better and more likely to be worse.