Target Corp. is on pace for its worst stock drop since 1987’s Black Monday crash after becoming the second big retailer in two days to trim its profit forecast.
A surge in costs during the first quarter shows little sign of easing, said CEO Brian Cornell. Operating profit will amount to only about 6% of sales this year, 2 percentage points below the previous forecast, Target said Wednesday. And the company’s first-quarter adjusted profit missed the lowest of 23 analyst estimates compiled by Bloomberg.
“We were less profitable than we expected to be, or intend to be over time,” Cornell said in a briefing. “Looking ahead, it’s clear that many of these cost pressures will persist in the near term.”
Target’s worsening outlook echoes the darker panorama at Walmart Inc., which cut its profit forecast on Tuesday and also posted its biggest stock decline since 1987. Target’s fuel and freight costs soared in the first quarter while a shift in consumer spending caused a sharper-than-expected slowdown in apparel and home-goods sales, prompting the company to mark down bloated inventories.
“For the last two years, these guys have done nothing but blow out expectations,” said Brian Yarbrough, a retail analyst at Edward Jones. “In one quarter, that’s all wiped away. Now it’s a ‘show-me’ story.”