Consumers are changing again, upending big retailers like Target | Economic news


By ANNE D’INNOCENZIO, AP Business Writer

NEW YORK (AP) — The pandemic has dramatically changed the way Americans spend money and now that they’re reverting to pre-pandemic behavior, they’re tripping up retailers again.

This momentum has only intensified in recent months as inflation jumps sharply, and Target’s latest financial report highlights the challenges.

Target reported on Wednesday that its profit fell 52% from the same period last year amid rising costs for things like fuel, and also a quick and lightning consumer return to more normalized spending. . The purchases of big TVs and appliances that Americans loaded up during the pandemic have faded, leaving Target with bloated inventory that needs to be marked down to sell.

Target’s quarterly financial report comes a day after shares of rival Walmart fell about 17% for similar reasons following the release of quarterly results. Both companies missed earnings expectations by a wide margin. Walmart shares fell another 8% on Wednesday.

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Shares of Target Corp. plunged 27%, the biggest one-day selloff since the Black Monday stock market crash of 1987.

What hasn’t changed is Americans’ willingness to spend, even with inflation near four-decade highs. Target said revenue rose 4% to $24.83 billion in its latest quarter, which was slightly better than expected.

Big-box retailers have become a lifeline during the pandemic with millions of people splurging on food to make at home, as well as big-ticket electronics. Grocery spending continues to be strong, but these sales have a lower margin than luxury home goods. Consumers are also spending more on things like luggage as they start to travel again.

Yet, even as consumer spending continues to be strong, costs are rising for large retailers.

“Things have changed significantly over the past 13 weeks,” CEO Brian Cornell said. “We didn’t anticipate, I didn’t anticipate, the kind of significant increases we would see in freight and transportation costs.”

This affects the bottom line of companies that have prospered over the past two years.

Target reported Wednesday that first-quarter net income fell to $1.01 billion, or $2.16 per share, in the quarter that ended April 30. One-time cost-adjusted earnings per share were $2.19, a far cry from Wall Street’s projections of $3.07 per share expected by industry analysts polled by FactSet.

And there doesn’t seem to be any way around the rising costs in the immediate future.

Those freight charges will be $1 billion higher this year than Target had anticipated, he said Wednesday, but the company also said it would work hard not to pass on price increases. on customers.

The shift in US consumer behavior is wide-ranging and has had negative effects on companies that have posted massive profits over the past two years.

Laura Veldkamp, ​​a finance professor at Columbia University, says the constant “yo-yo” in demand has also helped push up inflation because it has made it harder for businesses to plan.

As a result, a changing mix of goods find themselves in short supply, driving up their prices as demand surges unexpectedly.

“This roller coaster ride where everyone wants bikes one day and then everyone wants to go out to restaurants once we feel safe has created such chaos,” Veldkamp said. “That kind of volatility really drives up the cost of doing business.”

Amazon reported its first quarterly loss since 2015 last month, stalled by a pandemic-induced slowdown in online shopping, in addition to a huge writedown in its investment in an electric vehicle startup.

At Walmart, higher labor and fuel costs along with higher inventory levels led to lower company profits. Walmart said customers were spending on food and other consumer staples, moving away from discretionary items that had previously added to its bottom line.

The fact that Walmart and Target have invested heavily in groceries is an advantage with still large spending there, said Neil Saunders, managing director of GlobalData Retail.

Yet the same things that have allowed Target to thrive in recent years, successfully spurring impulse purchases of discretionary goods, were negative to start the year.

“As consumers become more cautious, the ‘target effect’ of spending hundreds of dollars on an assignment that originally involved picking up a tube of toothpaste could wear off quickly,” Saunders said.

That seemed to be the sentiment on Wall Street on Wednesday, with shares slipping from $58.85 to $156.43 in afternoon trading.

The last time Target shares fell so hard was on October 19, 1987, one of the worst days in history for US markets when the Dow fell more than 20%. However, Target shares then cost less than $4.

Other pandemic measures are being changed.

Sales at Target stores that have been open for at least a year rose 3.4% in the last quarter. It posted an 18% increase in the same quarter last year. Online sales increased by 3.2%, after growing by 50.2%.

Follow Anne D’Innocenzio:

AP Economics Writer Christopher Rugaber contributed to this report from Washington.

Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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