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Target profit halves as rising costs hit margins, shares sink

Kitco News

May 18 (Reuters) - Target Corp's (TGT.N) quarterly profit halved and it warned of a bigger margin hit on Wednesday due to rising fuel and freight costs, sending shares down 21% in a clear sign that investors no longer see major U.S. retailers staying immune to inflation.

The bleak results come a day after larger rival Walmart Inc (WMT.N) cut its annual profit view and its shares logged its worst day since 1987, even though both retailers clocked better-than-expected quarterly sales. read more

"We were less profitable than we expected to be or intend to be over time," Target Chief Executive Brian Cornell said.

"These (costs) continue to grow almost on a daily basis and there is no sign right now...that it is going to abate over time."

The company predicted annual operating margins to be around 6% compared to a prior forecast of 8% or higher and said rising fuel and freight expenses will add nearly $1 billion more than originally expected in annual cost.

Quarterly gross margin dipped to 25.7% from 30% also because the retailer was forced to sell some products such as kitchen appliances and televisions at discounted prices due to weak demand amid supply-chain pressures.

Many companies are dealing with four decades-high inflation by raising product prices, but Target has looked to undercut peers by doing that only for some products.

"(Pricing) continues to be the last lever we pull," finance chief Michael Fiddelke said. "While we don't like the impact to our profitability in the short term, we know it is the right thing to do."

Keeping a large section of its products affordable has helped Target's revenue grow by 4% to $25.17 billion in the first quarter.

Target's total net profit fell about 52% to $1.01 billion. Excluding items, the retailer earned $2.19 per share, well below market expectation of $3.92.

Reporting by Aishwarya Venugopal and Uday Sampath in Bengaluru; Editing by Arun Koyyur
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