Target’s stock plummeted on Wednesday as the US retailer warned that growing expenses will eat into its yearly earnings, mirroring a warning from competitor Walmart and prompting a broader stock market sell-off on concerns that corporations are unable to pass greater costs on to customers.
Target’s shares dropped 25% in one day, the greatest one-day drop since the 1987 Black Monday stock market crisis, when the retailer reported a 50% drop in first-quarter profits to $1 billion. Higher freight, gasoline, and labor expenses, as well as supply chain disruptions that began with the epidemic, were cited by the store.
Walmart, the world’s largest brick-and-mortar retailer, had its stock drop another 6.8% on Wednesday after dropping 11% the day before when it lowered its profit expectations.
“If it wasn’t clear following the Walmart drop yesterday, it is clear that discretionary spending is slowing, inflation pressures have risen, and, for the first time since pre-Covid, markdown and price investment risk is rising,” said JPMorgan in a note to clients.
Target, like Walmart, has been caught off guard by the magnitude of inflationary pressures in the US economy. Brian Cornell, the company’s CEO, confessed that the company had “unexpectedly high costs.”
Target, on the other hand, experienced a dramatic downturn in clothes and homeware sales starting in early March.
Customers are shifting away from branded goods and toward private-label items, Walmart said on Tuesday, particularly in its food segment, where inflation is running at double-digit rates.