Target Corp. (NYSE: TGT) shares plunged Wednesday, dragging down consumer sector-related exchange traded funds, after the retailer issued a quarterly earnings miss and warned of higher costs.
The VanEck Vectors Retail ETF (RTH) was down 7.5% on Wednesday while the broader Consumer Discretionary Select Sector SPDR (NYSEArca: XLY) fell 6.9%.
Meanwhile, Target shares plummeted 25.6% on Wednesday, its worst single-day session since 1987, according to Dow Jones Market Data. TGT makes up 4.9% of RTH’s underlying portfolio and 3.2% of XLY.
Target’s sales increased for the most recent quarter with shoppers spending more on food and groceries and even luggage to prep for the upcoming summer travel season, but ongoing supply-chain costs and inflationary pressures weighed on profits, the Wall Street Journal reports. Consequently, the retailer revealed quarterly earnings that missed Wall Street’s forecasts.
Weighing on Target’s outlook, management warned that fuel and freight costs will be $1 billion higher than it had previously expected for 2022.
“Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time,” Target Chief Executive Brian Cornell told reporters.
The company also stated it won’t pass the cost hike to consumers through higher prices for its goods in a bid to trade short-term profit losses for potentially longer-term market-share gains.
“While we don’t like the impact on our profitability in the short term, we know it is the right thing to do for our guests and our business over the long term,” Chief Financial Officer Michael Fiddelke said.
Consumer spending trends may also be shifting as more Americans step outside in a post-Covid-19 world.
“We’re seeing a continued shift in the composition of consumption, moving away from goods and back toward services,” Garrett Melson, a portfolio strategist at Natixis Investment Managers, told the Wall Street Journal. “Naturally, that’s going to weigh on these goods retailers.”
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