Target plunges 26% as soaring costs lead the retail giant to widely miss quarterly earnings expectations and cut its profit guidance

• Target shares tumbled 26% Wednesday after Q1 earnings fell short of expectations.
• Adjusted earnings of $2.19 a share were lower than the Refinitiv forecast of $3.07 a share.

Target shares sank on Wednesday, as surging costs resulted in a big miss in quarterly earnings and a reduced outlook.

The stock fell as much as 26% to $159 by midday, the lowest price since November 2020. Target's first-quarter earnings announcement caught the attention of the broader equity market, with US stock futures swinging lower following the release. Consumer staples stocks were the worst-performing during the regular session, with their collective 5% drop fronting the S&P 500's nearly 2% decline.

"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," Brian Cornell, Target's chairman and CEO, said in the earnings report.

Adjusted earnings came in at $2.19 a share, lower than the $3.07 expected in a Refinitiv poll of analysts, according to CNBC. Revenue was $25.17 billion, above expectations of $24.49 billion. Comparable sales increased 3.3% following 22.9% growth last year.

Target said its operating margin of 5.3% "was well below expectations," reflecting its work to cut down excess inventory as well as higher costs for freight and transportation. Its operating margin was 9.8% in the same quarter in 2021.

The company, which runs nearly 2,000 stores, reportedly said it expects costs for transportation and freight to be $1 billion more this year than it had anticipated.

Target now sees its full-year 2022 operating income margin rate in a range of around 6%. The guidance compared with its previous view of operating profit of around 8% of sales. It also foresees its operating income margin rate in the second quarter in a wide range centered around 5.3%.

Target's report arrived after the US government last week said consumer price inflation was 8.3% in April, slightly lower than March's 8.5% reading that marked a 41-year high, but above expectations of a 8.1% reading. On Tuesday, rival retailer Walmart also missed earnings views and lowered its profit guidance. Walmart shares were off 7% on Wednesday.