Target tanks 25% on Q1 results: here’s what the CEO has to say

Target Corporation (NYSE: TGT) opened 25% down on Wednesday after the big box retailer said higher cost of sales weighed on its Q1 profit that came in well below the Street expectations.

What Target Q1 earnings report tells us

• Net income printed at $1.01 billion versus the year-ago figure of $2.10 billion.
• Per-share earnings of $2.16 were sharply below $4.17 in Q1 of previous year.
• On an adjusted basis, EPS stood at $2.19 in the recent financial quarter.
• Sales jumped 4.0% YoY to $25.17 billion, as per the earnings press release.
• FactSet consensus was for $3.07 of EPS on $24.48 billion in revenue.
• Same-store sales growth of 3.3% was better than a 0.9% increase expected.

Cost increase and future outlook

At $18.46 billion, cost of sales went up 10.4% and contracted gross margin from 30.9% to 26.7% in the first quarter. The stock is now down roughly 35% from its year-to-date high in April.

For the full financial year, Target reiterated its guidance for up to 5.0% growth in revenue. It expects operating income margin to stand at around 6.0% in 2022.

Highlights from CEO Cornell’s interview on CNBC

According to CEO Brian Cornell, Target noted a bit of weakness in some of the discretionary categories in the first quarter. Discussing incremental costs, he said on CNBC’s “Squawk Box”:

From freight and transportation standpoint, things have changed significantly from even 13 weeks ago. All-time record fuel and diesel costs will cost us about a billion dollar in incremental costs this fiscal year.

A change in category mix and supply complications were some of the other reasons that weighed on operating income. Target is passing only some of the costs as it’s laser-focused on providing value to the consumer amidst the inflationary environment, the chief executive added.