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Target’s Shares Plunge After Inflation Eats Into Profits

Target’s shares dropped nearly 25 percent on Wednesday after it reported quarterly profits that fell far short of analysts’ expectations, hit by inflation, supply issues and changing consumer habits.

The retailer reported a profit of $1 billion in the three months through April, roughly half of what it generated in the same period a year earlier. The company’s revenue, however, increased by 4 percent in the quarter, to $24.8 billion. Target said it expected sales to continue growing at a similar rate this year but lowered its forecast for profitability, spooking investors.

“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 chief executive, said in a statement. Later, on a call with analysts, he cited higher transportation costs and “a more dramatic change in our sales mix than we anticipated” as factors that hurt profits and put an “additional strain on our already-stressed supply chain.”

As consumers shifted their spending, in part because of the end of pandemic stimulus payments, Target was saddled with an oversupply of items like kitchen appliances, televisions and outdoor furniture, Mr. Cornell said. Shoppers have switched their focus to “going-out categories,” he said, like fashionable clothes and travel-related items.

Target seemed to encounter many of the same problems as Walmart, which on Tuesday reported that its latest quarterly profits fell 25 percent, pointing to higher prices for fuel and labor, among other things, as a drag on profits. Walmart also missed Wall Street’s expectations for the first time in many years, and saw its share price fall by the most in a day since the 1980s. Its stock continued to fall on Wednesday, down 6.8 percent.

Stocks turned sharply lower on Wednesday, with the S&P 500 falling 4 percent, as the reports from the giant retailers suggested that major companies were still facing supply strains and struggling to deal with inflation, which is running at its fastest pace in 40 years. Though some companies have managed to pass on rising costs to consumers, bolstering their profits, others are finding it more difficult to pull this off as time goes on and consumers grow weary of rising prices.

The economy will not return to “anything close to normal in the back half of the year,” said Michael Fiddelke, Target’s chief financial officer. “In particular, we don’t expect to see any meaningful reduction in global supply chain pressures until 2023 at the earliest,” he said.

“There is a lot of uncertainty moving forward,” Doug McMillon, Walmart’s chief executive, told analysts on Tuesday. “Things are very fluid.”

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