Target earnings miss as supply chain inflation bites

The scary arm of inflation has found its way to the financials of consistently top performing Target.

Target reported a wide first quarter earnings miss on Wednesday as cost increases in areas such as freight and inventory surged, not unlike what rival Walmart shared on Tuesday. The profit shortfall marked the first miss for Target versus analyst estimates since the third quarter of 2018, according to Bloomberg data.

"We never expected the kind of cost increases in freight and transportation that we're seeing right now," Target chairman and CEO Brian Cornell told Yahoo Finance.

Target stock plunged on the news.

Target estimates it may see an additional $1 billion in freight and transportation costs this year tied to near record high fuel and diesel prices.

Also similar to Walmart, Target slashed its full year operating profit outlook after the challenging start to the year. The company expects its full year operating margin will be in a range around 6%. Previously, Target was looking for an operating margin of 8% or higher.

Here's how Target performed compared to Wall Street estimates:

• Net Sales: $25.17 billion vs. $24.47 billion

• Comparable Sales: +3.3% vs. +1.17%

• Gross Margin: 25.7% vs. 29%

• Operating Margin: 5.3% vs. 8.13%

• Diluted EPS: $2.19 vs. $3.07

On a more positive note, Target's first quarter comparable sales rose 3.3% on the back of a 3.9% increase in customer traffic. Online comparable sales gained 3.2%.

The company reiterated that it continues to expect low-to-mid single digit percentage sales growth.

This post was updated with Target price action.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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