Target Stock Plummets On Guidance; Kohl’s Spikes On Takeover

Target stock tanked Tuesday morning, triggering a broader landslide among retail stocks, after the retail giant downgraded its second-quarter guidance. Target (TGT) is the most recent large company announcing plans to shore-up operations in the face of worrisome economic conditions.

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The Minneapolis-based company slashed its Q2 operating margin forecast to 2%, down from 5.3%. After the announcement, Target stock dropped 2.87% to 155.08 Tuesday morning. The news also left retail stocks reeling, with Walmart (WMT) down 2.4%. Best Buy (BBY) fell 3.57% and Costco (COST) dropped 1%.

The company announced Tuesday that it is planning “pricing actions,” i.e. price increases, to address “unusually high transportation and fuel costs.” It also plans to cull excess inventory and cancel orders before the end of the second quarter.

Meanwhile, Menomonee Falls, Wis.-based Kohl’s (KSS) spiked 10.28%, after announcing a deal to be acquired by Franchise Group (FRG) at 60 a share.

KSS has entered exclusive talks with Franchise Group. That exclusivity period will last three weeks, but the deal has not been guaranteed, according to the Wall Street Journal.

Kohl’s stock has fallen about 15% this year, as it has attempted to recover from low sales during the coronavirus pandemic.

Target Stock Trading At two-Year Low

While Target cut its Q2 guidance, it reaffirmed that it expects a full fiscal year operating margin rate in a range of 6%. It also continues to expect low to mid-single digit revenue growth.

The decisions come after it missed earnings estimates, guided lower on profit and reported large stockpiles of unsold goods in the first quarter, as more customers struggled to keep up with rising grocery costs. The results sent Target stock to its lowest level since September 2020.

“The additional steps we are announcing today will ensure that we deliver for our guests while driving further growth,” CEO Brian Cornell said in a news release.

“While these decisions will result in additional costs in the second quarter, we’re confident this rapid response will pay off for our business and our shareholders over time, resulting in improved profitability in the second half of the year and beyond,” he added.

Growing Trend

Target’s guidance cut comes a week after Microsoft (MSFT) lowered its revenue and earnings forecasts for the current quarter. Tesla (TSLA) CEO Elon Musk also warned staff of possible job cuts in response to his “super bad feeling” about the economic outlook.

Microsoft believes that foreign exchange rates will reduce its per-share earnings and now expects revenue of $51.94 billion to $52.74 billion, compared with its previous outlook of $52.4 billion to $53.2 billion. Microsoft cut its per-share earnings range to $2.24 to $2.32, compared with its previous outlook of $2.28 to $2.35. The midpoint is now $2.28 vs. the prior target of $2.31 for the fiscal fourth quarter.

Musk said that 10% of the Tesla workforce might have to be trimmed, according to a report by Reuters last week. On Saturday, he seemed to backtrack tweeting that the company’s “total head count will increase, but salaried should be fairly flat.”

Please follow Kit Norton on Twitter @KitNorton for more coverage.

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