Target’s terrible earnings drive down Costco, Dollar Tree, discount store stocks

May 18, 2022 12:10 PM ETTarget Corporation (TGT), COST, DG, DLTRWMT, BJ, FIVE, BIG, OLLI, PSMT, TJX, ROST, BURLBy: Kevin P. Curran, SA News Editor36 Comments

Costco Announces Raising Minimum Wage to $16 An Hour

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Target’s (NYSE:TGT -25.3%) stunning earnings report is provoking steep slides across discount retailers.

Target (TGT) reported a big miss on the bottom line, blaming increased costs related to freight, supply chain disruptions, and increased compensation and headcount in distribution centers.

"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," Target CEO Brian Cornell admitted.

The margin erosion and commentary on macroeconomic pressure only added to anxiety provoked by Walmart’s (WMT -7.4%) negative quarterly report a day prior. Given each company’s typically strong execution, discount retail peers reeled in anticipation of only greater pressure on margins across the space.

Costco Wholesale Corporation (NASDAQ:COST -12.0%), Dollar General (NYSE:DG -12.0%), Dollar Tree (NASDAQ:DLTR -17.2%), BJs Wholesale Club Holdings (BJ -16.7%), Five Below (FIVE -11.0%), and Big Lots (BIG -14.6%) all marked double-digit declines at the halfway point of Wednesday’s trading day. Meanwhile, Ollie’s Bargain Outlet (OLLI -4.3%) and PriceSmart (PSMT -4.1%) slid by notable, albeit comparatively minor, margins.

Among S&P stocks, discount retailers were noted as the top four decliners at mid-day (TGT, DLTR, DG, and COST in that order). Those declines have also spread to department stores that are making similar moves to the downside.

The few stocks receiving a reprieve were the immediate peers of TJX Companies (TJX +8.6%). In stark contrast to Target (TGT), the market appreciated the company’s earnings report and profit protection initiatives. Ross Stores (ROST +1.1%) and Burlington Stores (BURL +4.5%) being among the few gainers. In fact, TJX was the top gainer in the S&P on Wednesday.

Read more on the ETF impact of Target’s warning on margin pressures ahead.

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