Why Target Shares Tumbled Today

What happened

Shares of Target (NYSE: TGT) were down 3.9% to session lows as of 1:53 p.m. ET Tuesday. The drop comes as the stock has struggled to recover from a sharp 30% drop in just a week earlier this year. That decline in May represents almost all of the retailer's 31% stock price slide year to date.

So what

Tuesday's slump came in the wake of a Wall Street Journal article reporting that apparel retailer Gap is eliminating 500 corporate jobs. That comes just months after Target management said that supply chain issues had contributed to an inventory bloat that the company would have to unwind by reducing prices. Gap and Target aren't in the same position, but with Gap taking action to reduce its expenses, Target investors are wondering if that retailer might be facing challenges on the cost side as well.

Now what

Target is already operating with razor-thin margins as it works to clear up its inventory situation. When the company reported its second-quarter earnings a month ago, it said product promotions caused its operating margin rate to drop to just 1.2%. That compares to an already-disappointing 5.3% in the prior quarter and 9.8% in the year-ago period.

Gap's cost-cutting move comes as it endures dropping sales and profits. In its last quarterly report, Gap said comparable-store sales declined 10% year over year. Management also withdrew its full-year guidance, citing an "uncertain macro-environment." Target's second-quarter sales grew by 2.6% compared to the prior year period, but investors are wondering if the company might follow its fellow retailer and deliver worse news on the cost front.

10 stocks we like better than Target
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Target wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of August 17, 2022

Howard Smith has positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


More Related Articles

Info icon

This data feed is not available at this time.

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.