Target Corp's first-quarter profit halved and it warned of a bigger margin hit on Wednesday due to rising fuel and freight costs, in a clear sign that deep-pocketed U.S. retailers are no longer immune to surging inflation.
The bleak results come a day after larger rival Walmart Inc. cut its annual profit view, even though both retailers clocked better-than-expected quarterly sales.
"We were less profitable than we expected to be or intend to be over time," Target Chief Executive Brian Cornell said.
"These (costs) continue to grow almost on a daily basis and there is no sign right now...that it is going to abate over time."
Target said rising fuel and freight expenses will add nearly $1 billion more than originally expected in annual cost. Its quarterly gross margin dipped to 25.7% from 30%.
Many companies have dealt with inflation by raising product prices, but the Minneapolis-based retailer has so far looked to undercut peers by doing that only for some products.
"(Pricing) continues to be the last lever we pull," finance chief Michael Fiddelke said. "While we don't like the impact to our profitability in the short term, we know it is the right thing to do."
Keeping a large section of its products affordable have helped Target's comparable sales grow 3.3% in the three months ended April 30, above expectations of an about 0.5% increase, according to Refinitiv data.
The company maintained its full-year sales forecast, but predicted that operating margin will grow at a slower pace of around 6% compared to a prior forecast of 8% or higher.
Target's total revenue rose by a better-than-expected 4% to $25.17 billion in the quarter. Net profit fell about 52% to $1.01 billion. Excluding items, the retailer earned $2.19 per share.
(Reporting by Aishwarya Venugopal in Bengaluru; Editing by Arun Koyyur)