Wall Street Washout, Target Leads Market Lower

If investors were on the retail fence — even a little — they’re off of it now. 

Target Corp. seemed to confirm fears of the worst on Wall Street with high costs, a profit miss and excess inventory snowballing into a 24.9 percent stock drop to $161.61 on Wednesday. 

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The decline not only cut the discounter’s market capitalization by $24.8 billion to $74.7 billion, but reinforced worries that rival Walmart Inc. stoked on Tuesday with signs of weakness in the face of inflation not seen since the early 1980s.

That one-two punch from the pandemic’s “essential retailers,” which have gone from strength to strength since the first COVID-19 lockdowns, proved to be just too much to bear (except for off-price giant TJX Cos. Inc., one of the few to run countertrend).

While retail often follows the broader flow of the market, it was retail leading the way down this time. 

The Dow Jones Industrial Average dropped 3.6 percent, or 1,164.52 points, on Wednesday to 31,490.07.

Even though consumers higher up the price scale are seen as more resistant to the price increases sweeping through the economy and hitting fuel and food particularly hard, retail and fashion took a beating nearly across the board. 

Kohl’s Corp., Ulta Beauty Inc., Lululemon Athletica Inc., Macy’s Inc., Urban Outfitters Inc. and Abercrombie & Fitch Co. all logged declines of more than 10 percent. 

Some investors found an old port in the retail storm in TJ Maxx parent TJX, which was a perennial winner before the pandemic but then suffered with its brick and mortar heavy approach. 

As Target warned about the outlook, TJX showed more signs of strength. The retailer’s first-quarter sales rose 13 percent to $11.4 billion while net income rose 10 percent to $587.5 million.

Ernie Herrman, TJX’s chief executive officer and president, told analysts on a conference call: “We are confident that the combination of our value proposition, our treasure hunt shopping experience and flexibility will continue to be a winning retail formula. We are convinced that the consumers’ desire for exciting brands and fashions at great values is not going away. Additionally, in today’s highly inflationary environment, we believe our value proposition is as appealing as ever. We serve a wide customer demographic and offer a range of merchandise categories and brands across good, better and best, which we see as a major advantage.…In a landscape where we are planning to grow our sales and open new stores, while many other retailers are closing stores, we offer vendors a very attractive solution to clear their excess product.”

So far fashion retailers seem to be holding fast to their newfound devotion to full-price sales — which Herrman said is playing to TJX’s strength. 

“We’re fashion-driven,” he said. “So when you look at our fashion- and brand-driven [business], the retailers that carry the like product and categories, if anything, we continue to watch their prices go up and promotions be decreased, which continues to favor our selective pricing retail strategy as we look out here, I think, for a number of years.”

Retail’s success at pushing full-price sales and boosting margins played a big role in attracting investors to the category last year. 

Just how successfully brands are holding the line will become clearer as more companies report results, including Canada Goose Holdings and VF Corp. on Thursday. Kohl’s Corp., which has been weighing takeover officers, will also weigh in with its latest results.

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