Shares in several U.S. retailers slid on Wednesday after Target Corp warned of a gloomy outlook for the crucial holiday quarter with surging inflation hitting sales and as it announced plans to save up to $3 billion in cost cuts to shore up profits.
Target shares tumbled 15% after the open and are now down by about a third so far this year, while Macy’s Inc and Best Buy dropped more than 6% in early trade. Dollar Tree slid 2%, while the retail index slipped more than 2%.
But shares in Target’s larger competitor Walmart edged up 1.1%, a day after lifting its annual sales and profit forecast as demand for groceries held up despite higher prices.
“After so many emergency rate hikes it’s now affecting the consumer a little bit and I think it’s evidenced in Target today,” said Thomas Hayes, managing member at Great Hill Capital LLC in New York.
Target, which said third-quarter profit halved, warned of “dramatic changes” in consumer behavior that was hurting demand for everything from toys to home furnishings.
Target’s update echoed its quarterly report in August when it posted a bigger-than-expected 90% fall in earnings.
With annual inflation running at 7.7% in October and high interest rates, shoppers are reining in discretionary spending, bad news for retailers that rely on year-end shopping to boost annual sales.
U.S. Commerce Department data showed U.S. retail sales improved more than expected after no growth in September.
“There was an expectation already that retailers are going to have a tough holiday quarter. I do think that overall the sentiment will be overshadowed by hopes of less aggressive Federal Reserve and inflation,” said Fiona Cincotta, market analyst at City Index in London.
Bucking the retail trend, home improvement chain Lowe’s Cos Inc added more than 4% after raising its annual profit forecast, while discount store operator TJX Cos Inc bumped up annual same-store sales forecast, rising almost 1%.
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