From Target to Walmart, America’s largest retailers are eating inflation costs to stay ahead — and their bummer earnings reflect it

Clear aisles, full carts... can lose. Target stock plunged 27% yesterday in its worst day since Black Monday in 1987. Tarjay missed the profit bull’s-eye, taking home just $1.3B last quarter compared to $2.4B a year earlier. Despite high inflation, Target’s trying not to raise customer prices this year. Instead of charging you more for made-in-China floral dresses, it’s eating the extra costs.

• Strategy: Target wants to keep prices affordable in hopes of stealing market share from Walmart, Amazon, and other retailers.
• Problem: Transportation costs this year will be $1B higher than Target had forecast, which means it's spending more to get Keurig cups and shower caddies on shelves.
• Problem (cont.): Consumers are buying fewer high-margin goodies like bikes, flat screens, and air fryers, and more lower-margin basics like food.

#Flation starts hitting… the bottom line. Shrinking earnings have emerged as a theme for the US’s largest retailers. On Tuesday, Walmart reported that its quarterly profit shrank 25% from last year.

• Like Target, Walmart tries to undercut competitors on price to gain market share (especially with grocery staples).
• Unlike Target, Walmart execs suggested they’d have to raise prices after this “disappointment” of a quarter. Its stock is down 18% since earnings.
• Unlike both: Discount retailer TJ Maxx notched higher profits and fatter margins after raising prices for off-the-rack clothes. Shares popped 11% yesterday (#outlier).