Why $TGT Fell

Turnaround Essay

Target on Wednesday said its quarterly profit fell nearly 90% from a year ago, due to unwanted merchandise that didn’t have much sales demand. This caused them to miss Wall Street’s expectations by a wide margin, even after the company itself lowered guidance twice. However, the company reconfirmed its full-year forecast, saying it is now positioned for a rebound. All of this caused Target’s shares to drop by around 4%. In the second quarter, the company’s net income fell to $183 million from $1.82 billion, a year earlier. Total revenue rose to $26.04 billion from $25.16 billion a year ago, but it's mostly because of higher prices due to inflation. Quarterly profits decreased in many different ways. Sales of a lot of merchandise became less profitable as it got marked down. Freight, transportation, and shipping costs rose, as fuel prices increased. And the company had to add more employees and cover more compensation in distribution centers. Despite many revisions and downward estimates from Target, I still decided to long this company as every other retailer had beat the estimates and I thought them being open about what people should be expecting would become an advantage. From next time, if a company announces a downward revision estimate in their results I will try to stay away from them or look into shorting them even if every other company in that sector has beat the estimates. Another reason why they missed the revenue was due to the fact that they had many unnecessary items in their warehouse that buyers didn’t want. They had announced that they were getting rid of all the products customers had shifted away from and I thought that would set them on the right track however, the results weren’t there yet. From now on, I will also stay away from companies that say they are working on fixing a problem but it hasn’t been fixed yet.