On "Black Monday" -- October 19, 1987 -- shares of retail giant Target (TGT -0.71%) suffered their steepest one-day decline ever, falling 32.8% in a single day . So at least "Black Wednesday 2022" wasn't quite that bad for Target.
It was, however, more than bad enough. After reporting its fiscal Q1 2023 earnings Wednesday, Target shares tumbled 26% in just the first 15 minutes of trading -- just one day after a smaller earnings miss sent its much larger rival, Walmart (WMT 1.02%), spinning into a near-12% loss.
Expected to report a $3.06 per share profit, Target reported just $2.19 per share, pro forma, on Wednesday. Target did "beat" on sales, reporting $25.2 billion in revenue.
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Target vs. Walmart
To this extent, Target's huge decline in share price today tracks Walmart's huge decline yesterday. And there were other similarities between America's two leading retailers.
Like Walmart, Target's sales both beat estimates and increased year over year, with same-store sales rising 3% and total sales up 4%. Like Walmart, Target's growth in sales did not translate into growth in profits -- far from it. Target's profits actually got cut in half, falling 48% year over year to just $2.16 per share -- twice the decline at Walmart.
But the differences between Walmart's results yesterday, and Target's today, are perhaps even more striking. Consider: Arguably the biggest surprise from Walmart's results yesterday was Walmart's staggering decline in cash production. Walmart has just suffered its first negative free cash flow quarter in nearly a decade, and its first negative operating cash flow quarter in more than 25 years.
Target, too, reported negative operating cash flow today ($1.4 billion), swelling to $2.3 billion in negative free cash flow after factoring in expenditures for property and equipment. (The last time Target suffered negative operating cash flow was Q3 2004, according to data from S&P Global Market Intelligence, but Target encounters negative free cash flow more regularly than does Walmart -- the last time happening as recently as Q1 2019).
Walmart blamed its dip into red ink on its purchases of inventory -- at prices heightened by inflation -- presumably to stock up against supply chain snarls. Target, too, appears to have invested heavily in inventory in Q1, spending $1.2 billion filling up its warehouses. However, Target also advised that it incurred higher costs in the quarter to "to reduce excess inventory" (as well as spending more on freight and transportation), resulting in "gross margin pressure".
So Target's problem appears different from Walmart's. At the same time Target was stocking up on some goods to address supply chain concerns, it was discounting other goods -- because it had apparently bought stuff that wasn't selling.
That speaks to poor inventory management at Target -- or at least worse than at Walmart. And it explains pretty why Target stock is getting hit so much harder today, than Walmart stock got hit yesterday.
