The stock market has had a great rally over the past month, but some market participants now seem to fear new signs of frothiness. Once given up for dead, meme stocks have recently rallied to show that retail investors remain confident in their ability to influence their favorite companies, and Wall Street institutions haven't found any way to lessen the resulting volatility in share prices. Shortly before 9 a.m. ET, futures on the Dow Jones Industrial Average (^DJI -0.12%) were down 208 points to 33,910. Futures on the S&P 500 (^GSPC -0.58%) had fallen 35 points to 4,273, and Nasdaq Composite (^IXIC -1.15%) futures had given up 118 points to 13,540.
Part of the reason for the negative sentiment on Wednesday morning was that major consumer-facing companies have revealed ongoing challenges. Target (TGT 0.70%) and its high-profile department store operations once again disappointed shareholders, while doughnut specialist Krispy Kreme (DNUT -2.06%) saw its stock suffer an even bigger drop. Below, you'll find the details on both companies and what their latest reports mean for the broader economy.
Target misses again
Shares of Target fell 2% in premarket trading Wednesday morning, giving up a portion of their gains from Tuesday. The department store giant saw continued pressure on its financial results as consumer trends change and inflationary pressures persist.
Target's numbers showed slowing growth and a massive hit to the bottom line. Revenue rose just 3.3% to $25.7 billion, with comparable-store sales growth slowing to 1.3%. Digital sales gains of 9% helped to buoy Target's numbers, but falling gross margins weighed heavily on profitability. Adjusted earnings of $0.39 per share were down 89% year over year (YOY) as Target's inventory reduction efforts continued to hurt its profits.
On the positive side, though, Target didn't find it necessary to revise its guidance downward for the full year. The company still believes that it will see full-year revenue growth in low-to-mid-single-digit percentages, with some improvement in operating margins in the second half of 2022.
Retailers are seeing a lot of pressure from consumers who are struggling in the face of inflation. With discretionary income down, that leaves shoppers with less money to spend at Target and similar stores even as the back-to-school season is upon us. A lot will depend on how the holidays go later this year, and Target needs to do well even as less money in consumers' wallets has an impact on the broader economy.
Krispy Kreme gets soggy
Shares of Krispy Kreme were down more sharply, falling 7% in premarket trading. The doughnut maker showed even more bottom-line weakness, even as consumers still seemed willing to spend at the restaurant chain.
Krispy Kreme's numbers for the second quarter were mixed. Revenue rose 7.5% to $375 million, with organic sales gains approaching 9% YOY. Krispy Kreme's efforts to enhance its distribution through its stores and its fresh delivery service showed on its top line, as sales per hub grew more than 22% from the year-ago period.
However, earnings didn't follow suit. Krispy Kreme posted a net loss for the period, and even after adjustments for extraordinary items, adjusted earnings of $0.08 per share were down almost 40% from year-ago levels. Krispy Kreme cited a higher post-IPO share count as one cause of the decline.
Looking ahead, though, Krispy Kreme is optimistic that its business model will succeed. With expansion in areas like Australia and Mexico and smart moves to promote sales, Krispy Kreme believes it's in a good position to keep growing in the years to come.
