The Reasons Behind Today’s Target Stock Crash

Target stock

Target (NYSE:TGT)

As of Tuesday at 1:53 p.m. Eastern Time, Target’s stock price fell 3.9% to a session low. The decline comes as the Target stock has struggled to recover after a dramatic dip earlier this year of thirty percent in only one week. This drop in price in May accounts for the entirety of the 31% drop in the Target stock price of the retailer year to date.

Then what?

Following the publication of an article in the Wall Street Journal stating that clothing retailer Gap will be cutting 500 corporate jobs, the market experienced a decline on Tuesday. This comes only a few short months after management at Target (NYSE:TGT) stated that supply chain inefficiencies had contributed to an inventory bulge, which the business would need to unwind by unwinding by decreasing prices. Gap and Target (NYSE:TGT) are not in the same position, but Target stock investors are questioning whether that retailer may also be facing issues on the cost side because Gap is taking steps to decrease its expenses.

What’s Next?

As Target (NYSE:TGT) strives to clean out its inventory situation, the company is already operating with incredibly narrow margins. A month ago, when the company published its earnings for the second quarter, it stated that product promotions were the cause of its operating margin rate dropping to just 1.2%. This is a significant drop from the previous quarter’s disappointing 5.3% and the previous year’s 9.8% over the same period.

Gap’s decision to reduce costs comes as the company struggles with falling sales and profits. According to the most recent quarterly report from Gap, the company’s sales at comparable stores were down 10% year over year. Also, management retracted their guidance for the year, citing an “uncertain macro-environment.” Even though Target’s (NYSE:TGT) sales for the second quarter increased by 2.6% compared to the same time in the prior year, investors are concerned whether the firm would follow its competitor’s lead and provide worse news on the cost front.

Featured Image – Megapixl © Terovesalainen

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About the author: I'm a financial journalist with more than 1.5 years of experience. I have worked for different financial companies and covered stocks listed on ASX, NYSE, NASDAQ, etc. I have a degree in marketing from Bahria University Islamabad Campus (BUIC), Pakistan.