Retailers including Walmart (WMT) - Get Target Corporation Report, Amazon (AMZN) - Get Amazon.com Inc. Report, and Costco (COST) - Get Costco Wholesale Corporation Report have all seen their share prices decrease.
Target''s stock is up nearly 40% year-to-date, with the majority of the decline occurring after the company reported its first-quarter earnings. In a press release, CEO Brian Cornell explained how his company performed.
"We remain in charge of our broad and affordable product base, as reflected in Q1 guest traffic growth of about 4%. Throughout the quarter, we encountered unexpectedly high costs, driven by a number of factors, resulting in profitability that was significantly below our expectations, and significantly below where we expect to operate during time."
The company has revised its expectations for 2022, lowering its operating margin rate from 8% when it reported Q4 results to an "operating income margin rate"
Given the uncertainty in the market, it''s a fairly modest move, but investors were disappointed.
Getty Images: BRYAN R. SMITH/AFP
Target''''s Forecast Is Similar to Its Rivals
The stock of Amazon has also decreased by about 37% year-to-date. This is not because the company has lost market share or is seeing its customer base move elsewhere, but because it''s honest in advising investors that it will not be as profitable as given current market conditions.
In Amazon''s first-quarter earnings release, CEO Andy Jassy said that the unique market conditions caused the company to incur higher expenses.
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Our Consumer business has increased by 2% year over year in 2020, with an increase of 39% year over year that required more time to build our fulfillment network over Amazons first 25 years. This year, our teams are squarely focused on increasing productivity and cost efficiencies throughout our fulfillment network. This may take a long time, especially as we grapple with ongoing inflationary and supply chain challenges. This is especially true as we assess ongoing delivery speed performance as previously forecasted.
It costs money to expand your customer base, your capacity, and those expenses were consolidated into a very short period. Amazon, it should be noted, has always been willing to make an accelerated investment in its future at the expense of short-term profits.
Doing that may result in uneven results, but allows the company to make more money down the line. Amazon''s CEOs, either Jassy or founder Jeff Bezos, have never managed for the quarter, rather, they make the right choice for long-term growth, and that''s actually positive for investors.
Walmart has also invested heavily in expanding its supply chain in recent years, although it hasn''t quite as aggressively as Amazon. Costco has not had to do that as it can further expand its supply chain more because its business has largely been driven by members visiting its warehouses.
Costco has boosted its membership base, but has improved on its already outstanding member retention rate.
Long-Term Winners for Amazon, Walmart, Target, and Costco
All retailers will be affected by rising labor costs, increased shipping costs, and other inflationary concerns. Ask yourself which companies will be most effective in alleviating these issues, whether it be supermarket chains or retailers smaller than Walmart, Costco, Target, and Amazon, or the biggest firms who have invested most-heavy in managing costs and refining their supply chains?
People will eat at stores that offer the best prices even in a recession. Target, Walmart, Amazon, and Costco have done everything they need to do to ensure that prices are competitive regardless of what the market conditions.
At the moment, all four have chosen to absorb some of the higher costs rather than passing them on to their customers. That''s an investment in their customers'' satisfaction and increasing market share. These businesses do not reflect their weakness in this years, but they do not believe in their future prospects.
