Daily Brief: Target’s Earnings Get The Retailer In The Festive Spirit Much Earlier Than Socially Acceptable

Daily Brief: Target’s Earnings Get The Retailer In The Festive Spirit Much Earlier Than Socially Acceptable

over 2 years ago3 mins

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Target reported better-than-expected quarterly earnings on Wednesday, as Christmas quite literally comes early for the big-box US retailer.

What does this mean?

Shortages and delays are bound to Scrooge things up over the holidays, so Americans have been doing their utmost to get ahead of them. And Target’s been happy to help: sales in the company’s existing stores climbed by a better-than-expected 10% last quarter versus the same time a year ago. Throw in online sales that came in 29% higher, and Target saw its overall revenue jump by a better-than-expected 13%. The company upped its revenue forecast for this quarter too. It’s expecting such a strong holiday season, in fact, that it’s already stocking up on products, hiring seasonal workers, and expanding its supply chains.

Target gains

Why should I care?

For markets: Die a hero or become the villain.

Target, like most retailers, is contending with the rising costs of practically everything, from the goods it sells to the hundreds of thousands of people it employs. But it’s made the noble choice of absorbing some of those higher costs itself, rather than passing them on to customers and risk losing them to rivals. That drove the firm’s profit margin down last quarter, and it’s got investors worried it’ll drop even further – a possibility that led them to send its shares down 5%.

Target stock
Source: Google Finance

The bigger picture: America is ramshackle.

Lowe’s posted strong quarterly results of its own on Wednesday, with the DIY retailer announcing that revenue from existing stores was 2.2% higher than the same time last year. That’s especially encouraging given that the home improvement market was in full swing back then. The ongoing momentum might be because homebuyers are still taking advantage of cheap mortgages to buy new places, sure, but it could also be because – as Lowe’s CEO points out – roughly 45% of US homes are now 40 years or older, meaning there are plenty of fixer-uppers out there.

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UK Inflation Hit A 10-Year High

UK image

Data out on Wednesday showed UK inflation hit its highest in nearly a decade last month, meaning the country’s central bank might only have one play left to make.

What does this mean?

The prices Brits were paying in October climbed by a higher-than-expected 4.2% compared to the year before – up from September’s 3.1%. High energy bills were a big contributor, with the cost of gas and electricity rising by nearly a quarter in the same period. But even the “core” inflation measure – which excludes energy and food costs – jumped from 2.9% to 3.4%, suggesting traditionally volatile expenses aren’t the only ones to blame.

UK inflation

Things aren’t slowing down either: Wednesday’s data also showed that the costs manufacturers are paying for materials rose at their fastest in at least 10 years, which could encourage companies to charge customers even more. The Bank of England (BoE) certainly seems to think so: it said earlier this month that it’s expecting inflation to hit 5% by April next year.

Why should I care?

For markets: Sterling performance.

Wednesday’s 4.2% inflation is a far cry from the BoE’s 2% target, which has got investors betting that the central bank will finally raise interest rates next month. That’d make the British pound more appealing to international savers and investors, and so will this: the European Central Bank (ECB) recently said it’s unlikely to hike its own rates even in 2022. That might be why sterling hit its highest level relative to the euro since early 2020 on Wednesday.

Pound sterling vs. euro | Source: ECB
Pound sterling vs. euro | Source: ECB

The bigger picture: Easy does it.

Europe’s low interest rates mean low returns from the region’s government bonds, which has pushed investors to look for gains in riskier markets – think expensive real estate, junk bonds, crypto. But the ECB had a warning for investors on Wednesday: the central bank said those markets could be susceptible to big drops when interest rates do eventually rise.



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