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Why Target Stock Fell More than 15% in November

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Margin woes, more competition 

Target (TGT) shares fell more than 15% in November following the company’s third-quarter results, which reflected continued pressure on the margins. Target announced its third-quarter results on November 20. The company’s top line continued to grow at a healthy rate. The company had healthy comps and beat analysts’ expectation. However, Target’s earnings didn’t meet analysts’ estimate. Margin headwinds and increased competition remained a drag.

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Retailers including Target, Costco (COST), and Walmart (WMT) are investing in pricing to drive traffic and remain afloat amid the competitive environment. Their expanded digital offerings have accelerated the top-line growth rate. However, margins are being impacted by increased digital fulfillment charges associated with rising e-commerce sales.

Target’s third-quarter margins were impacted by higher fulfillment costs and an investment in price, which impacted the bottom-line growth rate. Target’s margins are expected to remain weak in the coming quarters. Target’s fourth-quarter margins are expected to decline, which reflects increased digital fulfillment costs due to increased e-commerce sales during the holiday season. Investments in pricing and promotions could remain a drag.

Stock performance

Target stock fell ~15.2% in November. Meanwhile, Walmart stock decreased 2.6% during the same period. In contrast, Costco’s share price increased 1.2% in November due to its continued momentum in comps.

On a YTD (year-to-date) basis, Target stock has risen 8.8%, while Costco stock has risen 24.3%. Walmart shares have declined 1.1% on a YTD basis as of November 30.

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