Why did Target stock drop? Thank high gas prices, inflation

Target stock shed nearly a quarter of its value in just one day, the biggest one-day decline since Black Monday.

This comes after the company reported much weaker than expected earnings last quarter. Target CEO Brian Cornell said inflation is largely to blame. 

"Overall costs have been rising much faster than retail prices," he said on Wednesday's pre-market earnings call. "While it's always the last lever we pull, external conditions led us to raise prices across a broad set of items in multiple categories."

Even though the annual inflation rate slowed slightly last month, Cornell doesn't expect consumers to stop feeling the pinch any time soon.

Target earnings

Target reported $2.19 earnings per share last quarter, nearly $1 below FactSet's consensus estimate. Profitability plunged by more than 50% compared to the same period last year.

However, revenue last quarter rose above expectations to $24.83 billion, a 4% increase from the prior quarter. 

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Target stock is having its worst day since 1987

Stimulus slowdown 

Target, like its competitors including Walmart, saw an uptick in TV and appliance sales during the pandemic when consumers received stimulus checks and enhanced unemployment benefits.

"While we anticipated a post-stimulus slowdown in these categories...we didn't anticipate the magnitude of that shift," Cornell said. "This led us to carry too much inventory, particularly in bulky categories including kitchen appliances, TV's and outdoor furniture."

Rising gas prices

Record-high gas prices are not only straining Americans' budgets but also big-box retailers'.

Cornell said freight costs will be $1 billion higher this year than Target expected as a result of fuel prices. 

Walmart also cited high fuel prices as a reason for the company's weaker than expected quarter.

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"Fuel ran over $160 million higher for the quarter in the US than we forecasted," Walmart's CEO Douglas McMillon said during Tuesday's earnings call. Shares of Walmart fell by nearly 17% after it reported earnings on Tuesday. Shares closed nearly 7% lower Wednesday.

Walmart executives also said that inflation is causing consumers to cut corners and focus primarily on buying necessities, namely food as opposed to clothing and electronics. 

Elisabeth Buchwald is a personal finance and markets correspondent for USA TODAY. You can follow her on Twitter @BuchElisabeth and sign up for our Daily Money newsletter here