(Reuters) – Target Corp (NYSE: ) reported a halving of its first quarter profit and warned that it would take a larger margin on Wednesday because of rising fuel costs and freight prices. This is a sign that the deep-pocketed U.S. retail sector are not immune from surging inflation.

These grim results follow a cut by Walmart (NYSE) Inc’s annual profit outlook, despite both retailers posting better quarterly sales than expected.

Target’s stock fell by 12% in premarket trade to $190.27. Walmart stock closed down 11.4% on Tuesday, its worst day since 1987.

Brian Cornell, Target’s Chief Executive Officer stated that “We were less profitable than we anticipated to be” or intended to become over the long-term.

These (costs), continue to rise almost daily and there are no signs right now…that they will decrease over time.”

Target estimates that rising freight and fuel costs will increase annual cost by nearly $1Billion. Target’s quarterly gross margin fell to 25% from 30%, compared with its previous 30.

Although many businesses have tried to combat inflation through raising prices on their products, this Minneapolis-based retailer chose not to do that and instead opted for a lower price by only selling certain items.

Michael Fiddelke (finance chief) stated, “Pricing continues to be the final lever we pull.” While we are not happy with the immediate impact on our profitability, it’s the right thing to take.”

Target managed to make a substantial portion of its products more affordable, which has helped comparable sales increase 3.3% during the three-month period ending April 30. That is above Refinitiv’s expectations of about 0.5% growth.

Although the company retained its full-year sales outlook, it predicted that the operating margin would grow slower at around 6% than in the prior forecast (which was 8%).

Target’s quarter-end total revenue increased by more than expected, rising to $25.17 trillion. The net profit dropped 52% to $1.01 million. Retailer earned $2.19 a share, exempting other items