Retail stocks are getting battered today in response to “problematic” earnings reports released by Target (NYSE: ) Today and Walmart (NYSE 🙂 Yesterday

Both firms reported higher costs and greater inventories, which dragged down profits and margins. Analysts and reports indicate that low-end consumers are under severe pressure.

Target shares were further hit by commentary on the earnings call with the company’s COO calling for $1 billion in incremental freight costs this year.

Truist analyst Scot Ciccarelli downgraded TGT stock to Hold to reflect “materially” lower margins while “mix/markdown issues now seem likely to linger.”

Target’s outlook cut is so dramatic that Walmart’s guide down “looks more tame in comparison,” writes Morgan Stanley’s Simeon Gutman.

“While TGT’s results aren’t ‘good’ for WMT, they do answer the question of whether WMT’s challenges in Q1 were idiosyncratic or representative of broader operational headwinds in retail; clearly it’s the latter,” Gutman told clients in a note.

For Evercore ISI analyst Greg Melich the main risk “has been the sustainability of margins of 8% or higher as the US retail environment normalizes in a post Covid world.”

The retail sector in general is facing significant pressure, given the theme of the earnings season’s retail reports.

Williams-Sonoma stock (NYSE:) is currently down 9.3% Best Buy (NYSE:) 8.4%, Costco (NASDAQ:) 8.8%, Dollar General (NYSE:) 12%, Dick’s (NYSE:) 11.8%, Bed Bath & Beyond (NASDAQ:) 6%, with Kroger (NYSE:) shares down 4.1%.

Moreover, Kohl’s (NYSE:) shares are trading 8.3% lower, Macy’s Inc (NYSE:) 8.1%, Five Below (NASDAQ:) 9.1%, Nordstrom (NYSE:) 6.7%, Tractor Supply (NASDAQ:) 9.8%, while Dollar Tree (NASDAQ:) shares are down as much as 16%.

TJX (NYSE 🙂 rose 10% today because investors are recognizing the company’s superior margin performance in comparison with Target and Walmart.

TJX increased its adjusted pretax margin outlook to the entire year, from 9.6% – 9.8%. Gross profit margin was 27.9% for the first quarter. It is above the estimate of 27.5%.

“While [TJX] sales came in a bit light of expectations to start the year, TJX more than offset the shortfall with stronger margin performance, which we see as an encouraging sign given the challenging global operational environment,” Telsey analyst Dana Telsey said in a client note.

“Overall, we view this morning’s release as evidence of the company’s ability to successfully navigate through a challenging environment, utilizing its flexible retail pricing strategy to offset macro pressures to continue to deliver strong profitability.”

By Senad Karaahmetovic