Target (TGT) is sharply lower today after reporting disappointing first-quarter results. Wall Street expected earnings of $3.07 per share, so the $2.19 we got was a clear miss. Management blamed a $1 billion increase in freight costs that will eat up almost $2 per share after taxes this year. While sales are up 3% (ahead of a lot of expectations), the mix just isn’t favorable enough to compensate for inflation. Instead, we’re seeing lower sales of higher-margin appliances and furniture, along with markdowns on excess inventories.

Beyond the initial shock, there are good reasons to think TGT will come back. The stores continue to attract new customers, with traffic up 3% in the quarter. Management also believes that costs will begin to moderate to the point where operating margins for the whole year will edge back up to 6% from  5.4% in the recent quarter. Furthermore, the company is maintaining its goal of 8% or better operating margins for the long term. All in all, I suspect that TGT can earn $10.50 per share this year and $12.50 in 2023. That’s still a decline, but with margins now at sustainable levels the stock looks attractive at this reduced price.