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Business

OPEC+ Eyes Output Increase Ahead of Restrictions on Russian Oil

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Saudi Arabia and other OPEC oil producers are discussing an output increase, the group’s delegates said, a move that could help heal a rift with the Biden administration and keep energy flowing amid new attempts to blunt Russia’s oil industry over the Ukraine war.

A production increase of up to 500,000 barrels a day is now under discussion for OPEC+’s Dec. 4 meeting, delegates said. The move would come a day before the European Union is set to impose an embargo on Russian oil and the Group of Seven wealthy nations’ plans to launch a price cap on Russian crude sales, potentially taking Moscow’s petroleum supplies off the market. 

After The Wall Street Journal and other news organizations reported on the discussions Monday, Saudi energy minister Prince

Abdulaziz bin Salman

denied the reports and said a production cut was possible instead.

Any output increase would mark a partial reversal of a controversial decision last month to cut production by 2 million barrels a day at the most recent meeting of the Organization of the Petroleum Exporting Countries and their Russia-led allies, a group known collectively as OPEC+. 

The White House said the production cut undermined global efforts to blunt Russia’s war in Ukraine. It was also viewed as a political slap in the face to President Biden, coming before the congressional midterm elections at a time of high inflation. Saudi-U.S. relations have hit a low point over oil-production disagreements this year, though U.S. officials had said they were looking to the Dec. 4 OPEC+ meeting with some hope.

Talk of a production increase has emerged after the Biden administration told a federal court judge that Saudi Crown

Prince Mohammed

bin Salman should have sovereign immunity from a U.S. federal lawsuit related to the brutal killing of Saudi journalist Jamal Khashoggi. The immunity decision amounted to a concession to Prince Mohammed, bolstering his standing as the kingdom’s de facto ruler after the Biden administration tried for months to isolate him. 

It is an unusual time for OPEC+ to consider a production increase, with global oil prices falling more than 10% since the first week of November. Oil prices fell 5% after reports of the increase and then pared those losses after

Prince Abdulaziz

‘s comments. Brent crude traded at $86.25 on Monday afternoon, down more than 1%. 

Ostensibly, delegates said, a production increase would be in response to expectations that oil consumption will rise in the winter, as it normally does. Oil demand is expected to increase by 1.69 million barrels a day to 101.3 million barrels a day in the first quarter next year, compared with the average level in 2022. 

Saudi energy minister Abdulaziz bin Salman has said the kingdom would supply oil to ‘all who need it.’



Photo:

AHMED YOSRI/REUTERS

OPEC and its allies say they have been carefully studying the G-7 plans to impose a price cap on Russian oil, conceding privately that they see any such move by crude consumers to control the market as a threat. Russia has said it wouldn’t sell oil to any country participating in the price cap, potentially resulting in another effective production cut from Moscow—one of the world’s top three oil producers.

Prince Abdulaziz said last month that the kingdom would “supply oil to all who need it from us,” speaking in response to a question about looming Russian oil shortages. OPEC members have signaled to Western countries that they would step up if Russian output fell. 

Talk of a production increase sets up a potential fight between OPEC+’s two heavyweight producers, Saudi Arabia and Russia. The countries have an oil-production alliance that industry officials in both nations have described as a marriage of convenience, and they have clashed before. 

Saudi officials have been adamant that their decision to cut production last month wasn’t designed to support Russia’s war in Ukraine. Instead, they say, the cut was intended to get ahead of flagging demand for oil caused by a global economy showing signs of slowing down. 

Raising oil production ahead of the price cap and EU embargo could give the Saudis another argument that they are acting in their own interests, and not Russia’s. 

Another factor driving discussion around raising output: Two big OPEC members, Iraq and the United Arab Emirates, want to pump more oil, OPEC delegates said. Both countries are pushing the oil-producing group to allow them a higher daily-production ceiling, delegates said, a change that, if granted, could account for more oil production. 

Under OPEC’s complex quota system, the U.A.E. is obligated to hold its crude production to no more than 3.018 million barrels a day. State-owned Abu Dhabi National Oil Co., which produces most of the U.A.E.’s output, has an output capacity of 4.45 million barrels a day and plans to accelerate its goal of reaching 5 million barrels of daily capacity by 2025. Abu Dhabi has long pushed for a higher OPEC quota, only to be rebuffed by the Saudis, OPEC delegates have said.

Last year, the country was the lone holdout on a deal to boost crude output in OPEC+, saying it would agree only if allowed to boost its own production much more than other members. The public standoff inside OPEC was the first sign that the U.A.E. has adopted a new strategy: Sell as much crude as possible before demand dries up.

Earlier this month, Iraqi Prime Minister Mohammed Shia’ al-Sudani said that his country, which is the second-largest crude oil producer in OPEC, would discuss a new quota with other members at its next meeting.

A discussion of OPEC production quotas has been on hold for months. The idea faces opposition from some OPEC nations because many can’t meet their current targets and watching other countries run up their quotas could cause political problems domestically, delegates said. 

—Michael Amon contributed to this article.

Write to Summer Said at summer.said@wsj.com and Benoit Faucon at benoit.faucon@wsj.com

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Business

How Elon Musk’s Twitter Faces Mountain of Debt, Falling Revenue and Surging Costs

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To make the deal work, Mr. Musk has been trying to add subscription revenue and reassure advertisers about the platform’s future. Twitter was losing money before Mr. Musk bought the company, and the deal added a debt burden that requires fresh sources of cash.

It is tough to determine the state of the company. Twitter no longer has to file regular financial reports to the Securities and Exchange Commission, which are crucial tools for determining a company’s financial health.

Analysts and academics have been able to piece together a picture of the company from information Mr. Musk has offered as well as details of the deal and the company’s last regulatory filings. Bankruptcy could be one result. Mr. Musk, the world’s richest person, could also raise new funds, or buy back debt from lenders, giving Twitter a buffer to turn around its business. 

Here is a look at their assessments of Twitter’s financial situation and prospects. 

Twitter Finances, Pre-Musk

Twitter is and was a popular tool for politicians, celebrities and journalists. But as a business, it was stagnating. 

It hasn’t booked an annual profit since 2019, and posted a loss in eight years of the past decade. The company’s net loss narrowed in 2021, to $221.4 million from $1.14 billion the previous year.

Twitter has struggled to attract new users and increase revenue, which came in at about $5.1 billion last year. In its last quarterly filing as a public company, for the period ended June 30, revenue was $1.18 billion, down slightly year-over-year. 

Nearly 90% of its revenue last year came from advertising, and it traditionally has been the company’s main source of revenue. In 2021, Twitter took in $4.51 billion from advertisers, and $572 million from licensing data and other services.

The company had more than $2 billion in cash and less than $600 million in net debt before the takeover talks—very little debt for a company in the S&P 500 index. But that cash position was down 35% from a year earlier as of June 30, filings show, and Mr. Musk paid for Twitter by taking on $13 billion in debt. He paid for the rest in equity, some contributed by multiple investors. 

Twitter had a market capitalization of $37.48 billion in March, the month before Mr. Musk agreed to buy it, S&P data showed. Social-media stocks have slumped sharply since then. But now, according to

Jeffrey Davies,

a former credit analyst and founder of data provider Enersection LLC, “This thing’s probably not worth more than what the debt stack is, quite frankly, unless you put a lot of option value just on Elon.” Mr. Musk last month said he and investors were overpaying for the company in the short term. 

Revenue Under Musk

Mr. Musk said earlier this month that Twitter had suffered “a massive drop in revenue” and was losing $4 million a day. It isn’t clear if that reflects the broader downturn in the digital ad market or the pause in advertising by several companies since Mr. Musk bought the business. 

Some companies, including burrito chain

Chipotle Mexican Grill Inc.,

cereal maker

General Mills Inc.

and airline

United Airlines Holdings Inc.,

have paused their ad spending on Twitter over uncertainty around where the company is headed. The departure of several top executives from its ad department have soured relationships, The Wall Street Journal has reported.

The exodus of advertisers poses a threat for a company so reliant on that revenue stream. “As an online ad company, you’re flirting with disaster,” said

Aswath Damodaran,

a finance professor at New York University’s Stern School of Business. 

Elon Musk has purchased Twitter, ending a monthslong saga over whether or not he would go through with his offer to acquire the social media platform. WSJ takes an inside look at the tweets, texts and filings to see exactly how the battle played out. Illustration: Jordan Kranse

Deal negotiations for long-term contracts that usually begin at the end of the year haven’t taken place yet or have been put on hold. Those deals comprise more than 30% of Twitter’s U.S. ad revenue, The Wall Street Journal reported.

Revenue will likely remain under pressure until advertisers fully grasp the new business model, potentially leading many of them to return to the platform, said

Brent Thill,

a senior analyst at Jefferies Group LLC, a financial-services firm. “Those advertisers will come back if they feel that the users are there and there’s an ability to monetize their advertisement,” Mr. Thill said. 

But that could take time. Mr. Thill said it could take months for advertisers to get clarity. “It’s an enigma,” he said.  

Market-research firm Insider Intelligence Inc. recently cut its annual ad-revenue revenue outlook for Twitter by nearly 40% through 2024. 

Mr. Musk wants the company to lean more on subscriptions and depend less on digital advertising. He said last Tuesday that the company’s upgraded subscription service, costing $7.99 a month, would launch Nov. 29. 

A walkway at Twitter headquarters in San Francisco. The company has aggressively cut staff to reduce expenses.



Photo:

George nikitin/Shutterstock

Reducing Costs

The company has moved quickly to slash costs, including cutting its staff by half. Salaries and other compensation make up a large chunk of overall expenses. The company had 7,500 full-time employees at the end of 2021, up from 5,500 a year earlier, filings show.

The layoffs of roughly 3,700 people could save the company roughly $860 million a year, if the employees that are leaving made an average of about $233,000 annually—the company’s most recently disclosed median pay figure. The estimated savings would represent about 15% of Twitter’s $5.57 billion in costs and expenses last year. Its costs and expenses climbed 51% from the previous year, as hiring drove up its payroll.

More employees left the company last week, rejecting Mr. Musk’s demand that they commit to working “long hours at high intensity” to stay.

Debt Mountain 

Before Mr. Musk’s acquisition, net debt totaled $596.5 million as of June 30, according to S&P Global Market Intelligence, a data provider. That compares with a negative balance of $2.18 billion the prior-year period, indicating a cash surplus.

Twitter paid $23.3 million in interest expense in the quarter ended June 30, according to a filing. 

Now, the company will have to pay at least $9 billion in interest to banks and hedge funds over the next seven to eight years, when the $13 billion in debt matures, according to a review of Twitter’s loans by Mr. Davies, the former credit analyst.

The interest payments are substantial for a company that reported $6.3 billion in total operating cash flow over the past eight years, he said. 

What’s more, the company’s debt stack now includes floating-rate debt, meaning that interest costs are set to rise as the Federal Reserve continues to increase interest rates. Twitter’s debt was entirely fixed rate before the deal. 

Twitter’s credit ratings, which were below investment grade before the transaction with Mr. Musk, have deteriorated further.

Moody’s

Investors Service on Oct. 31 downgraded Twitter’s rating to B1 from Ba2, a two-notch drop, and S&P Global Ratings on Nov. 1 downgraded it to B- from BB+, a five-notch drop. 

If Twitter files for bankruptcy, Elon Musk’s $27 billion investment would likely be wiped out.



Photo:

Susan Walsh/Associated Press

Financial Prospects 

Twitter’s financial challenges could result in the company filing for bankruptcy, raising equity or buying back some debt from its lenders, analysts and academics said. 

If Twitter files for bankruptcy, as Mr. Musk warned was possible in an all-hands meeting earlier this month, his $27 billion investment would likely be wiped out because equity holders are the last to be paid when a company restructures.

Buying back debt from lenders at a steep discount would help the company reduce its debt load and interest costs as well as its valuation, which would be beneficial in the long run, Mr. Davies said. 

“I don’t think they can issue any more debt,” Mr. Davies said. “It’s a really, really tough structure.” 

The company could also replace some of the debt with equity, both from Mr. Musk and from outside investors, said

David Kass,

a finance professor at the University of Maryland’s

Robert H. Smith

School of Business. For that, Mr. Musk would need to persuade potential investors that he has a viable long-term business plan, he said. Replacing debt could enable the company to generate cash. Mr. Musk has said some of his latest

Tesla Inc.

stock sale, yielding almost $4 billion in cash, was because of Twitter. 

If successful, the company could generate positive free cash flow in two or three years, which it could use to pay down the residual debt and eventually go public again, Mr. Kass said. “The prospect of an eventual IPO within three to five years would be a very attractive enticement for large funds,” he said. 

—Theo Francis and Jennifer Williams-Alvarez contributed to this article.

Write to Mark Maurer at mark.maurer@wsj.com

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World

China’s Exports Drop Sharply as Global Economy Slows

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SINGAPORE—China’s exports to the rest of the world shrank unexpectedly in October, a sign that global trade is in sharp retreat as consumers and businesses cut back spending in response to central banks’ aggressive moves to tame inflation.

The slide in exports from the world’s factory floor adds to the gloom surrounding the global economy as leaders from the Group of 20 advanced and developing countries prepare to gather in Indonesia next week.

A buoyant U.S. labor market is showing signs of cooling as the Federal Reserve jacks up interest rates to tame high inflation. Many economists expect a recession in the U.S. within the next 12 months.

Europe is bracing for a difficult winter after Russia decided to throttle energy supplies in response to sanctions over the war in Ukraine. The European Central Bank raised interest rates by three-quarters of a percentage point for the second time in a row last month, but signaled mounting concerns about economic growth, prompting speculation among investors that it may soon dial back the pace of rate increases.

For China, the world’s second-largest economy, the sharp pullback in demand for its goods abroad removes a key prop for growth at a time when its economy is pressured by the government’s zero-tolerance approach to Covid-19 and a severe real-estate slump.

“It’s almost like it doesn’t have a leg to stand on,” said Steve Cochrane, chief economist for Asia Pacific at Moody’s Analytics in Singapore.

Chinese health officials said Saturday that China would stick to its tough Covid-prevention strategy, dashing hopes that had built up in recent days for an easing of strict pandemic measures following a closely watched Communist Party congress last month.

With growth slowing in the U.S., Europe and China, economists are downbeat about the global economy’s prospects this year and next. The International Monetary Fund warned last month that “the worst is yet to come,” saying it expects global gross domestic product to expand 3.2% this year, before slowing to 2.7% in 2023.

The China export slowdown “is a worrying sign for global growth,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics in London.

Exports from China declined 0.3% last month compared with a year earlier, China’s General Administration of Customs said Monday, the weakest pace of growth since May 2020, when trade was hobbled by countries’ early efforts to contain a worsening global pandemic. That was well below the expectations of economists polled by The Wall Street Journal, who had expected exports to increase 4% year over year.

Monday’s data showed exports to the U.S. fell 13% on the year in October, the third month of decline, while sales to the European Union fell 9%.

The data showed big falls in exports of products including home appliances and medical supplies, and weakening growth in exports of mobile phones and automobiles.

Other bellwether exporters in Asia, such as South Korea and Taiwan, have also reported faltering overseas sales, pointing to a broad slowdown in trade as the global economy loses momentum.

South Korea’s trade ministry said Nov. 1 that exports fell 5.7% in October compared with a year earlier, led by sinking exports of memory chips, petrochemicals and computers.

The cost of shipping containers full of goods around the world has fallen in recent months, as consumers retrench following a splurge on gadgets and home improvements while stuck at home during the depths of the pandemic. Prices for moving goods from Asia to the U.S. West Coast last week were 87% lower than the same time last year, according to data from online freight marketplace Freightos. Ocean carriers are canceling dozens of sailings on the world’s busiest routes during what is normally peak season.

The data showed weakening growth in Chinese exports of mobile phones and automobiles.



Photo:

Cfoto/Zuma Press

The decline in Chinese exports in October followed several months of slowing growth. Exports in September rose at an annual 5.7% rate, down from the double-digit pace Chinese exports posted around the middle of the year.

China’s imports from the rest of the world dropped 0.7% in October from a year earlier, underscoring weak domestic spending in China’s economy.

That was also weaker than the flat import performance expected by economists, which meant China’s trade surplus widened in October to $85.15 billion, from $84.7 billion in September.

Zichun Huang, an economist at Capital Economics, said in a note to clients Monday that he expects Chinese exports to fall further in the months ahead as the global economy slides closer to recession.

Weakening exports aren’t the only headwind facing the world’s second-largest economy.

Lockdowns have hurt economic activity throughout the year, and the threat of further measures to snuff out even the tiniest Covid-19 outbreaks means consumers are reluctant to spend and businesses hesitant to invest, compounding the drag from a deflating property bubble.

Economists say China is poised to fall well short of officials’ earlier goal of expanding 5.5% this year, and will likely record its worst 12 months for growth—aside from the first year of the pandemic—in decades.

Xiao Xiao in Beijing contributed to this article.

Write to Jason Douglas at jason.douglas@wsj.com

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Business

Elon Musk Says Twitter Has Had Massive Revenue Drop as Layoffs Begin

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Twitter Inc. has suffered “a massive drop in revenue” because of advertisers cutting back on using the social-media platform, new owner

Elon Musk

said Friday, as the company started sweeping layoffs just over a week after the billionaire took it over.

Mr. Musk, in a tweet Friday, blamed the cutback in advertising on “activist groups pressuring advertisers.” He said that the company hadn’t changed content moderation and had tried to address activists’ concerns. “Extremely messed up!” he said, casting the pullback as an assault on free speech.

Mr. Musk’s remarks came after several big-name advertisers, including food company

General Mills Inc.,

GIS -0.63%

Oreo maker

Mondelez International Inc.,

MDLZ 0.44%

and

Pfizer Inc.

PFE 0.74%

and others have temporarily paused their Twitter advertising in the wake of the takeover of the company by Mr. Musk, The Wall Street Journal has reported. German car-making giant

Volkswagen AG

said it had recommended to its various brands they pause advertising on Twitter to assess any revisions the company makes to its brand safety guidelines.

Mr. Musk’s tweet comes after Twitter, in a message sent to staff Thursday, said staffers would be notified by 9 a.m. Friday if they had lost their position or were still employed, the Journal reported.

Twitter by early Friday began notifying employees who had been laid off, according to documents viewed by the Journal.

Roughly 50% of Twitter’s workforce has been hit with layoffs, according to an email sent overnight to one of those affected in the U.S. that was viewed by the Journal. It didn’t specify what departments the terminated employees worked in.

Twitter had more than 7,500 employees at the start of this year, according to a regulatory filing.

The staff reductions were intended “to place Twitter on a healthy path,” according to the company’s Thursday email. “We recognize that this will impact a number of individuals who have made valuable contributions to Twitter, but this action is unfortunately necessary to ensure the company’s success moving forward,” the company added.

In the layoff emails, Twitter said employees assigned “nonworking” status would continue to receive compensation and benefits through a separation date, which for one person was designated as early February and for another early January. It said to expect to receive one month’s base pay in severance approximately 45 days after the termination date, in addition to providing instructions for returning company property such as laptops.

Twitter didn’t say whether employees should expect to receive year-end bonuses, which historically have been based on individual and company performance. The company also didn’t mention whether employees would receive equity payments during the nonworking period.

Some employees said they had lost access to Twitter communication tools overnight. An email sent to an employee in Canada and seen by the Journal said that suspended access to the company’s systems didn’t mean the person’s employment has been terminated.

The layoffs cap a tumultuous period for Twitter staff that began in April, when the company disclosed Mr. Musk had become its largest individual shareholder. Mr. Musk then agreed to join Twitter’s board, before deciding not to. He launched a bid for the company that Twitter eventually accepted. Weeks later Mr. Musk raised questions about the deal, then tried to abandon it, before reversing course again last month and saying he would go ahead with the transaction. Along the way, he at times criticized the company and its executives.

The Thursday email said Twitter’s offices would be temporarily closed to ensure the safety of employees, the company’s systems and customer data. Employees who were in an office or on their way to one were asked to go home, according to the email.

Twitter employees have been bracing for job cuts. The Journal previously reported that the company was drafting plans for broad layoffs, with one investor saying up to 50% of staff could be cut and that employees would be evaluated to determine the scope of the firings.

Elon Musk has purchased Twitter, ending a monthslong saga over whether or not he would go through with his offer to acquire the social media platform. WSJ takes an inside look at the tweets, texts and filings to see exactly how the battle played out. Illustration: Jordan Kranse

Signs of pushback against Twitter’s actions emerged in the wake of the apparent dismissals. In a federal lawsuit dated Thursday, a handful of Twitter employees accused the company of violating federal and California law in failing to provide enough warning of a mass layoff.

The lawsuit, filed in California federal court by five former employees of Twitter who said they were terminated this week, said the company’s layoffs violated the federal Worker Adjustment and Retraining Notification Act and its California equivalent, which require giving 60 days of advance written warning of dismissing a large number of employees of a company at once. The lawsuit asked the court to issue an order blocking Twitter from its alleged violations of the acts. Twitter didn’t immediately respond to a request for comment.

In April, as Mr. Musk was moving to buy Twitter, entrepreneur

Jason Calacanis,

a close ally, suggested cutting the number of Twitter employees to roughly 3,000, according to messages between the two, which were released as part of litigation around the transaction.

A staff of 3,000 would represent the lowest level since 2013, the year Twitter went public, when the platform had about 2,700 employees and its revenue was roughly 13% of its level last year.

Twitter’s employee numbers began climbing in 2019, after ranging between approximately 3,000 and 4,000 for several years. Twitter has said that the increase in recent years was driven by investments in engineering, product, design and research.

Even before officially taking control at Twitter, Mr. Musk had indicated that he was concerned about the company’s expenses. Twitter has posted a loss in eight of its past 10 fiscal years, according to FactSet.

Mr. Musk moved quickly to make personnel changes at the top of the company. Last week, on the same day he closed the deal, he fired Twitter Chief Executive

Parag Agrawal

and three other top executives. Mr. Musk fired the executives for cause and is saying he isn’t required to pay them multimillion-dollar severance packages, the Journal reported. Other executives have departed since.

Mr. Musk has leveraged other parts of his business empire to try to put his imprint on Twitter. He brought in some

Tesla

engineers to begin working on reshaping the social-media platform, the Journal reported. Also added to an internal company directory were some people who appeared to work for the Boring Co., a tunneling business Mr. Musk founded.

Broadly, the social-media industry is struggling with weaker revenue from digital advertisers. Such advertising has slowed due to several factors, including rising inflation, the war in Ukraine, and

Apple

privacy changes that have made it harder to track the performance of ads. Twitter rival Snap Inc. this year said it was letting 20% of staff go.

Facebook

parent Meta Platforms Inc. also has indicated it was trimming ranks.

Tech companies beyond social media also have embarked on belt tightening that is leading to job losses and hiring freezes. On Thursday, ride-hailing company

Lyft Inc.

and payments company Stripe Inc. announced major layoffs, and

Amazon.com Inc.

said it would freeze corporate hiring for months.

Write to Sarah E. Needleman at sarah.needleman@wsj.com and Alexa Corse at alexa.corse@wsj.com

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Business

Elon Musk Says Twitter Won’t Be ‘Free-for-All Hellscape,’ Addressing Advertisers’ Concerns

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Advertisers are concerned about the billionaire’s plans to soften content moderation and what they say are potential conflicts of interest in auto advertising, given that he is chief executive of

Tesla Inc.,

say people familiar with the situation.

Mr. Musk said this spring that as owner of Twitter he would reinstate former President

Donald Trump’s

account, which the platform suspended indefinitely after linking Mr. Trump’s comments to the Jan. 6 Capitol riot. That would be a red line for some brands, said Kieley Taylor, global head of partnerships at GroupM, a leading ad-buying agency that represents blue-chip brands.

About a dozen of GroupM’s clients, which own an array of well-known consumer brands, have told the agency to pause all their ads on Twitter if Mr. Trump’s account is reinstated, Ms. Taylor said. Others are in wait-and-see mode. Ms. Taylor said she expects to hear from many more clients if Mr. Trump’s account returns.

“That doesn’t mean that we won’t be entertaining lots of emails and phone calls as soon as a transaction goes through,” Ms. Taylor said. “I anticipate we’ll be busy.”

In a message to advertisers on Twitter on Thursday, Mr. Musk said he was buying the company to “have a common digital town square, where a wide range of beliefs can be debated in a healthy manner.” He said Twitter “cannot become a free-for-all hellscape, where anything can be said with no consequences!” Mr. Musk said in addition to following laws, Twitter must be “warm and welcoming to all.”

He said Twitter aims to be a platform that “strengthens your brand and grows your enterprise.”

Twitter’s chief customer officer, Sarah Personette, tweeted that she had a discussion with Mr. Musk on Wednesday evening. “Our continued commitment to brand safety for advertisers remains unchanged,” she wrote. “Looking forward to the future!”

Mr. Trump has said he wouldn’t rejoin Twitter even if allowed. Representatives for Tesla and Mr. Trump didn’t respond to a request for comment.

Mr. Musk has completed the acquisition of Twitter, according to people familiar with the matter, after a monthslong legal battle in which he tried to back out of the $44 billion deal he agreed to in April. The judge overseeing the legal fight had said if the deal didn’t close by Friday she would schedule a November trial.

Twitter sent an email to some ad buyers earlier this week letting them know that the company is working with “the buyer” to close the acquisition by Friday and to acknowledge that Twitter is aware that advertisers have a lot of questions, according to the email, which was reviewed by The Wall Street Journal. The email, which didn’t name Mr. Musk, said Twitter would work “with the potential buyer to answer quickly.”

Advertising provided 89% of Twitter’s $5.08 billion revenue in 2021. Mr. Musk has said he hates advertising. In a series of tweets earlier this year, he suggested Twitter should move toward subscriptions and remove ads from Twitter Blue, a premium program that gives users additional features. 

Twitter will become a private company if Elon Musk’s $44 billion takeover bid is approved. The move would allow Musk to make changes to the site. WSJ’s Dan Gallagher explains Musk’s proposed changes and the challenges he might face enacting them. Illustration: Jordan Kranse

Mr. Musk describes himself as a “free speech absolutist” and has said Twitter should be more cautious about removing tweets or banning users.

Mr. Musk may have reasons to avoid any drastic changes to Twitter’s ad business. Twitter will take on $13 billion in debt in the deal. The online-ad markets already are shaky, amid concerns about the economy, with

Snap Inc.

and

Alphabet Inc.

posting lower-than-expected revenue results for the September quarter.

Like other ad-supported social-media platforms, Twitter provides advertisers with adjacency controls, tools that are meant to ensure ads don’t appear next to certain content the brands deem objectionable.

Ask WSJ

The Musk-Twitter Deal

WSJ Financial Editor Charles Forelle sits down with Alexa Corse, WSJ reporter covering Twitter, at 1 p.m. ET Oct. 28 to discuss Elon Musk’s takeover of Twitter. What does the future hold for the platform? And what does this deal mean for Mr. Musk’s business empire?

Some ad buyers said Twitter lags behind its competitors in providing so-called brand safety features. Joshua Lowcock, global chief media officer at UM Worldwide, an ad agency owned by Interpublic Group of Cos., called Twitter’s adjacency controls inadequate and “poorly thought through.”

Ad agency

Omnicom Media Group

evaluates the major social-media platforms’ progress on brand-safety tools every quarter. In July, Omnicom rated Twitter’s progress behind that of YouTube,

Facebook,

Instagram, TikTok and Reddit, according to a document reviewed by the Journal. Robert Pearsall, managing director of social activation at Omnicom Media Group, said Twitter has made agreements to improve its brand-safety controls to meet Omnicom’s standards, but it hasn’t introduced those changes to the market yet.

“There are significant concerns about the implications of a possible change to content moderation policy,” he said. Twitter has said it is working on tools to give advertisers a better idea of where their ads appear.

Advertising provided 89% of Twitter’s $5.08 billion revenue last year.



Photo:

Justin Sullivan/Getty Images

Automotive manufacturers have expressed concerns about advertising on Twitter under Mr. Musk’s ownership, given his role at electric-vehicle juggernaut Tesla, some ad buyers said. Advertisers often share data with Twitter and other platforms—on their own customers or people that are in the market for a car—to help target their ads at the right people. Some auto companies will be wary of doing so, out of concern that data may leak to Tesla, the buyers said.

Though Twitter relies on ad dollars, it isn’t one of the biggest players in the digital-ad economy. The company gets about 1.1% of U.S. digital-ad spending, according to Insider Intelligence, a much smaller slice than Google, Meta Platforms Inc. or

Amazon.com Inc.

Already, there have been signs of anxiety on Madison Avenue about Mr. Musk’s takeover of Twitter. In July, the company reported a 1% decrease in second-quarter revenue, which it blamed on uncertainty over the deal as well as broader pressures in the digital ad market.

Given Mr. Musk’s past remarks on advertising, some advertisers wonder if Mr. Musk may exit the ad business entirely.

“The question we keep getting asked is: Do we think Musk will turn off ads completely?” said UM Worldwide’s Mr. Lowcock.

Write to Patience Haggin at patience.haggin@wsj.com and Suzanne Vranica at suzanne.vranica@wsj.com

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Business

Mortgage bankers expect rates to drop to 5.4% in 2023. What will home prices do?

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NASHVILLE, Tenn. — High mortgage rates and recession fears are hurting home prices, so expect growth to be flat this year, one expert says.

“Our forecast is for home-price growth moderation to continue,” Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association, said Sunday during the organization’s annual conference in Nashville, Tenn.

Home prices have already begun moderating. According to Case-Shiller, home prices fell month-over-month from June to July for the first time in 20 years. The latest numbers, which will be for August, will be reported on Tuesday morning.

With a recession likely in the cards, on top of mortgage rates near or above 7%, “we’ve already seen a pretty dramatic pullback in housing demand,” Kan said.

Also see: Mortgage industry group predicts recession next year, expects mortgage rates to come back down from 7%

The 30-year fixed rate averaged 6.94% last week as compared to 3.85% a year ago. The MBA is also expecting rates to come down to 5.4% by the end of next year.

So expect national home-price growth to “flatten out” in 2023 and 2024, he said. This might be a “silver lining” for some, Kan added, as it brings home prices back to more “reasonable levels.”

A flattening of home-price growth should allow households to catch up, in terms of wages and savings, to afford homes that are presently too expensive.

But he also warned that some markets may actually see home prices drop. We’re already seeing home values fall in some markets, from pandemic boomtowns like Austin and Phoenix to well-known expensive ones the San Francisco Bay Area.

Still, even with price drops, don’t expect a surge of inventory as people sit on their ultra-low mortgage rates that they will likely not enjoy again in the near future.

According to June data from the Federal Housing Finance Agency, nearly a quarter of homeowners have mortgage rates of less than or equal to 3%. And the vast majority of owners — 93% — have rates less than 6%.

On top of that, supply is likely to be tight too.

Sellers are said to be “striking” and not selling their homes as they see others forced to cut list prices to woo buyers. Builders are also getting spooked, signaling intent to slow new construction.

Nonetheless, demand for housing should recover eventually, given that there are a lot of people who will soon be in need of a home that they own.

MBA’s Kan estimated that there are 50 million people in the 28-to-38 age demographic, of which some — or many — are likely to become potential homeowners in the future.

For those under 35, the homeownership rate is only 39%, Kan said, while that share increases for people aged 35 to 44, to 61%.

So as people age, “we’re fairly confident if we stick to these trends, you will see a very supportive demographic driver of housing demand for a good number of years,” Kan said.

Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com

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Business

‘We’re seeing buyers backing out’: This dramatic chart reveals U-turn in the housing market as sellers slash home prices

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Here’s a chart that speaks a thousand words about the state of the real-estate market right now.

The chart above, part of a new report by real-estate brokerage Redfin
RDFN,
-7.03%
on the property market, reveals how home sellers are adjusting to the new normal of 7% mortgage rates.

The chart says that 7.9% of homes for sale on the market each week had their prices slashed — and that’s a record high.

That’s compared to just 4% of homes having their prices reduced each week over the same period a year ago.

Redfin’s data goes back to 2015. The company averaged out the share of listings which saw a price cut over four weeks, to smoothen out any outliers.

Taylor Marr, deputy chief economist at Redfin, added that looking over a bigger time period, i.e. a month, the company’s data shows that a quarter of homes right now are dropping prices.

“We have never been this high,” Marr told MarketWatch in an interview.

Unlike buyers, who are much more sensitive to rising mortgage rates, “sellers are just slow to react to the changes in demand… they set prices based on where they think the market is [and] are often reluctant to set their prices too low,” Marr said.

So for sellers, prices are a little stickier, he added, and slower to come down.

But even if it took a while, it’s finally happening.

After all, mortgage rates are at multi-decade highs, with the 30-year trending steadily above 7% as of Friday afternoon, according to Mortgage News Daily. And that’s likely to go up even more, as the 10-year Treasury note
TMUBMUSD10Y,
4.023%,
is trending above 4%.

Meanwhile, Redfin said that the median home on the market was listed at over $367,000, up 7% over last year.

The monthly mortgage for that home at the current interest rate of 6.92%, according to Freddie Mac, is $2,559.

A year ago, when rates were at 3.05%, that monthly payment would’ve been just $1,698.

Two tips for home buyers struggling with high mortgage rates

Sellers are dropping their prices by 4 to 5% on average, Marr said.

“You would almost expect it to be a lot worse,” he added, given how quickly rates rose and eroded buying power.

But buyers and sellers are also using two different tactics to get some relief on mortgage rates, Marr said.

One, sellers are reaching out to buyers and offering concessions to buy mortgage rates down.

In other words, sellers are asking buyers to pay the full asking price, but proposing to use part of that as a concession to get buyers a lower interest rate on their mortgage.

“Which is essentially a price drop,” Marr said, “it’s the same thing … but it doesn’t necessarily show up in the data.” And it’s hard to get a sense of the magnitude of how this is playing out, he added.

How it works is as such, Marr explained: If a buyer is putting down $100,000 for a 20% downpayment on their home at a 6.5% interest rate, they can instead allocate 10% for the downpayment, and spend the rest of the $50,000 buying down the mortgage rate to 5%.

“5% isn’t very bad, and it might seem like a lot of money, but … chances are you’re going to be incentivized to refinance [in the future] and you’ll have to pay the closing cost on that loan to refinance, which could be upwards of 15 grand,” Marr added.

Buyers are also switching to adjustable-rate mortgages, which offer lower interest rates at the start of the term. ARMs are nearly 12% of overall mortgage applications, the Mortgage Bankers Association noted on Wednesday, which is high.

Where prices are falling

As to where prices are falling, a couple of places stood out to Redfin.

They said that home prices fell 3% year-over-year in Oakland, Calif., and 2% in San Francisco. New Orleans also saw a 2% drop.

“Even in Atlanta, or Orlando, we’re seeing buyers backing out,” Marr observed.

So with the backdrop of sellers finally dropping listing prices, if you’re a buyer right now, don’t be spooked by rising rates and stop looking, he advised.

“There have been opportunities when rates really came down and gave buyers the moment to jump back in and get some good deals on homes that did drop their prices,” he said.

Plus, “it doesn’t hurt to make a low ball offer,” Marr added. “Some sellers are desperate, and that can be a good strategy … we’ve heard from some of our own agents that some buyers are getting incredible deals right now.”

But if you need to rent for a year and wait for things to calm down, then do that, Marr said, and bulk up those savings for that dream home.

Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com

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Business

Elon Musk’s Twitter Reversal Revives Takeover Bid for a Now-Weaker Firm

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Elon Musk’s

latest about-face over his $44 billion deal to buy

Twitter Inc.

TWTR -1.35%

has him poised to take over a company that is weaker than it was before he tried to abandon the agreement—thanks in part to his own actions.

Broad economic concerns have intensified since July 8, when Mr. Musk made public his intention to terminate the deal. The Federal Reserve has raised interest rates by 0.75 percentage point at a second and third straight meeting, the Dow Jones Industrial Average last week fell into what investors call a bear market, and Twitter’s social-media rival

Snap Inc.

is slashing jobs.

While Twitter’s stock price has held up because of Mr. Musk’s potential acquisition, its performance has declined. The company reported a surprising decline in revenue in the second quarter that it blamed on weakness in the advertising industry and uncertainty related to Mr. Musk’s acquisition.

Twitter this year is expected by analysts to report one of its slowest annual rates of sales growth ever as a public company, at 4.5%. In 2021, revenue rose 37%.

Mr. Musk has given few specific details about his plans for Twitter, but the billionaire chief executive of

Tesla Inc.

has said he wants to transform Twitter as a private company and unlock what he called its extraordinary potential as a platform for free speech.

He has talked about modifying Twitter’s rules around content moderation, reducing its reliance on advertising—which provided more than 90% of its revenue in this year’s second quarter—and making Twitter’s algorithms open source, which would allow others to view and recommend changes. Mr. Musk also has proposed “defeating the spam bots and authenticating all humans.”

In texts released last week as part of the litigation between Twitter and Mr. Musk over his effort to abandon the deal, Mr. Musk said in April that his biggest concerns were Twitter’s head count and expense growth. He also said he wanted to oversee software development at Twitter and works better with engineers than people with business degrees.

Twitter will become a private company if Elon Musk’s $44 billion takeover bid is approved. The move would allow Mr. Musk to make changes to the site. WSJ’s Dan Gallagher explains Mr. Musk’s proposed changes and the challenges he might face enacting them. Illustration: Jordan Kranse

There are no guarantees that Mr. Musk will follow through with his proposal and close the transaction. Mr. Musk and Twitter are scheduled to go to trial Oct. 17 in Delaware over his effort to abandon the deal, and that could still go forward.

On Wednesday, the Delaware Chancery Court judge presiding over the legal battle said she is pressing ahead with preparing for the trial and issued a ruling that asked Mr. Musk’s legal team to produce more of his text messages to the extent they haven’t done so already.

Should a deal occur and avert a trial, the resolution could ease some of the uncertainty surrounding the company’s future.

“Assuming the deal closes, it’s a good price for shareholders,” said Jason Goldman, former Twitter product chief and board member. “But it’s a bad outcome for everyone else,” including employees who have labored under the uncertainty and users who rely on the product, he said. Mr. Goldman said he didn’t think Mr. Musk has presented serious ideas about how he would lead such an influential platform.

Mr. Musk has proven doubters wrong before in becoming the world’s wealthiest person. He has turned Tesla into the world’s most valuable car company and a leader in electric vehicles, and his SpaceX company is the world’s busiest rocket-launch operation.

Mr. Musk’s legal team declined to comment Tuesday about his proposal. Twitter on Tuesday confirmed receipt of Mr. Musk’s letter and said it intends to close the transaction at the original price of $54.20 a share.

The outlook for the social-media industry has darkened in recent weeks.

Snap Inc.

in August said it was slashing one-fifth of its workforce and curbing investment in a range of areas after a slowdown in its business. Facebook parent

Meta Platforms Inc.

last week told employees it was implementing a hiring freeze and looking for other ways to cut costs.

In July, Twitter said in a regulatory filing that attrition was slightly higher than in normal economic times, but remained in line with current industry trends. Twitter said Tuesday that it had anticipated higher attrition this year even before the merger agreement.

In addition, Twitter’s former head of security,

Peiter Zatko,

emerged in August with a whistleblower complaint listing a litany of criticisms about the company’s management of security and privacy issues. That complaint prompted new scrutiny from Washington lawmakers. Twitter CEO

Parag Agrawal

told employees in a memo at the time that the spotlight on Twitter would “only make our work harder.” Twitter also said that Mr. Zatko’s claims were inaccurate.

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If the deal goes through, how do you think Elon Musk might change Twitter? Join the conversation below.

Despite the industry’s challenges, Twitter said in July that its audience has grown, reporting a second-quarter average of 237.8 million monetizable daily active users, up 17% from the same period a year earlier. Advertising revenue increased 2% in the second quarter compared with the year-earlier period.

Mr. Musk, when he met with Twitter employees in June, was asked about what he would consider successful for Twitter five to 10 years from now, and said a substantial increase in daily active users to over a billion, according to people familiar with the meeting. He also said during the meeting that Twitter should be entertaining, like TikTok, and that he admired the Chinese app

WeChat,

which is used heavily in China for a range of purposes including e-commerce and social networking.

Asked about his stance on free speech, Mr. Musk drew a distinction between freedom of speech and freedom of reach, according to attendees. He said that meant people should be allowed to say pretty outrageous things within the law but didn’t necessarily deserve to have their tweets amplified and spread virally across Twitter.

In the texts released last week, Mr. Musk said in April, “Twitter is obviously not going to be turned into some right wing nuthouse. Aiming to be as broadly inclusive as possible.”

Accomplishing that balance will be a challenge, content-moderation analysts said Tuesday.

“Elon Musk and his new leadership are about to get a crash course in the complexities of moderating harmful content,” said Eddie Perez, a former Twitter employee who worked on civic integrity and misleading information and is a board member at the OSET Institute, a nonpartisan election-technology group.

Write to Alexa Corse at alexa.corse@wsj.com

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Business

European Gas Prices Surge on Nord Stream Shut Down

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European energy prices surged after Russia shut down natural-gas flows through a major pipeline, threatening to add to economic woes for businesses and households across the continent.

Natural-gas futures in northwest Europe, which reflect the cost of fuel in the wholesale market, jumped more than 30% in early trading Monday. They remain below the all-time high recorded in late August.

State-controlled Gazprom PJSC extended a halt to flows through Nord Stream late Friday. Moscow blamed the suspension on technical problems. European governments described it as an economic attack in retaliation for their support of Ukraine.

Over the weekend, governments in Sweden and Finland offered billions of dollars of guarantees to utilities to prevent a meltdown in energy trading. Officials fear the loss of imports through Nord Stream could lead to a further leap in power prices and saddle utilities with cash payments to energy trading exchanges that they may struggle to meet. A wave of failed payments could undermine financial stability, officials said.

“This has had the ingredients for a kind of a Lehman Brothers of energy industry,” Finland’s Economic Affairs Minister

Mika Lintilä

said Sunday. 

Swedish and Finnish government officials worked through the weekend on programs designed to make sure electricity producers can meet exchange payments known as margin calls. Stockholm is home to

Nasdaq

Clearing AB, a subsidiary of

Nasdaq Inc.

that processes most derivative trades in the Nordic power market, which includes Finland and the Baltic countries.

Under the Swedish plan, the government would provide guarantees to eligible companies, which could then use the guarantees to borrow from banks and pay the exchange clearinghouse. The Swedish government would have license to extend up to 250 billion kroner, or $23 billion, in guarantees, said a finance-ministry official.

The Finnish government plans to offer 10 billion euros, or $10 billion, in guarantees. 

Nasdaq Clearing spokesman David Augustsson said the measures would help the power market act in an orderly manner Monday. “This is an extreme time of uncertainty and the addition of government liquidity guarantees will add an extra layer of stability,” he said.

Last week, European Energy Exchange AG, the main European venue for power trading outside the Nordics, said Germany and other European Union members should help companies fund margin payments. A spokesperson didn’t respond to requests for comment on Sunday.

Russia’s state-controlled Gazprom PJSC extended a halt to flows through the Nord Stream pipeline late Friday.



Photo:

HANNIBAL HANSCHKE/REUTERS

Armed with the guarantees, utilities and other energy companies would find banks more willing to lend money to cover margin payments, the Swedish official said. The Swedish parliament will vote on the program Monday and it would take effect the same day if approved. One concern is that the clearinghouse itself might default, the official said.

“This threatens our financial stability. If we don’t act soon it could lead to serious disruptions in the Nordics and Baltics,“ Swedish Prime Minister Magdalena Andersson said Saturday at a news conference outlining the plan. “In the worst-case scenario we could fall into a financial crisis,” Ms. Andersson added.

When utilities agree to deliver gas or power, they lock in prices by selling futures contracts. Exchanges charge one payment, known as initial margin, when trades are placed to collect collateral. They then call for or return money each day depending on whether the position gains or loses value.

As prices rise, utilities’ short positions shed value and the companies pay the exchange. They recoup the money when they deliver gas or power, but the difference in timing has led to massive outflows of cash that some firms have struggled to fund. At times a vicious cycle has emerged in which extreme price moves boost margin calls, prompting companies to bail out of trades and sparking more volatility.

“No one’s got the money to pay to trade,” said Justin Colley, an analyst at Argus Media. “Putting up these margin payments every day is just causing problems for everyone—not just the small companies, but also the big companies, the national utilities.”

The guarantees could add to the mounting cost for governments of aiding households and businesses through a historic rise in energy prices largely caused by Moscow’s move to cut gas exports. On Sunday, Germany unveiled its third energy relief package this year, worth €65 billion, to shield consumers.

European energy ministers are due to hold an emergency meeting Friday to discuss options for dealing with skyrocketing electricity prices, such as a possible price cap for non-gas sources of power generation.

They will also consider energy companies’ cash concerns. The Czech Republic, which holds the EU’s rotating presidency, is expected to put forward several options for ministers to consider, including the temporary suspension of power derivatives markets and a European credit line for energy market participants, an EU diplomat said.

European gas and power prices have been wildly volatile. They shot to records in late August before slumping last week after the European Union said it would change the structure of the power market to bring down prices for consumers and businesses. Nordic and Baltic prices have been especially turbulent, in part because a drought curbed hydropower generation in Norway.

Tom Marzec-Manser, gas analyst at ICIS, said he expected gas and electricity prices to rise again Monday in response to Gazprom’s shut-off. “Meeting demand, whatever that might turn out to be, is going to be that much harder,” he said.

To a certain extent, energy markets were already girding for Russia to completely cut off gas supplies. Gazprom had reduced Nord Stream flows to 20% capacity in the weeks before the shutdown.

Some factors could act to bring prices down after an initial leap, traders and analysts said—including the action taken by Nordic governments. Weather forecasts suggest there might be greater power generation from wind farms, reducing demand for gas. 

Uniper,

one of the two biggest buyers of Russian gas in Europe until recently, said last week it had fully drawn down a €9 billion credit line from German state lender KfW. The company said it had asked to borrow an extra €4 billion to make margin payments and buy gas to make up for lost deliveries from Gazprom.

—Kim Mackrael contributed to this article.

Write to Joe Wallace at joe.wallace@wsj.com

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Business

Target’s Profit Sinks as Retailer Unloads Unwanted Inventory

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A glut of inventory sank profit at

Target Corp.

further than it expected, sparking investor concerns about the company’s response to an oversupply problem haunting retailers from

Walmart Inc.

to the parent of T.J. Maxx.

Like many other retailers, Target didn’t foresee the sharp reversal in buying behavior that has taken place in recent months as shoppers, squeezed by inflation, shifted more spending to travel and cut back on patio furniture, small electronics and other items that were in high demand for much of the Covid-19 pandemic. Target took a more aggressive approach than some of its competitors, slashing prices and canceling orders to clear out the glut as quickly as possible.

The decision to quickly move through excess inventory “had a meaningful short-term impact on our financial results,” Target Chief Executive

Brian Cornell

said on a call with reporters. He said the company didn’t want to deal with excess inventory for years, potentially degrading the customer and worker experience.

“Today the vast majority of the financial impact of these inventory actions is now behind us,” he said. In the current quarter the company expects a roughly $200 million impact from its effort to reduce inventory, Chief Financial Officer

Michael Fiddelke

said on a conference call Wednesday. The company expects operating margin to rise to 6% in the second half of the year.

About 75% of the U.S. population can find a Target store within a 10-mile radius. WSJ’s Sarah Nassauer explains how the retailer leverages its physical stores to expand services such as in-store pickup and same-day shipping. Photo Illustration: Ryan Trefes

Target shares were off 2.6% at $175.46 at midday Wednesday.

T.J. Maxx parent

TJX

TJX 4.43%

Cos. said Wednesday that inventory rose 39% in the most recent quarter, while sales fell 1.9%. The company said it is comfortable with its inventory levels and that lower gasoline prices could boost consumer spending for its goods.

Large retail chains including Walmart and

Home Depot Inc.

have reported higher sales for the most recent quarter driven by consumers’ willingness to absorb price increases. The results so far indicate Americans continue to spend even as they shift purchases away from nonfood items to offset the effects of inflation.

Overall retail sales—a measure of spending at stores, online and in restaurants—were flat in July as gasoline prices fell, compared with an increase of 0.8% in June, the Commerce Department said Wednesday. Stripping out gasoline and auto sales, retail sales rose 0.7% in July.

Walmart, like Target, has discounted goods to pare excess inventory. Those efforts ate into last quarter’s profit and will continue in the current quarter, executives said Tuesday.

Target executives said traffic gains and the overall spending strength among its core shoppers are evidence that the retailer can put the inventory issues behind it. The retailer believes it is gaining market share by unit sales in all major categories, executives said. Target shoppers are buying fewer discretionary items as prices rise, but “we’ve got a guest that is still out shopping,” Mr. Cornell said.

Target’s inventory challenge rippled through its business over the past quarter, company executives said on a call with analysts Wednesday. In June inventory in Target’s warehouse network peaked at more than 90% of capacity, before dropping to below 80% by the end of the period, Chief Operating Officer

John Mulligan

said. The company aims to keep capacity at or below 85% to reduce cost and operational difficulties, he said.

SHARE YOUR THOUGHTS

How has your shopping at Target changed over the past year? Join the conversation below.

To dispose of the excess inventory Target offered discounts, canceled orders and adjusted how it ordered products for the second half of the year, favoring items such as food that shoppers are now buying more of, executives said on the call. Target used store space typically reserved for seasonal goods to highlight deals, stopped selling outdoor products earlier than usual and brought in back-to-school items ahead of schedule. The company canceled $1.5 billion in fall discretionary product orders, executives said.

The company continues to import goods earlier than it did before the pandemic to make sure seasonal merchandise arrives on time, but believes supply-chain snarls have peaked, Mr. Mulligan said. Target’s inventory rose nearly 10% in the second quarter to $15.3 billion as the retailer prepares for fall and holiday shopping, he said.

Target’s net earnings were $183 million, compared with $1.8 billion during the same period last year.

The company’s revenue rose, boosted by strong sales of food-and-beverage, beauty and household items as well as more shopper visits. Comparable sales, those from stores and digital channels operating at least 12 months, rose 2.6% in the quarter compared with the same period last year. Shopper traffic increased 2.7% in the quarter. Shoppers spent slightly more for fewer items per transaction during the quarter.

Home Depot said Tuesday that its sales rose, in part because of higher prices, while traffic fell in the most recent quarter. Walmart said its sales rose, also helped by higher prices, and traffic increased 1% in the quarter.

Target revenue rose 3.5% during the quarter to $26 billion. It maintained previous estimates for the full year of revenue growth in the low- to mid-single-digit percentage range.

Write to Sarah Nassauer at sarah.nassauer@wsj.com

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