Stock Groups

Target warns of squeezed profits as it cuts prices to get rid of inventory


The Target shop at Lycoming Crossing in Muncy is seen by shoppers.

Getty Images| Lightrocket | Getty Images

TargetInvestors were warned Tuesday by the company that it will suffer a temporary loss of profits as it marked down unneeded items and cancelled orders, while aggressively getting rid of excess inventory.

To account for an influx of products that are either on sale or heavily discounted, the retailer has slashed profit margin expectations in the fiscal second quarter.

“We thought it was prudent for us to be decisive, act quickly, get out in front of this, address and optimize our inventory in the second quarter — take those actions necessary to remove the excess inventory and set ourselves up to continue to be guest relevant with our assortment,” CEO Brian Cornell said in an interview with CNBC.

Cornell explained that Target can stop any further problems by acting quickly and allow for more merchandise such as grocery, beauty and household items and back-toschool products. According to Cornell, Target is experiencing high traffic on its website and in stores. However, this customer has stopped shopping for popular items. Covid pandemic categories.

“We want that we keep leaning into the relevant categories of today,” he stated.

Target expects Target’s operating margin rate to be about 2% for its second quarter. This is lower than its outlook of less than three weeks back, which predicted that Target’s operating margin rate for the second quarter would be around 2%.

In the back half of the year, Target anticipates profit margins will be in a range around 6% — better than its average performance for the fall season in the years before the pandemic began. According to Target, revenue growth is expected to remain in the lower to middle single digits over the entire year. The company also stated it plans to gain or maintain market share for 2022.

Retailers in WalmartYou can find more information here GapFace a glut in inventory because inflation-pinched shoppers will skip categories that were most popular in the second two years of the pandemic. Gap was one such example. customers want party dresses and office clothes instead of the many fleece hoodies and active clothesAccording to the company, Walmart claimed that families have been making less discretionary purchases because of rising gas prices and higher grocery costs. Abercrombie & Fitch American Eagle OutfittersBoth companies reported sharp increases in inventory, 46% and 45 percent respectively over a year. The increase was due to both items that are not selling and supply chains delays improving.

Retailers are now able to return to healthier in-stock levels due to the drastic shift in consumer spending habits. This means that some shoppers have a lot of pajamas, sweatpants and throw pillows while others are looking for suitcases and swimsuits. Some shoppers have cut back on their spending because of inflation, or are putting more dollars towards dining out and travelling.

Cornell explained that Target announced its updated inventory plan because it heard from other retail companies about similar issues. The company wanted to make sure it was ready for key seasons like the back-to-school season and the holiday sales, which are when outdated merchandise may clog up stores and turn away potential customers.

Target reported that its inventory was nearly $15.1 million as of April 30, which is the close of fiscal quarter 1. This is 43% more than the same period last year.

Target stunned Wall Street in May 18 with a wide earnings miss for the fiscal first quarterIt was hit hard by high fuel and freight prices, increased levels of discounting and the removal of items such as TVs and small kitchen appliances. Nearly 25% of the shares were lost, which was the lowest stock market performance in over 35 years.

Walmart’s earnings estimates were also disappointed. Walmart’s inventory was 33% higher than a year ago. Walmart U.S. CEO John Furner said at an investor event on Friday that about 20% of that is merchandise the retailer wishes it did not have. A third of the inventory is extra stock to allow retailers to replenish key products. He stated that it would take “a few quarters to get back where we want.”

Cornell explained that Target is going through its inventory and will decide whether or not to keep it at the full retail price, or if they want to advertise their products.

He said that Target held a huge sale over Memorial Day weekend in order to get bulky items such as patio furniture from its backrooms. It also got additional space near U.S. ports to hold merchandise, so it has a place to move goods — some of which are arriving too early or too late.

– CNBC’s Lauren Thomas contributed to this report.