Target Corp. has a new plan to rid itself of excess inventory, as well as to navigate supply chain issues and control costs, but it's expected to cut more into its profits this quarter.
The Minneapolis-based retailer announced Tuesday that it plans to slash prices on some items, cancel orders and make other moves, including adding holding capacity nearU.S.ports, working with suppliers to shorten distances and lead times and working with vendors to help offset inflation.
Target (NYSE: TGT) said it will lean into food and beverage, household essentials and beauty — categories that are performing well as consumer behavior changes — and plan more conservatively indiscretionary categories, like home, as demand has slowed for items that sold briskly earlier in the pandemic.
On May 18, when Target posted worse-than-expected first-quarter earnings, CEO BrianCornell said Targetexpected consumers to shift spending from goods to services but didn’t anticipate the magnitude of the shift, resulting in too much inventory, particularly kitchen appliances, TVs and outdoor furniture. Inventory was up 43% in the first quarter.
Cornell issued this statement Tuesday: "Target's business continues to generate healthy increases in traffic and sales, despite sustained volatility in the macro environment, including shifting consumer buying patterns and rapidly changing operating conditions. Since we reported our first quarter results, we have continued to monitor external conditions and have determined the necessary actions to remain nimble in the current environment. The additional steps we are announcing today will ensure that we deliver for our guests while driving further growth. While these decisions will result in additional costs in the second quarter, we're confident this rapid response will pay off for our business and our shareholders over time, resulting in improved profitability in the second half of the year and beyond."
As a result of the plan, Target is further adjusting its financial guidance. The company now anticipates a second-quarter operating margin rate around 2%, rather than the first-quarter rate of 5.3% that it earlier forecast that it would reach again in the second quarter, and an operating margin around 6% in the second half of the year.
In the first quarter, Target's net profit dropped almost 52% to $1.01 billion, from $2.1 billion in the same period last year. Its operating profit also dropped by about half. The first-quarter results sent the company's stock plunging by more than 25% on the day they were announced.
Target shares were down roughly 2% on Tuesday afternoon, and its stock price was down 31% for the year as of Monday, according to The Wall Street Journal.
Revenue from continuing operations from the trailing four quarters
| Rank | Prior Rank | Name |
|---|---|---|
1 | 1 | UnitedHealth Group Inc. |
2 | 2 | Target Corp. |
3 | 3 | Best Buy Co. Inc. |
