Shoppers shop in front of a Target store at Lycoming Crossing Shopping Plaza in Muncie, Pennsylvania.
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target It warned investors on Tuesday that its profits would take a short-term hit, as it flags unwanted items, cancels orders and takes aggressive steps to get rid of excess inventory.
The retailer lowered its profit margin expectations for the fiscal second quarter due to a wave of merchandise rolling out onto deeply discounted or clearance racks. Shares fell nearly 5 per cent in premarket trading following the news.
“We thought it was important for us to be decisive, to act quickly, to get out in front of it, to address and optimize our inventory in the second quarter – taking the necessary actions to remove excess inventory and set ourselves up to stay guest. It was prudent to do so relevant with our classification,” CEO Brian Cornell said in an interview with CNBC.
By taking swift action, Cornell said Target can take the pain ahead and make room for merchandise for customers, such as groceries, beauty items, household essentials and back-to-school supplies. seasonal categories. He added that the company’s stores and website are seeing strong traffic and “a very resilient clientele”, but which is no longer popular. covid pandemic Categories.
“We want to make sure we continue to lean into categories that are relevant today,” he said.
Target estimates its operating margin rate for the second quarter to be about 2%. That’s lower than the outlook given less than three weeks ago, when it estimated its operating margin rate would be around its first-quarter operating margin rate of 5.3%.
In the back half of the year, Target estimates profit margins to be in the range of around 6% – better than the fall season’s average performance in the years before the pandemic began. The company said it still expects revenue growth for the full year to be in the low to mid single digits and to maintain or achieve market share in 2022.
retailer from walmart To gap Inventories face a glut as inflation-hit buyers give up on categories that were popular during the first two years of the pandemic. For example, Gap said Customers want party dresses and office wear instead of many wool hoodies and activewear The company has. Walmart said rising prices for gas and groceries are making some households less discretionary shopping. Abercrombie & Fitch And American Eagle Outfitters Both reported a sharp jump in inventory levels, up 46% and 45%, respectively, compared to a year ago, which was not from a mix of easing of goods sales and supply chain delays.
The drastic change in the spending habits of consumers occurs when retailers start moving back to healthy stock levels. This means that some consumers have an abundance of sweatpants, throw pillows and pajamas, just like swimsuits and suitcases. In addition, some shoppers are cutting spending due to inflation or putting more of their dollars towards experiences like dining and travelling.
Cornell said Target decided to launch its new inventory plan after hearing similar problems from retail competitors. He said the company also wants to get ahead of major sales seasons like back-to-school and the holidays, when stale merchandise can clutter stores and drive customers away.
Target said it had approximately $15.1 billion in inventory at the end of the fiscal year’s first quarter as of April 30. This is about 43% higher than the year-ago period.
Target stunned Wall Street on May 18 With a reduction in comprehensive earnings for the fiscal first quarter, as it became vulnerable to fuel and freight costs, high levels of rebates, and a rotation away from items such as TVs, small kitchen appliances, and bicycles. Its shares fell nearly 25%, marking the company’s worst day on Wall Street in 35 years.
Walmart also missed earnings expectations. Its inventory level was up about 33% compared to a year ago. Walmart US CEO John Furner said at an investor event Friday that about 20% of it is merchandise the retailer doesn’t want to have. Roughly a third is excess inventory that helps the retailer restock key items. He said it would be “two quarters to go back to where we want to be.”
Cornell said Target is sorting through its inventory, in some cases deciding to pack merchandise to sell at full price in the future and in other cases with ways to promote or sell through it. Deciding to come
For example, he said, Target had a big sales event over Memorial Day weekend to clean bulky outdoor items like patio furniture from its backrooms. It also found additional storage space near US ports, so it has room to carry cargo – some of which are arriving too early or too late.
– CNBC Lauren Thomas contributed to this report.