October 2, 2022

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Target’s Profit Sinks as It Offloads Inventory Shoppers Don’t Want

2 min read

Target posted quarterly earnings on Wednesday that were much weaker than Wall Street expected, as the retailer got rid of excess inventory that built up as shoppers shifted their buying habits. Company executives presented the actions as tough but necessary to position the retailer for a stronger performance in the rest of the year.

Target’s net profit plunged to $183 million in the three months through July 30, down 90 percent from the year before. That was far below what Wall Street analysts expected, even after the company had warned in recent months that unwanted inventory would dent its earnings.

Target’s comparable sales grew 2.6 percent in its latest quarter, versus the same period last year. That was slightly below analysts’ expectation of a 2.8 percent increase.

The lower profit came from Target’s glut of inventory. It had $15.3 billion in inventory, a 36 percent increase from a year earlier. As shoppers have curtailed their spending on items deemed discretionary, squeezed by higher-than-usual prices in essential categories like grocery and gas, Target was left with electronics and apparel that people were not buying.

Target said it was solving the problem by using discounts and canceling orders for the fall with vendors, which would result in lower profit. The retailer is still dealing with excess inventory in the current quarter, it said Wednesday, and also faces the industrywide problem of higher freight and transportation costs.

The company’s operating profit margin was 1.2 percent in its latest quarter, below its forecast for about 2 percent, which it had lowered in June. That’s also a significant drop from a 9.8 percent margin in the same quarter last year. It maintained its forecast for its full-year revenue growth to be in the low- to mid-single-digit range, and for its second-half operating margin to be near 6 percent, suggesting that conditions would improve in the months to come.

Target’s executives spent nearly an hour at the start…

Jordyn Holman

2022-08-17 11:46:51

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