HIGHLIGHTS
- The increase in inventories, which amounted to 43% in value year-on-year at the end of the first quarter, hurt business profits.
- The company on Tuesday cut its second-quarter operating profit forecast by more than half, from 5.3 percent to 2 percent, but is expected to hit 6 percent in the second half of the year.
- Target’s strategy to keep most of its products affordable compared to its competitors is proving to be more expensive.
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Efforts to free inventory
The retailer said it would lower prices in the second quarter of 2022, cancel orders with suppliers, consolidate parts of its supply chain, and prioritize categories such as food and essential items. weak for the family. Soaring inflation is forcing consumers to change their shopping habits, leaving many retailers off guard and forcing them to lower prices more. The unexpected outlook correction caused Target’s shares to fall by almost 7% in the first session of the year and affected the retail sector and broader markets.
“Target is doing the right thing to act to free up its excess inventory by making a profit right now. This will allow them to be in a better position ahead of the two most important retail seasons, back-to-school and holiday, ”said Ken Perkins, founder of research firm Retail Metrics.
The company on Tuesday cut its second-quarter operating profit forecast by more than half, from 5.3 percent to 2 percent, but is expected to hit 6 percent in the second half of the year. The increase in inventories, which amounted to 43% in value year-on-year at the end of the first quarter, hurt business profits. Target’s CEO Brian Cornell said the retailer is working to reduce excess inventory by the end of the second quarter and will cancel some orders. CFRA analyst Arun Sundaram also shared that he believes the company will clear up excess inventory during that time.
Positive signals
In the future, Target will devote more shelf space to essential items such as food and beauty goods, where demand is growing. Target maintained its sales forecast for the year, and visits to Target stores increased since the beginning of the year, with the highest increase in April.
Ethan Chernofksy, vice president of marketing at Placer.ai, said: “Target’s hit metrics remain strong even in a tough economic climate, a testament to the strong appeal of the market company, offering broad product range and value-focused for its main audience ”. Even as inflation skyrocketed, traffic for that month was up 10% from last year or 14.3% from pre-pandemic levels. In May, the trend slowed but the traffic was still much higher than last year. The sharp increase in visitors helped Target shares lose money on Tuesday and ended the day down 2.4%.
Last month, full-year profit warnings from major US retailers including Walmart and Target sparked fears of a recession. However, analysts say the companies are well positioned, as the wide variety of their products – from eggs to low-priced kitchen appliances are already attracting shoppers.
Even so, Target’s strategy to keep most of its products affordable compared to its competitors is proving to be more expensive. As a result, the company now says it will raise the prices of some items to offset the unusually high cost of shipping and fuel.
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