Target I warned investors on Tuesday. Its profits will be hit short-term as it marks down unwanted items, cancels orders and takes proactive steps to get rid of excess inventory.
Retailers have significantly reduced their second-quarter profit margin expectations to account for the wave of products that have been significantly discounted or placed in clearance racks. Earlier on Tuesday, stocks fell about 1%.
“We thought it would be wise to be determined, act swiftly, get out before this, deal with inventory in the second quarter and optimize it. Remove excess inventory and guests. We will take the necessary steps to continue to be related to our assortment. ” CEO Brian Cornell said in an interview with CNBC.
By taking swift action, Cornell can help Target dodge further pain and create space for customers’ desired products, such as groceries, beauty items, household items, and seasonal items such as new school items. Said. The company’s stores and websites are high-traffic and “very resilient customers,” but he said he has stopped making popular purchases. COVID pandemic category.
“We want to make sure we continue to focus on these categories that are relevant today,” he said.
Target expects an operating margin of around 2% in the second quarter. This is lower than the forecast for operating margin within three weeks, which was expected to be around 5.3% for the first quarter.
Target predicts that the rate of return will be in the range of about 6% later this year. This is better than the average performance of the fall season before the pandemic began. According to the company, annual revenue growth is in the low to mid-single digits and is expected to maintain or gain market share in 2022.
Retailers from Walmart To gap Inflation-stricken shoppers face an overstock as they skip the categories that were popular during the first two years of the pandemic.For example, Gap said Customers want party dresses and office clothes instead of many fleece hoodies and active clothes The company has it. Wal-Mart said some families are reducing discretionary purchases as gas and grocery prices rise. Abercrombie & Fitch When American Eagle Outfitters Both reported that inventory levels surged 46% and 45% from a year ago, respectively, due to a combination of unsold items and mitigation of supply chain delays.
Extreme changes in consumer spending habits occur when retailers begin to return to healthy inventory levels. This means that some have plenty of sweatpants, cushions and pajamas, much like consumers look for swimwear and suitcases. In addition, some shoppers are spending less due to inflation and spending more on experiences such as eating out and traveling.
Cornell University said Target decided to roll out a new inventory plan after hearing that retailers had similar problems. The company also hopes to stay ahead of major sales seasons, such as new semesters and vacations, where outdated products can clutter the store and drive customers away.
Target said it had nearly $ 15.1 billion in stock as of April 30 at the end of the first quarter. This is about 43% higher than in the same period last year.
Wall Street where the target was shocked on May 18th Large profit mistakes in the first quarter, Fuel costs and fares, higher levels of discounts, and rotations from items such as TVs, kitchen appliances, and bicycles. Its shares fell nearly 25%, marking the company’s worst day on Wall Street in 35 years.
Wal-Mart also missed the earnings expectations. Its inventory level has increased by about 33% compared to a year ago. Wal-Mart US CEO John Furner said at an investor event on Friday that about 20% of it was something retailers didn’t want. Approximately one-third is additional inventory to help retailers replenish their major items. “It will take a couple of quarters to get back to where we want to be,” he said.
After the announcement of Target on Tuesday, the company’s stock price also fell. Wal-Mart’s share price fell about 2% early Tuesday morning.
According to Cornell University, Target is organizing its inventory, and in the future it may decide to pack the item for sale at a fixed price, or it may advertise or devise a way to sell it now. It is said that it has been decided.
For example, Target held a big sales event on Memorial Day weekend, cleaning up bulky outdoor items such as patio furniture from the back room, he said. There is also a place to move the goods, as there is additional space to store the goods near the US port. Some items arrive too early or too late.
– CNBC Lauren Thomas Contributed to this report.