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Target warns on profits and outlines plan to shed excess inventories

Target cut its earnings forecast for the second time in less than a month as the U.S. retailer said it plans to cancel orders and lower prices further to free up excess inventory in response to changing consumer behavior.

The Minneapolis-based group warned on Tuesday that it would offer deeper discounts after high inflation hits consumer spending. This would cut the company’s operating margin in the second quarter to about 2%, it was said, three weeks after it told Wall Street that the margins would be “wide range” around the first quarter level of 5.3%.

In a statement, target Announced that it would enter into a program of “further reductions, removal of excess inventory and cancellation of orders” from suppliers.

Target shares, which have already fallen 30% this year, fell another 9% in pre-market trading. The news shaved 2.8 percentage points off the European retail equities index and also weighed on U.S. stock futures.

“While these decisions will result in additional costs in the second quarter, we are confident that this quick response will pay off for our business and our shareholders over time, leading to improved profitability in the second half of the year onwards,” Brian said. Cornell, Target Chairman and CEO.

U.S. retail stocks in May Absorbed the biggest drop in one day Since the Black Monday stock market crash in 1987, they have lost a quarter of their value in lone trading after the company warned that rising costs would hurt its annual profits.

Similar to its bigger rival Walmart, Target struggled to pass higher prices to consumers and was affected by higher transportation, fuel and labor costs, as well as supply chain problems.

On Tuesday, it announced new plans to address these challenges, saying it would add more holding capacity near U.S. ports, change prices to offset the impact of high transportation and fuel costs, and work with suppliers to shorten distances and delivery times in the supply chain. its.

Census Bureau data It shows that retailers’ inventories plummeted between March and June 2020, with Covid-19 forcing consumers to stay home, but inventories have since risen beyond pre-plague levels.

They rose steeply this year as Cubid locks in China dragged imports from Asia and as U.S. retailers tried to put inventory ahead of any disruptions at West Coast ports, which are in talks to renew a contract with unionized coasters which expires on July 1st.

Retailers are also struggling to keep pace with changes in consumer behavior as shoppers move beyond the constraints of the first two years of the epidemic and adapt to the impact of the highest inflation rates over 40 years.

On Tuesday, Target said it expects demand to remain strong for food, home care and beauty products, but is now taking a more conservative view of demand in discretionary spending categories like household goods, where, she noted, “trends have changed rapidly since the beginning of the year.”

Target warns on profits and outlines plan to shed excess inventories Source link Target warns on profits and outlines plan to shed excess inventories

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