Target reported strong sales for the second quarter of its fiscal year, but earnings plummeted by over 90% as the store was forced to lower prices to clear unwanted inventory of apparel, home goods, and other non-essential items.
As the pandemic subsided, Target warned in early June that it was canceling orders from suppliers and aggressively slashing prices in response to a significant shift in consumer spending.
Wednesday’s premarket trade saw a decline of almost 2%.
Vital Knowledge equities analyst Adam Crisafulli wrote in a note, “Target says it has cut its inventory exposure in discretionary categories while expanding in fast-growing frequency sectors.”
The sudden shift in consumer spending from things for the house, such as televisions and small kitchen appliances, to dining out, movies, and travel caught retailers by surprise. Adding to this shift is the escalation of inflation. Target’s first-quarter profits fell 52% compared to the same period last year.
For the three months ending July 30, Target recorded a net income of $183 million, or 39 cents per share, for the second quarter. This decreased from $1.82 billion, or $3.65 per share, in the same period last year. According to FactSet, analysts had anticipated 79 cents per share.
Revenue grew 3.5% to $26.04 billion. According to FactSet, analysts were anticipating $26.03 billion in revenue.
In addition to last year’s 8.7% gain, same-store sales grew 1.3%. The increase in online sales was 9%, following growth of 9.9% in the prior year.
CEO Brian Cornell stated, “While these inventory moves put considerable pressure on our near-term profitability, we are certain that this was the appropriate long-term decision in support of our guests, staff, and business.”
During a media call, Target officials told reporters that it would have taken at least a few quarters to sell off the excess inventory if the company hadn’t been diligent about marking it down.
Cornell stated that the company’s plans for the remainder of the year, particularly the crucial holiday season, are conservative. This will place a greater emphasis on storing groceries and cosmetics.
The company is maintaining its prior forecast for full-year sales growth in the low- to mid-single-digit range. In addition, it anticipates an operating margin rate in the range of 6 percent in the second half of the year, a significant increase from 1.2% in the most recent quarter.
Walmart, the nation’s largest retailer, revealed Tuesday that its second-quarter sales and profits increased. It was stated that buyers with higher incomes flocked to the discounter to save money on groceries, whilst shoppers with lower incomes felt squeezed by increasing inflation and switched from deli meats to hot dogs and canned tuna.