New Target: Markdowns And Canceling Orders To Clear Excess Inventory

The brutal economic situation has left Target Corporation (NYSE: TGT) with too much inventory on its hands. The situation has put the firm in a position where the store chain had to launch a series of stop-gap measures to mitigate the bulging supply, leading to expected lower profits for the next quarter.

“We’ve had some additional time after earnings to really evaluate the overall operating environment,” said CEO Brian Cornell in an interview. “We have to be decisive and get out in front of this to make sure this doesn’t linger through the back half of the year.”

After reporting an underwhelming Q1 2022 financials in the previous month, the company has now announced its projected operating margin for Q2 2022 would be around 2%–far down from the previously announced 5.3%, which itself missed the consensus then at 9.4%.

But the firm is keeping its estimated 6% operating margin for the second half of the year.

The subsequent quarter’s margin is expected to contract as the firm enumerates a list of actions aimed to address the excess sitting inventory. Among the initiatives include markdowns, canceling orders, and pricing actions to address the growing cost of goods.

In its Q1 2022 financials, Target reported US$15.08 million in inventory, up from Q4 2021’s US$13.90 million and Q1 2021’s US$10.54 million. The firm said that the increase in inventory can be attributed to the rapid decline in demand for outdoor furniture, small appliances, and electronics.

“While these decisions will result in additional costs in the second quarter, we’re confident this rapid response will pay off for our business and our shareholders over time, resulting in improved profitability in the second half of the year and beyond,” Cornell added.

Target last traded at US$156.80 on the NYSE.

Information for this briefing was found via The Wall Street Journal, Seeking Alpha, and the companies mentioned. The author has no securities or affiliations related to this organization unless otherwise mentioned. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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