Target's profit sinks after it cut prices to clear inventory
Target reported solid sales for the fiscal second quarter but its profits plunged nearly 90 percent because it slashed prices to clear inventories of clothing, home goods and other discretionary items.
The worse-than-expected profit results came two months after Target warned that it was canceling orders from suppliers and aggressively discounting because of a pronounced spending shift by Americans that left the Minneapolis-based discounter with bloated inventory.
Like many retailers, Target has been blindsided by consumers’ lightning-speed switch from spending on pandemic-inspired home items, like TVs and small kitchen appliances, to investing on experiences. Moreover, surging inflation is forcing shoppers to focus on necessities. The discounting followed Target’s reporting in mid-May that its first quarter profits tumbled 52 percent compared to the year-ago period.
Target reported second-quarter net income of $183 million, or 39 cents per share, for the three-month period ended July 30. That was down from $1.82 billion, or $3.65 per share in the year-ago period.
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Analysts were expecting 79 cents per share, according to FactSet.
Revenue rose 3.5 percent to $26.04 billion. Analysts were expecting $26.03 billion, according to FactSet.
Store comparable sales increased 1.3 percent on top of 8.7 percent growth last year. Online sales rose 9 percent following growth of 9.9 percent last year.
“While these inventory actions put significant pressure on our near-term profitability, we’re confident this was the right long-term decision in support of our guests, our team and our business," Target CEO Brian Cornell said.
Cornell told reporters during a media call that if Target weren't aggressive about marking down the inventory, it would have taken at least several quarters to get rid of the unwanted merchandise, leaving stores cluttered and preventing them from getting much-needed shipments of new merchandise.
In comparison, Walmart, the nation's largest retailer, reported on Tuesday that its sales and profits for the second quarter rose. It said that higher-income shoppers were flocking to the discounter to save money on groceries, while low-income shoppers were feeling squeezed by higher inflation and were switching from deli meats to hot dogs and canned tuna.