Target predicts low profits after plan to mark down huge inventory, shares fall steeply


Source Flickr/Wikimedia
Author Jay Reed

On Tuesday, during premarket hours, Target announced course correction on its huge inventory. The retailer’s shares immediately plunged by 4 percent. Its aggressive plan is to cut inventory with markdowns on the huge pile of goods that are lying idle in warehouses. Other plans include a hike in prices as prices of fuel and transportation have risen. The plan will also adjust its supply chain and cancel a few orders.

Target estimates that its second quarter operating margin rate would be about 2 percent and 6 percent in the second half of the year. The retailer said that it expected its full year revenue growth to be in single digit in the low to mid range. It also said that it would maintain or gain market share.

Target had reported its first quarter results on May 18. The company’s stock had fallen steeply after the report. Chief Executive Brian Connell had said that they were expecting a slowdown after the stimulus package ended. However, they didn’t anticipate that it would be such a huge slowdown.

Target has an oversupply of merchandise. It has cancelled orders from suppliers of home goods and clothing. Large merchandise stockpiles are expensive. So, the retailer is marking down prices. However, it has also decided to tackle supply chain issues by adding “incremental holding capacity new U.S. ports.” This will give the company greater flexibility and lower the price for some products.

According to a report in CNBC, Connell said that Target will be concentrating on essential supplies and items that customers want including groceries and household essentials as well as beauty items and seasonal categories including back-to-school supplies.

He also mentioned that they have “resilient” customers who visit their stores and websites but no longer shop in categories that were popular during the pandemic. He also mentioned strategies including packing away merchandise that would be sold in full price in future as well as promoting and coming up with “ways to sell through it now.”

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