Target profit crumbles | Inquirer Business

Target profit crumbles

Inflation-weary consumers shun discretionary spending
/ 09:02 PM August 17, 2022

Shoppers exiting Target store

Shoppers exit a Target store during Black Friday sales in Brooklyn, New York, U.S REUTERS/Brendan McDermid/File photo 

Target Corp reported a bigger-than-expected 90 percent fall in quarterly earnings on Wednesday and missed estimates for comparable sales as it struggled to lure inflation-hit shoppers with steep discounts on apparel, electronics and home goods.

A host of U.S. retailers have issued profit warnings in recent weeks as consumers squeezed by higher prices for everything from toothpaste to gas curtailed spending on non-essential items.

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As Target relies more on discretionary categories, it is prone to take a bigger hit during tougher times than its rivals such as Walmart Inc, where groceries and packaged food items get more shelf space.

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Walmart beat profit estimates as its core base of low-to-middle income shoppers flocked to its stores for bargains on groceries.

Minneapolis-based Target’s operating margin rate tumbled to 1.2 percent in the second quarter from 9.8 percent a year earlier, due to costs related to clearing out excess merchandise.

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Shares of the big box retailer fell 3 percent in premarket trading.

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Still, Target reiterated it would return to an annual operating margin rate of about 6 percent .

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“The vast majority of the costs to get our inventory where we wanted it are behind us … we’re well positioned to see improved profit performance in the back half of the year,” finance chief Michael Fiddelke said on a media call.

Target’s second-quarter comparable sales rose 2.6 percent , below analysts’ estimates of a 3.3-percent increase, according to IBES data from Refinitiv.

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The company reported quarterly earnings of $183 million, or 39 cents per share, missing estimates of 72 cents.

Despite heavy discounts, inventory rose 1.6 percent to $15.3 billion at the end of the quarter from the prior period.

The increase in inventory was due to the company expediting product shipments for the back-to-school and holiday shopping periods in a still “choppy” supply chain environment, chief executive Brian Cornell said.

“Target is now in a better position from a profitability standpoint but it is going to take some time to work through inventory, said John Tomlinson, global director of research at M Science.

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“The magnitude of the disconnect between inventory and sales growth is something I haven’t seen in a really long time, maybe ever,” he added.

TAGS: Earnings, Inflation, target

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