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Shift in customer spending leaves Target no choice but to sell unwanted inventory, profits hit a low

Target's profits take a hit as customer spending shifts prompts them to sell unwanted inventory
Target's profits take a hit as customer spending shifts prompts them to sell unwanted inventory

Image source: The Verge

The US economy has had its ups and downs, even the Target department store chain took a massive hit.

Target sales report

Target recently reported positive sales for its second fiscal quarter.

However, the chain’s profits fell nearly 90% as it was forced to cut prices on items such as clothing, homewares and electronics to liquidate inventory.

Two months ago, Target issued a warning that it was canceling supplier orders while aggressively lowering prices.

His decision came from shifting spending among Americans as the pandemic slowed. In the meantime, the target stocks fell by almost 4%on Wednesday.

The retailer missed the expectations of Wall Street with a considerable scope, even after Target cut the lead twice.

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Despite reports, the goal for the forecasts for the whole year is sticking to. The company is confident that it is positioned for a back rim.

Target also expects sales growth of the year as a whole with low to medium -sized individual digits.

The company said its operating margin will be in the 6% range in the second half of 2022.

A 6% transaction would be a leap from an operating margin of 1.2% in the fiscal second quarter.

Spending shift

Retailers were caught off guard by customer abandonment from buying TVs and small kitchen appliances, eating out, going to the movies and traveling.

The change also coincides with the increase in inflation.

In the first quarter, Target’s profits fell 52% compared to the same period a year ago.

Net income

Target reported second-quarter net income of $183 million for the three months ended July 30.

The numbers are lower than Wall Street’s expected earnings per share of 79 cents.

Net income also fell short of the $1.82 billion target achieved in the same period last year.

Revenue rose 3.5% to $26.04 billion from $26.03 billion expected by analysts.

Target store comparable sales also increased 1.3%, on top of the 8.7% year-over-year growth, and online sales increased 9% from 9.9%. % in 2021.


“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,” said Brian Cornell, CEO of Target.

On a media call, Target executives shared with reports that it would have taken Target more quarters to unload unwanted goods if the company hadn’t taken the aggressive inventory reduction approach.

For the rest of the year, including the critical holiday season, the company is planning cautiously, according to Cornell.

The plans focus on storing groceries and other items like cosmetics. Target’s Chief Growth Officer and Executive Vice President said the company is listening carefully to customers’ wishes, needs, hopes and concerns.

“They still have spending power, but they’re increasingly feeling the impact of inflation,”  Hennington said during a conference call on Wednesday.

“While the recent reduction in prices at the gas pump have been encouraging, guest confidence in their personal finances continues to wane.”

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Inflation effect

Due to inflation, customers seek out Target’s cheapest private label brands and wait for discounts and consolidate trips to save on gas bills.

The company is sticking to its previous full-year revenue growth forecast at a low to medium to single-digit percentage.

Target also expects an operating margin of over 6% in the second half of the year, a significant increase compared to 1.2% in the last quarter.


Target takes a hit after heavy discounts to clear inventory

Target’s earning take a huge hit as retailer sells off unwanted inventory

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