Target (NYSE:TGT) warned investors Tuesday that its profits will take a short-term hit, as it marks down unwanted items, cancels orders and takes aggressive steps to get rid of extra inventory.
The retailer slashed its profit margin expectations for the fiscal second quarter to account for a wave of goods winding up deeply discounted or on the clearance rack.
“We thought it was prudent for us to be decisive, act quickly, get out in front of this, address and optimize our inventory in the second quarter — take those actions necessary to remove the excess inventory and set ourselves up to continue to be guest relevant with our assortment,” CEO Brian Cornell told the media.
By taking swift action, Cornell said Target can fend off further pain and make room for merchandise that customers do want, such as groceries, beauty items, household essentials and seasonal categories like back-to-school supplies. He said the company’s stores and website are seeing strong traffic and “a very resilient customer,” but one who no longer shops popular COVID pandemic categories.
“We want to make sure that we continue to lean into those categories that are relevant today,” he said.
Target anticipates its operating margin rate for the second quarter will be around 2%. That’s lower than the outlook it gave less than three weeks ago, when it anticipated its operating margin rate would be roughly around its first-quarter operating margin rate of 5.3%.
TGT shares swooned $9.40, or 5.9%, to begin Tuesday at $150.27.
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