Target shares fall after orders cut, prices amid inventory glut

Target shares fall after orders cut, prices amid inventory glut

Target said Tuesday it was canceling orders from vendors, particularly for homewares and apparel, and cutting prices further to clear stockpiled ahead of the critical fall and holiday shopping seasons.

The shares come after a pronounced shift in Americans’ spending from investing in their homes to money being spent on travel, dining out and dressier clothes – a shift that has come much faster than majors expected. retailers.

The speed at which Americans have moved away from pandemic-related spending has been laid bare in the latest quarterly financial reports from a number of major retailers. Target announced last month that its profit for the first fiscal quarter fell 52% from the same period last year.

Sales of big TVs and small kitchen appliances that Americans loaded up during the pandemic have faded, leaving Target with a bloated inventory it says needs to be cut to sell.

“This announcement is going to scare investors – especially the fact that it comes less than a month after Target announced its earnings – and it should probably make people a little nervous about Walmart and Kohl’s, but it looks like the problem is more company-specific than anything else,” said Adam Crisafulli of Vital Knowledge in a research note.

Target shares fell more than 7% in premarket trading. Shares of other retailers fell with him, with Walmart, Nordstrom and Macy’s falling between 2% and 4%.

Target declined to give a dollar amount of merchandise orders that are canceled and the depth of the discounts.

“The additional guidance is also creating nervousness as trading in some categories, such as home, has deteriorated further and faster since the first quarter results,” GlobalData chief executive Neil Saunders said in an email. . “It’s not unique to Target but, given the company’s over-inventory, it leaves it particularly exposed.”

In demand: Grocery and makeup

By aggressively eliminating junk, Target wants to make room for what’s currently in demand, including groceries and makeup products. But Target also faces significantly higher costs for everything from labor to transportation and shipping, and it will offset price drops where it can with higher prices for goods currently. required.

“Retail inventory is high,” Target CFO Michael Fiddelke told The Associated Press in a phone interview Monday. “And they certainly are for us, in some of the categories that we mis-predicted. We determined that acting aggressively was the right way to continue to fuel the business.”

Target works with suppliers to cover the costs of their suppliers whose orders are canceled. In some cases, some of the raw materials for certain products will instead be used for other products that are more in demand, Fiddelke said. Many canceled product orders have a long production lead time of nine months, he said.

Target also announced that it will add five distribution centers over the next two fiscal years.

Target said moving-related costs will hurt the current quarter’s bottom line. Target now expects its second-quarter operating margin rate to be about 2%, down from about 5.3% it had forecast last month. For the second half of the year, Target expects an operating margin rate of around 6%, a rate it said would exceed the company’s average fall season performance in the years before. the pandemic.

Last month, Target expected its full-year operating margin rate to be around 6%. Target did not give a full new prediction. It also said it has secured additional space near US ports to store cargo to allow for more flexibility.

Target, however, continues to expect full-year revenue growth in the low to mid-single digit range and expects to maintain or gain market share for the year.

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