Target Corp. is moving aggressively to balance the front end and back end of its business, laying out a plan to “right-size” its inventory by ramping up markdowns, removing excess and canceling orders.
Brian Cornell, chairman and chief executive officer, said: “Target’s business continues to generate healthy increases in traffic and sales, despite sustained volatility in the macro environment, including shifting consumer buying patterns and rapidly changing operating conditions. Since we reported our first-quarter results, we have continued to monitor external conditions and have determined the necessary actions to remain nimble in the current environment. The additional steps we are announcing today will ensure that we deliver for our guests while driving further growth. While these decisions will result in additional costs in the second quarter, we’re confident this rapid response will pay off for our business and our shareholders over time, resulting in improved profitability in the second half of the year and beyond.”
Target is now looking for its second-quarter operating margin to come in around 2 percent — a significant step back given that the company projected just last month that its margins would be in “a wide range centered around first quarter’s operating margin rate of 5.3 percent.”
Investors, who have already been closely watching Target in an environment that is both highly inflationary and beset with supply chain backups, pushed shares of the company down 8.1 percent to $146.73 in premarket trading on Wall Street.
In addition to turning to markdowns, Target said its “action plan” includes “the addition of incremental holding capacity near U.S. ports to add flexibility and speed in the portions of the supply chain most affected by external volatility; pricing actions to address the impact of unusually high transportation and fuel costs, and working with suppliers to shorten distances and lead times in the supply chain.”
The pain is not uniform across Target’s business.
The company said it expects to see continued strength in “frequency categories like food and beverage, household essentials and beauty” while it is planning “more conservatively” in discretionary categories such as home.
Shares of Target slipped 2.3 percent to $155.98 on Tuesday.
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