Target said on Tuesday that it is canceling orders from suppliers, especially for household items and clothing, and is further lowering prices to clean up inventory accumulated ahead of critical fall seasons and holiday shopping.
The action comes after a sharp shift in spending by Americans from investments in their homes to money spent on travel, night out for dinner and more elegant clothing, a change that came much faster than expected. the main retailers.
The speed with which Americans are moving away from pandemic spending was revealed in the latest quarterly financial statements by a number of large retailers. Target reported last month that its first-quarter fiscal earnings were down 52% compared to the same period last year.
Sales of large TVs and small kitchen appliances that Americans charged during the pandemic have faded, leaving Target with an inflated inventory that, he said, was to be marked for sale.
“This announcement will scare investors, especially the fact that it comes less than a month after Target reported the gains, and should probably make people a little nervous about Walmart and Kohl’s, but it seems that the problem is more specific to the market. ‘Company than anything else,’ said Adam Crisafulli of Vital Knowledge in a research note.
Target shares fell more than 7% in pre-market trading. Shares of other retailers fell with it, with Walmart, Nordstrom and Macy’s falling between 2% and 4%.
Target declined to give a dollar amount for orders of goods being canceled and the depth of discounts.
“The additional guidance also creates nervousness because trade in certain categories, such as home, has deteriorated more and more rapidly since first quarter results,” GlobalData CEO Neil Saunders said in an email. “This is not exclusive to Target, but given the company’s over-inventory, it leaves it especially exposed.”
Ordered: groceries and makeup
By aggressively eliminating unwanted goods, Target wants to make room for what is now in demand, including groceries and makeup products. But Target also faces much higher costs for everything from labor to transportation and shipping, and will offset price cuts wherever it can with higher prices of goods now in demand.
“Retail inventories are high,” Michael Fiddelke, chief financial officer of Target, told The Associated Press in a telephone interview Monday. “And they are certainly for us, in some of the categories we misunderstood. We determined that acting aggressively was the right way to continue to feed the business.”
Target is working with suppliers to cover the costs of their resellers whose orders are being canceled. In some cases, some of the raw materials intended for some products will be used for other more in-demand products, Fiddelke said. Many of the canceled product orders have a long production time of nine months, he said.
Target also announced that it will add five distribution centers over the next two years.
Target said the costs related to the moves will affect the final result for the current quarter. Target now expects its second-quarter operating margin rate to be about 2%, down from the roughly 5.3% it had expected 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 leading up to the pandemic. .
Last month, Target predicted that its full-year operating income margin rate would be in the 6% range. Target did not give a new full range prediction. He also said he secured additional space near U.S. ports to store goods to allow for more flexibility.
Target, however, continues to expect year-over-year revenue growth in the low-to-medium range and expects to maintain or gain market share throughout the year.
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