June 7 (Reuters) – Target Corp. (TGT.N) lowered its quarterly profit margin forecast, released just weeks earlier, on Tuesday, and said it would have to offer bigger discounts to clear stocks as inflation, high for decades, is affecting demand.
The surprising revision of the forecasts led to a decline in Target shares by nearly 7% at the beginning of trading and the weight of the retail sector and wider markets.
The retailer said it would cut prices in the second quarter, cancel orders with suppliers, strengthen parts of its supply chain and give priority to categories such as food and basic necessities.
Register now for FREE unlimited access to Reuters.com
I’m registering
Rising inflation is forcing consumers to change their shopping habits, catching many retailers unprepared and forcing them to offer more discounts.
Target, along with Walmart (WMT.N), reported a much sharper-than-expected decline in quarterly earnings in May, sending shockwaves to the retail industry. Read more
At the time, Target said its inventory had risen 43 percent from a year earlier as demand for high-margin discretionary items such as kitchen appliances and TVs declined.
Shopping cart seen at Target store in Brooklyn, New York, USA, November 14, 2017. REUTERS / Brendan McDermid
“Target was a retailer who had done extremely well in managing inventory challenges, but now that consumers … are pausing to see where they are spending, what was once an advantage may come back.” “Jessica is an analyst at Jane Hali & Associates,” Ramirez said.
Target’s strategy of keeping most of its products more affordable than its competitors has proved costly, and the company now says it will raise the prices of some items to offset the unusually high costs of transportation and fuel.
Reuters Graphics
The company now expects the operating margin for the second quarter to be around 2% compared to the preliminary estimate of 5.3%. He also expects margins to be around 6% for the second half of the year.
However, Target kept its sales targets for the year, prompting some Wall Street analysts to say the company’s aggressive measures could help it take the lead later in the year.
“While this is a painful period for Target, taking their medicine (again) in Q1 and Q2 really creates a better second half with cleaner stocks … (and) sets for a better second half and stocks,” said DA Davidson analyst Michael Baker.
Register now for FREE unlimited access to Reuters.com
I’m registering
Report by Aishwarya Venugopal, Susan Matthew and Uday Sampat in Bengaluru; Edited by Anil D’Silva
Our standards: Thomson Reuters’ principles of trust.
Add Comment