Wednesday, July 6

Target warns of weaker margins again as inflation curbs consumer spending

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Target Corp on Tuesday slashed its quarterly margin forecast issued just weeks earlier, and said it would have to offer deeper discounts and cut back on stocking discretionary items, as inflation dents consumer spending.

The retailer said it would mark down prices in the second quarter, cancel orders to optimize inventory, speed up parts of its supply chain and prioritize categories such as food and household essentials.

The company’s shares, which have lost about a third of their value since the start of the year, fell 9% in premarket trading and dragged down the retail sector.

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The surprise forecast revision is a big blow for the company, which in May joined larger rival Walmart in reporting a much steeper-than-expected drop in quarterly profits, sending shockwaves through the retail industry.

Soaring inflation and higher gas prices are forcing consumers to change their shopping habits, catching many retailers off guard and forcing them to offer more discounts.

The retailer’s strategy to keep a big portion of its products affordable compared with its rivals is also proving to be costly, with the company now saying it would raise prices on some items to offset the unusually high transportation and fuel costs.

“While these decisions will result in additional costs in the second quarter … (it will result) in improved profitability in the second half of the year and beyond,” Target Chief Executive Officer Brian Cornell said.

The company now expects second-quarter operating margin to be about 2%, compared with its prior estimate of 5.3%. It also expects margins to be around 6% for the second half of the year, while maintaining its sales goals for the year. (Reporting by Aishwarya Venugopal in Bengaluru; Editing by Anil D’Silva)