Target said it was “cautiously planning” for the rest of the year after the US retailer’s efforts to offer discounts to customers and move inventory led to a bigger-than-expected drop in second-quarter profit .
The company spooked investors in June when it announced its second profit warning in less than a month and said it would have to cancel orders and offer more discounts to shoppers hit by high inflation.
Target cut its second-quarter operating margin forecast to 2% from 5.3%. On Wednesday, it reported an even weaker margin of 1.2 percent as it worked to reduce excess inventory and cited higher shipping and handling costs.
CEO Brian Cornell said Target was facing a “very challenging environment” and emphasized working to achieve the inventory “right-sizing targets” announced in June.
“While these inventory actions put significant pressure on our profitability in the short term, we are confident that this was the right decision in the long term in support of our guests, our team and our business,” he said Cornell.
The Minneapolis-based group reported net profit of $183 million in the three months to July 30, down from $1.81 billion in the same quarter last year and less than half of the $396 million forecast by analysts polled by Refinitiv.
Quarterly revenue of $26.03 billion was up from $24.82 billion a year ago, but below analysts’ forecast of $26.61 billion.
Target’s earnings miss comes after retailer Walmart and home improvement chain Home Depot reported resilient consumer spending on Tuesday despite inflationary concerns weighing on U.S. shoppers.
Target, which along with retailer Walmart serves as a proxy for the US consumer, said it was “cautiously planning” for the rest of the year and maintained its previous guidance for revenue growth throughout the year in the low to mid single digit range. and operating margin around 6 percent in the back half of the year.
Target shares were down 3.7 percent in premarket trading on Wednesday.