Target Corp has warned of a further squeeze on its margins due to excess inventory, cutting the quarterly profit margin forecast it issued just weeks ago.
The retail giant said it would have to offer deeper discounts to clear inventory as decades-high inflation takes a toll on demand.
Target said it would mark down prices in the second quarter, cancel orders with suppliers, strengthen parts of its supply chain and prioritize categories such as food and household essentials.
Along with Walmart Inc (NYSE:WMT), Target had reported a much steeper-than-expected drop in quarterly profit in May. At the time, Target said its inventory rose 43%, compared with a year earlier, as demand for high-margin discretionary items such as kitchen appliances and televisions fell.
The company said it now expects its second-quarter operating margin to be about 2%, compared with its prior estimate of 5.3%. It expects its margins to be around 6% for the second half of the year. Target, however, maintained its sales goals for the year.
The shock outlook revision sent Target shares down 4% to $155.57 in late morning trading in New York and weighed on the overall retail sector and broader markets.
Contact the author at jon.hopkins@proactiveinvestors.com