Target warns profits will take short-term hit as it cuts back on excess inventory

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Target warned Tuesday that its profits will take a hit in the near term while it implements several measures to reduce excess inventory. 

The Minneapolis-based retailer, which is facing excess inventory in several categories, said it's planning in part to issue additional markdowns, cancel orders and remove excess inventory in order to "right-size its inventory for the balance of the year." 

TickerSecurityLastChangeChange %
TGTTARGET CORP.157.01-2.72-1.70%

The company said during its first-quarter earnings call last month that it had "softer-than-expected sales in several categories" during the first three months of the year, which resulted "in too much inventory in those areas." 

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Since then, Target CEO Brian Cornell said the company has "continued to monitor external conditions and have determined the necessary actions to remain nimble in the current environment."

View of the reusable bags at Target Store on April 13, 2021 in New York.  (John Smith/VIEWpress / Getty Images)

As a result of the actions announced Tuesday along with "current expectations for the economy and consumer environment," Target slashed its second-quarter operating margin rate, which is now projected to be in a range of around 2%. 

Meanwhile, the company said during the first-quarter earnings call that its operating margin rate would be "centered around our first quarter rate of 5.3%." 

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"While these decisions will result in additional costs in the second quarter, we’re confident this rapid response will pay off for our business and our shareholders over time, resulting in improved profitability in the second half of the year and beyond," Cornell said. 

The company also projected that its operating margin rate for the second half of the year to be in a range of around 6%, which Target says is "a rate that would exceed the company’s average fall season performance in the years leading up to the pandemic."

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Target also expects its full-year revenue growth to be in the low- to mid-single-digit range, and expects to maintain or gain market share in 2022.

Target is far from the only retailer facing excess inventory. Other major players in the retail sector, including Walmart and Macy's, are also planning to implement markdowns to cut down on excess product inventory. 

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