Target Corp cut its quarterly margin estimates just a few weeks ago and said it should offer bigger discounts and reduce product stockpiling as inflation cuts consumer spending.
The retailer said it would cut prices in the second quarter, cancel orders to optimize inventory, speed up parts of the supply chain and prioritize categories such as food and household necessities.
The company’s shares fall 9% in pre-conference trading.
The unexpected revision of the estimates is a big blow to the company, which in May announced – like its competitor WalMart – a much deeper drop in quarterly profits, causing shock in the retail industry.
Rising inflation and higher gas prices are forcing consumers to change their buying habits, catching many companies “asleep” and forcing them to offer bigger discounts.
The company’s strategy of keeping a large portion of its products affordable compared to competitors is also proving costly, with the company now stating that it will increase prices on some products to offset the unusually high shipping and fuel costs.
“While these decisions will lead to additional costs in the second quarter, they will result in improved profitability in the second half of the year and beyond,” said Target CEO Brian Cornell.
The company now expects the operating margin in the second quarter to be 2% compared to the previous estimate of 5.3%.
Source: Capital
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