Topline
Target’s profits for the second quarter of 2022 fell by more than 90% compared to the previous year as the retail giant was forced to rely on deep discounts to sell off excess inventory.
Target reported a 90% drop in profit in the second quarter of 2022.
Key Facts
Target reported net earnings of $183 million in the second quarter of 2022—sharply down from $1.8 billion during the same period last year—even though its revenues rose slightly from $24.8 billion to $25.6 billion.
The steep drop off in profit has been attributed to Target’s thin operating margin of 1.2% in the quarter—which is even lower than the company’s previous forecast of 2%—as the company marked down prices to get rid of excessive inventory.
The company noted that it expects its operating margin to improve to about 6% for the second half of the year.
In a call with investors both the company’s CEO Brian Cornell acknowledged the “meaningful short-term impact” of Target’s inventory disposal strategy but insisted it was the best thing for the “long-term strength of our business.”
Target’s stock was down by nearly 4.5% after markets opened on Wednesday.
Contra
A day earlier Target’s rival Walmart announced better than expected earnings for the second quarter and reported a net income of $5.15 billion, up 20% compared to the same period last year. In its earnings call Walmart said it had made “good progress” in thinning out its excess inventory and has managed to clear “most summer seasonal inventory.”
Tangent
In a note sent out to the press, economists at Goldman Sachs said the liquidation of excess inventory by retailers at discount prices is likely to have a modest impact on consumer price inflation in the U.S. The discounted prices on excessive inventory will be offset by “large sticker price increases” on many other goods, the note added.
Big Number
$15.32 billion. That is the total value of inventory held by Target, which is still higher than $13.9 billion the last quarter and $11.2 billion a year ago.
Further Reading
Walmart Jumps 5% After Solid Earnings And Further ‘Progress’ Reducing Inventory Levels (Forbes)
Source: https://www.forbes.com/sites/siladityaray/2022/08/17/targets-profits-drop-90-as-it-relies-on-discounts-to-get-rid-of-inventory/