Target lowered its forecast for the second quarter as it plans to markdown merchandise, remove excess inventory and cancel orders to right-size its inventory levels.
The discounter said the actions build on the company’s record of growth and market-share gains.
The action plan also includes the incremental holding capacity near U.S. ports to add flexibility and speed in the portions of the supply chain most affected by external volatility, pricing actions to address the impact of unusually high transportation and fuel costs and working with suppliers to shorten distances and lead times in the supply chain.
The company will also accelerate work in flight, including revisions to sales forecasts, promotional plans and cost expectations by category. Specifically, it plans to strengthen in frequency categories, including Food & Beverage, Household Essentials and Beauty, with more conservative plans in discretionary categories like Home, where trends have changed rapidly since the beginning of the year.
The company is also pursuing aggressive options to control costs, including working with vendors to offset inflationary pressures, driving continued operating efficiencies and reducing costs while preserving a robust customer experience. Finally, the company continues to build additional capacity in its upstream supply chain to support future growth by adding five distribution centers over the next two fiscal years.
The actions announced today result from the company’s ongoing assessment of current industry performance, the operating environment and consumer trends.
“Target’s business continues to generate healthy increases in traffic and sales, despite sustained volatility in the macro-environment, including shifting consumer buying patterns and rapidly changing operating conditions. Since we reported our first-quarter results, we have continued to monitor external conditions and have determined the necessary actions to remain nimble in the current environment. The additional steps we are announcing today will ensure that we deliver for our guests while driving further growth. 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,” said Brian Cornell, chairman and chief executive officer, Target Corporation.
Guidance Updates
In light of the decisions announced and based on the company’s current expectations for the economy and consumer environment, Target now expects its second-quarter operating margin rate to be around two percent. When it reported first-quarter results on May 18, Target said it anticipated its operating margin rate would be roughly around its first-quarter operating margin rate of 5.3 percent.
For the back half of the year, Target expects an operating margin rate of around 6 percent, a rate that would exceed the company’s average Fall season performance in the years leading up to the pandemic.
The company continues to expect full-year revenue growth in the low- to the mid-single-digit range and expects to maintain or gain market share in 2022.
Photo courtesy Target
