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Business Maverick: Target’s Bloated Inventory Spurs Another Profit Outlook Cut

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Target Corp. cut its profit outlook for the second time in three weeks as it rushes to ease an inventory surge by marking down items and canceling orders.

Soaring merchandise stockpiles and “unusually high transportation and fuel costs” prompted Target to cut its outlook for operating profit to about 2% of sales this quarter. On May 18, the company had projected the gauge would be in a wide range around 5.3%.

Shares of Target fell 2.8% at 11:13 a.m. on Tuesday, paring an earlier drop of as much as 7.8%. The slump dragged down shares of its rivals, including Walmart Inc. Target had already fallen 31% so far this year, including its biggest skidafter the release of its first-quarter results, which featured a profit forecast cut and a big jump in inventories. That came at the heels of a huge run-up in the stock price during the first two years of the pandemic and years of sales growth.

“Excess inventory doesn’t usually age well,” Fiddelke said in an interview. “We want to make sure that we’re being aggressive to right-size our inventory now.” He said this would improve shoppers’ experience while boosting value for investors in the long term.

 

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