Target Corp. (TGT) shares slumped lower Tuesday after the retailing giant trimmed its near-term margin forecasts as it looks to shift excess inventory with deeper discounts, while boost prices on some of its other goods in order to offset surging fuel and transportation costs.
Just weeks after guiding investors to a second quarter operating margin of around 5.3%, Target said Tuesday that the figure would likely narrow to around 2% for the three months ending in July before rebounding over the second half of its fiscal year.
Target stock, in fact, fell the most in more than three decades last month after it cautioned on freight and fuel costs and their impact on near-term margins, noting the combined increase would amount to around $1 billion.
The group also said at the time it was carrying "too much inventory in several categories where the slowdown in sales was more pronounced than expected."
"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," said CEO Brian Cornell. "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," he added. "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."
Target shares were marked 3.1% lower in early afternoon trading Tuesday to change hands at $155.05 each, a move that would extend the stock's year-to-date decline to around 33.3%.
Target said it will put on additional product markdowns in order to move excess inventories, while also executing "pricing actions to address the impact of unusually high transportation and fuel costs".
Target's larger rival, Walmart (WMT), also posted weaker-than-expected first quarter earnings last month, as overall inventory levels rose 33.4% -- despite firmer sales -- with CEO Doug McMilon noting that it will likely need to be "worked through" in the coming quarters with roll backs on apparel prices if necessary.
As a result, Walmart said it sees fiscal 2023 earnings falling by around 1%, compared to a prior forecast of a 5% to 6% increase, with net sales rising by around 4%, a 100 basis point boost to its February estimate.
