Friday, August 12, 2022
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Target Will Cut Prices to Clear Out Unwanted Inventory, Taking a Profit Hit

Target plans to cut prices and cancel orders to clear out unwanted inventory, announcing a series of steps on Tuesday to combat rising prices and supply chain disruptions. The actions would cut its profit in the current quarter, the company said, pushing its shares down 7 percent in premarket trading.

It is the latest move by a major retailer revealing how inflation and shifts in consumer habits are swiftly changing the outlook for business. Just three weeks ago, Target shocked investors with earnings that were much worse than expected, leading its shares to fall nearly 25 percent. It cut its forecast for profit then, and lowered it even further on Tuesday.

Target, like many retailers that faced skyrocketing demand in the early months of the pandemic, stocked up on goods as snarled supply chains delayed shipments. But consumers are now turning away from home goods, tech, athleisure wear and other products for staying home and shifting to spending on experiences and going out.

Target’s ballooning inventory reflects a mix of merchandise that hasn’t — or can’t, for supply chain reasons — keep up with this shift. “Trends have changed rapidly since the beginning of the year,” the company said in its statement.

The company’s warning on Tuesday follows its disappointing earnings report last month, shortly after Walmart announced similarly downbeat earnings, dented by higher labor and fuel costs. Those reports helped spark a decline in the S&P 500 that dragged it down briefly into bear market territory, defined as a fall of 20 percent from a recent peak. Stocks have recovered somewhat, but the outlook remains unpredictable, as highlighted by Target’s latest move.

The news has not been all bad for retailers: Hard discounters, Macy’s and others have recently reported earnings that beat Wall Street’s expectations. Macy’s said that customers were buying more occasion-based apparel and shopping in person. Dollar Tree and Dollar General upgraded their forecasts for the year as shoppers sought lower prices and traded down from expensive brands.

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