Target stock falls as the retailer announces plan to reduce inventory
In This Article:
Yahoo Finance Live anchors discuss Target’s plan to slash prices in an effort to move more of its inventory.
Video Transcript
BRIAN SOZZI: Now here are three things you need to know right now. Speaking of things going down, excess inventory is a major problem at retailers right now as consumers curtail their spending with inflation staying high. And that is forcing Target to take some very drastic actions.
Target CFO, Michael Fiddelke tells Yahoo Finance they plan to cancel orders, markdown inventory, and take a harder look at expenses as they prepare for a new consumer reality. All this will come at a price to Target second quarter profits the company disclosed this morning.
And, wow. I saw this release, guys. And my first thought was this is Target preparing for a recession. Now, Fiddelke, when I talked to him, he pushed back on that notion, really emphasizing that they're seeing more of a consumer shift from consumers, perhaps, spending more on food and daily essentials in this inflationary environment and less on home goods.
But still, Target just reported at the end of March. And so, this is, I would say, an unprecedented release from Target, at least for the close to 13 years I've been covering the company. I know they did not make this decision very lightly.
JULIE HYMAN: Yeah. I mean, what's interesting to me too is how, to the point of not taking this decision lightly, that they're taking really decisive action here. They're talking about the margins being smaller here, although then expanding closer to operating margins. Expanding closer to 6% for the full year.
But it seems like it's interesting to me how negative the reaction is in the market. Because here is Target coming out and saying, here's the situation on the ground, here's the action that we're taking to deal with it and to right size our inventory and the market rather than saying, OK, you're trying to stop the problem here, stop the bleeding, for lack of a better word. They're not saying that.
- Well, it's this deep discounting on inventory, of course. And we had kind of heard this during the last earnings call as well where they very much talked about the fact that they had seen consumers in their core merchandise categories, apparel, home, and hard lines. They saw rapid slowdown in year-over-year sales trends beginning in March, and that's when they started to annualize last year's impact, especially up against the stimulus payments.
But they didn't expect that type of downturn, that type of slippage to the extent that it was seen. And so, we could really be heading towards, within retail for Target and Walmart it seems right now too, some of this heavy discounting, a Christmas in July type sales event, if you will. And it's a bigger question of how much this is going to compress some of those margins as well.