Target drops after the retailer’s quarterly earnings plunge 89% in offloading piled-up inventory

  • Target shares fell Wednesday after the retailer’s second-quarter earnings dropped 89%, missing expectations by a wide margin. 
  • Earnings were $0.39 a share, below the FactSet consensus estimate of $0.79 a share. 
  • The company previously had warned twice that its profitability would be hurt as it cut prices to sell unwanted inventory. 

Target fell Wednesday as it posted an 89% drop in second-quarter earnings, missing expectations after twice cutting guidance, amid efforts to get unwanted inventory off its shelves. 

The shares fell as much as 5.2% to $170.83 as regular-session trading got underway before paring the decline to 2.8%. 

Earnings came in at $0.39 a share, sliding from $3.65 a share a year ago and falling well short of FactSet’s consensus estimate of $0.79 a share. Revenue was $26.04 billion, up from $25.16 billion a year earlier. Analysts were looking for $26.03 billion. 

The company in June warned its profitability would take a hit as it planned to cut prices to sell unwanted inventory. Customers were spending less on discretionary items such as home furnishings while continuing to buy essentials such as food. Target had also issued a warning in May. 

Target’s operating income margin for the second quarter came in at 1.2% after the company projected a rate of around 2%. 

Gross margin for the three months ended July 30 shrank to 21.5% from 30.4% a year ago, in part reflecting higher markdown rates largely from inventory impairments and efforts to deal with lower-than-expected sales in discretionary categories. Increased compensation and higher shipping costs also contributed to pressure on gross margin. 

Second-quarter inventory was $15.32 billion, up from $15.08 billion in the first quarter and $11.26 billion in the second quarter of 2021. 

“While these inventory actions put significant pressure on our near-term profitability, we’re confident this was the right long-term decision in support of our guests, our team and our business,” Brian Cornell, Target’s chairman and CEO, said in the second-quarter report. 

The company backed its projection of full-year revenue growth in the low- to mid-single digit range, and an operating margin rate in a range of around 6% in the second half of 2022. It said it was “planning cautiously” for the remainder of the year and that current trends supported its reiteration of guidance. 

Cornell said Target was preparing to offer customers an “uncluttered shopping experience” with compelling value across every category. 

Target shares had lost about 22% during 2022 through Tuesday’s session.