Target Expects “Short-Term” Profit Hit Due to Excess Inventory

Target (Minneapolis) is planning to take a “short-term” hit to its profits following its plans to cancel product orders and mark down unwanted merchandise due to an abundance of extra inventory, CNBC reports.

By the end of April, the retailer had $15.1 billion in inventory, which is reportedly 43 percent higher than one year earlier. CEO Brian Cornell says Target is taking aggressive steps to rid itself of the excess inventory, whether that’s by saving some products to sell in the future or by finding different ways to promote and sell the items.

Now the mass merchant is saying its operating margin rate for the second quarter will be 2 percent – it had originally estimated second quarter margins being closer to its first quarter operating margin rate of 5.3 percent. The company believes by the latter part of the year, margins will be closer to 6 percent.

In an interview with CNBC, Cornell said, “We thought it was prudent for us to decisive, act quickly, get out in front of this, address and optimize our inventory in the second quarter – take those actions necessary to remove the excess inventory and set ourselves up to continue to be guest-relevant with our assortment.”

Consumer habits may be shifting back toward favoring experiences like traveling and dining, and others may also be cutting back discretionary spending due to inflation. Many retailers are also just now getting back to normal stock levels and have an overflow of items on hand. American Eagle Outfitters and Abercrombie & Fitch are some other companies recently reporting a steep increase in inventory levels.