Retail giant Target has issued a profit warning for the current quarter after being “stuck” with a large surplus inventory, which it plans to get rid of through deep discounts that will weigh in on its profitability rate.
During the Corona period many retailers purchased and accumulated large inventories to try and meet the huge demand of 2021. But these dropped dramatically with the rise in US inflation, which reached an annual rate of 8.3% in April.
Walmart has also accumulated excess inventory
Target announced that it has $ 15 billion in inventory as of the end of the first fiscal quarter (April 30), a jump of 43% compared to the same period last year. At Walmart, the largest U.S. retailer, inventories rose about 33 percent in the first quarter, leading to declines in reports and declining profits. The inventory problem is even more pronounced in fashion. Most of the surplus goods in the areas of leisure clothing and fitness fashion, as well as the fashion chains Abercrombie & Fitch and American Eagle Outfitters, recently reported a 45% increase in their inventory volumes.
Target’s operating profit forecast has been reduced accordingly by about 2% of revenues. Another estimates that annual revenue growth will be relatively low and will not reach a double-digit rate, as its investors have become accustomed to seeing over the past two years.
“We thought it wise to take the necessary steps to reduce excess inventory and make room for merchandise that customers do want,” CEO Brian Cornell said in an interview.
The company’s stock lost 2.3% Tuesday night on Wall Street, and other retail stocks were swept away with the negative momentum including Walmart, Gap, Best Buy and Costco.