Target is making sales forecast revisions in high-yielding categories like food and beverage, household items and beauty.
In an effort to continue its market share gains and record growth, Target Corp. has released its plans to right-size its inventory throughout the rest of 2022. During the second quarter, the retailer will take several actions, including canceling orders, removing excess inventory and taking additional markdowns.
Target also plans to add holding capacity near U.S. ports to help combat the effects of supply chain constraints, take pricing actions to address the impact of high fuel costs and work with suppliers to shorten distances and lead times for products.
As for sales forecasts and cost expectations, Target is making revisions in high-yielding categories like food and beverage, household items and beauty, but being more conservative in categories like home goods that have seen rapid changes throughout the year. The company is also taking immediate actions to control costs while also building capacity through the construction of five new distribution centers over the next two fiscal years.
“Target’s business continues to generate healthy increases in traffic and sales, despite sustained volatility in the macro environment, including shifting consumer buying patterns and rapidly changing operating conditions. Since we reported our first quarter results, we have continued to monitor external conditions and have determined the necessary actions to remain nimble in the current environment,” said Brian Cornell, chairman and CEO.
“The additional steps we are announcing today will ensure that we deliver for our guests while driving further growth," Cornell continued. "While these decisions will result in additional costs in the second quarter, we’re confident this rapid response will pay off for our business and our shareholders over time, resulting in improved profitability in the second half of the year and beyond.”
These plans have caused Target to update its guidance, and it now expects its Q2 operating margin rate will be around 2%. For the latter half of the year, the company now expects an operating margin rate to be around 6%.
Target has experienced topline growth on top of unprecedented increases over the last two years. Its multi-category assortment served a wide range of customers’ needs during the first quarter, with the strongest performance in food and beverage, household essentials and beauty.