Target's profits plunged nearly 90% in the second quarter, as the retailer tried to move through excess inventory amid a consumer spending contraction.
Sharp consumer pullback in the wake of high prices for fuel and consumer goods was evident in Target’s second quarter performance. The Minneapolis retailer reported that while comparable sales were up 2.6% during this three-month period, its profits declined by nearly 90% and its quarterly net income dropped to $183 million from $1.8 billion during the second quarter of 2021.
That steep drop was more than analysts had expected and came as Target cancelled orders and offered deep discounts to get to the right inventory for today’s wary shoppers. According to the latest earnings information, the second quarter operating income margin was 1.2% versus 9.8% during this time last year.
Chairman and CEO Brian Cornell acknowledged the difficult operating environment and said that actions taken during the time period were necessary. “I want to thank our team for their tireless work to deliver on the inventory rightsizing goals we announced in June. 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,” he remarked.
Cornell also pointed to some more upbeat business news. During second quarter, comparable sales growth reflected a 2.7% uptick in traffic and Target gained unit share in all five of its core merchandising strategies.
From a category perspective, food and beverage, beauty and household essentials were stronger for the retailer during a time when consumers were rapidly adjusting their budgets and still dealing with local surges of another COVID-19 variant. Reflecting the evolving e-commerce channel, Target reported a 9% increase in digital comparable sales and an 11% leap in same-day services compared to the second quarter of 2021.
Looking ahead to the rest of this so-far tumultuous year, Target shared that it is “planning cautiously” and indicated that current trends support its prior guidance for full-year revenue growth in the low- to mid-single digit range.