As it revised financial guidance, Target Corp. announced it is acting to “right-size” its inventory for the balance of the year and create additional flexibility to focus on serving guests in a rapidly changing environment.
Target stated that it intends to make moves to support its record of growth and market-share gains.
In the current quarter, Target will roll out additional markdowns, remove excess inventory and cancel orders. It will add incremental holding capacity near ports across the United States to add flexibility and speed in those parts of the supply chain most affected by external volatility. It will also initiate pricing actions to address the impact of unusually high transportation and fuel costs as well as work with suppliers to shorten distances and lead times in the supply chain.
In a further initiative, one that the company already has launched, Target will make rapid revisions to sales forecasts, promotional plans and cost expectations by category. In specific terms, the company is planning for better sales to continue in frequency categories such as Food & Beverage, Household Essentials and Beauty, while taking a more conservative approach to discretionary categories, including Home, where trends have changed rapidly since the beginning of the year. The company also is pursuing aggressive options to control costs, it noted, working with vendors to help offset inflationary pressures, driving continued operating efficiencies and reducing costs while preserving a strong customer experience. Finally, Target is continuing to build additional capacity in the company’s upstream supply chain in support of future growth, adding five distribution centers over the next two fiscal years.
The actions it has announced, Target maintained, are the result of the company’s ongoing assessment of current industry performance, the operating environment and consumer trends.
In light of its announced operational decisions, and based on the company’s current expectations for the economy and consumer environment, Target now expects its second-quarter operating margin rate to be about 2%. For the back half of the year, Target expects an operating margin rate in the range of about 6%, which would exceed the company’s average Fall season performance in the years leading up to the pandemic. The company continues to expect full-year revenue growth in the low- to mid-single-digit range and expects to maintain or gain market share in 2022. When it announced first-quarter results, Target noted that it anticipated operating income margin rate to be in a wide range centered around first quarter’s 5.3% figure. For full-year 2022, the company indicated that it was looking for low- to mid-single-digit revenue growth and operating income margin rate in a range of about 6%.
“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,” Brian Cornell, Target chairman and CEO, said in announcing the actions. “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. The additional steps we are announcing today will ensure that we deliver for our guests while driving further growth. 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.”