But Target said its price cuts had little effect: It ended the quarter with 1.5% more inventory than three months earlier and 36% more than a year ago.
The company said it had reduced the amount of discretionary items it held in its warehouses, but Target noted that sales of those items “put significant pressure on our near-term profitability.”
Plummeting profits, again
Target’s quarterly net profit fell to $183 million, down significantly from $1.8 billion in the same period a year ago.
Additionally, its adjusted earnings of 39 cents per share were well below the 72 cents forecast by analysts polled by Refinitiv. Sales of $26 billion were up slightly from a year ago and about in line with forecasts.
“Feel the impact of inflation”
The environment for Target and similar retailers remains “challenging,” CEO Brian Cornell told investors Wednesday. But Target sees “an encouraging start to the back-to-school season,” he said.
He thinks the hit to earnings in the last quarter is unlikely to be repeated: “The high-level story is this: the vast majority of the financial impact of these actions on stocks is now behind us.”
Still, these are tough times to be a retailer given the unpredictability of consumer spending and the effect of macro factors like inflation.
And spending at gas stations fell $1.2 billion in July from June due to lower gasoline prices mentioned by Hennington.
Target’s greater reliance on discretionary than Walmart
These trends are hitting Target harder than its competitor Walmart, which derives a greater share of its sales and profits from essentials like groceries. The target is generally more dependent on these discretionary elements.
Walmart has a reputation for offering the lowest prices among big-box retailers in many categories – but in its earnings report on Tuesday, the company said sales to middle- and upper-income shoppers had increased.