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Target excess inventory11/9/2023 ![]() In 2020, the hardlines and home categories benefited from stay-at-home orders and saw growth of 32% and 26%, respectively. Historically, Target's discretionary categories (apparel, hardlines and home) represent more than 50% of revenue. As more products continued to arrive at the warehouse, the supply-demand gap began to close and ultimately became troublesome as spending patterns started to gravitate towards necessities (e.g. Per the below graph, inventory growth was unable to catch up with revenue until mid 2021 as consumer demand outpaced supply. How did Target get here in the first place? The simple explanation is that the buying department ordered too much inventory in response to supply chain challenges, as buyers were worried they won't get products in store on time. Relatively speaking, Target's inventory planning was certainly aggressive. The delta between inventory and revenue growth (39%) was significantly above peers such as Walmart ( WMT ), Costco ( COST ) at 29.7% and 9.8%, respectively. At the end of 1Q22, Target had an inventory position of $15 billion, which was up 43% YoY against just 4% revenue growth. While Target's outlook does indicate a general slowdown in discretionary spending, inventory management appears to be a company-specific issue. Put simply, there's a lot of inventory to get rid of.Ĭompany data, Albert Lin Broad-Based Or Company-Specific? The lower forecast reflects more aggressive markdowns and order cancellations. discretionary, where the home category has seen rapid changes from the start of 2022. Management reiterated revenue growth of low to mid-single digit for the year, but noted the ongoing shift in consumer spending towards food, essential and beauty products vs. ~6% prior and an EPS outlook of ~$8.4 vs. This implies a full year 2022 OPM guide of roughly 4.9% vs. ![]() Target ( NYSE: TGT) just cut its 2Q22 operating margin guide from a range of +/- Q1's 5.3% to ~2% and now foresees ~6% in 2H22. In addition to order cancellations, Walmart also resorted to markdowns in categories that were selling less.Joe Raedle/Getty Images News What Happened? Walmart CFO John Rainey on Tuesday said the company had “ canceled billions in orders” to deal with inventory pileups that have amassed over the last few quarters across discretionary categories like apparel. Target is not the only retailer this quarter to find itself with higher-than-usual levels of inventory. “We strongly believe it was the best path forward,” Cornell said, explaining how holding on to the inventory would have “degraded the guest experience” and created a burden on the supply chain and to store employees. The company reported revenues of $26 billion, up 3.5% from the same quarter last year. This marked an 89.2% decrease from the same quarter last year. Overall, Target reported adjusted earnings per share of 39 cents versus the 72 cents expected by analysts. ![]() “While that might have reduced the near-term financial impact, it would have held back our business over time.” “We could have held on to excess inventory and attempted to deal with it slowly over multiple quarters or even years,” Cornell said in a call with investors. While these inventory-reducing measures resulted in a profit miss for the second quarter, Target CEO Brian Cornell said they have put the company “in a much better position” heading into the fall season and that the company is confident that the “vast majority of the financial impact” is now behind them. Academy Sports Beats Expectations Despite Sales Decline: Here’s What’s Performing in Its Shoe Biz ![]()
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