But Target reported that its price cuts did little good: It ended the quarter with 1.5% more inventory than it had three months earlier and 36% more than it had a year ago.
The company said it reduced the amount of discretionary items it held in warehouses, but Target noted the sales on those items “put significant pressure on our near-term profitability.”
Plunging earnings, once again
Target’s quarterly net income fell to $183 million, down significantly from $1.8 billion during the same period a year ago.
Plus, its adjusted earnings of 39 cents a share were far below the 72 cents forecast by analysts surveyed by Refinitiv. Sales of $26 billion were up slightly from a year ago and roughly in line with forecasts.
‘Feeling the impact of inflation’
The environment for Target and similar retailers remains “challenging,” CEO Brian Cornell told investors Wednesday. But Target is seeing “an encouraging start to the back-to-school” shopping season, he said.
He believes the hit to earnings in the recent quarter shouldn’t be repeated: “The high-level story is: The vast majority of the financial impact of these inventory actions is now behind us.”
Still, it’s a difficult time to be a retailer given the unpredictability of consumer spending activity and the effect of macro factors like inflation.
And spending at gas stations fell by $1.2 billion in July compared to June due to the lower gas prices Hennington mentioned.
Target’s heavier dependence on discretionary vs. Walmart
These trends are hitting Target harder than rival Walmart, which gets a larger share of its sales and profits from essentials like groceries. Target typically depends more on those discretionary items.
Walmart has a reputation for offering the lowest prices among big-box retailers in many categories — but in its earnings report Tuesday, the company said sales to middle- and higher-income shoppers have increased.