Target is the latest retailer to roll out aggressive measures to balance its inventory in the wake of excesses.
The big-box retailer on Wednesday said it has reduced its “inventory exposure in discretionary categories” throughout Q2 by canceling more than $1.5 billion of orders in these categories and marking down products.
In June, Target outlined a plan to “right-size” inventory for the balance of the year by unloading excess stock in the supply chain. Target said it had seen an unexpected sales slowdown in categories such as home, electronics, sporting goods and apparel as consumers spent most actively across essential categories like food and beverage.
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.
“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 that might have reduced the near-term financial impact, it would have held back our business over time.”
Overall, Target reported adjusted earnings per share of 39 cents versus the 72 cents expected by analysts. This marked an 89.2% decrease from the same quarter last year. The company reported revenues of $26 billion, up 3.5% from the same quarter last year.
“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.
Target is not the only retailer this quarter to find itself with higher-than-usual levels of inventory. 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. In addition to order cancellations, Walmart also resorted to markdowns in categories that were selling less.
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