© Reuters. FILE PHOTO: A shopping cart is seen in a Target store in the Brooklyn borough of New York, U.S., November 14, 2017. REUTERS/Brendan McDermid
(Reuters) – Target Corp (NYSE:) on Tuesday cut its quarterly margin forecast issued just weeks earlier, and said it would have to offer deeper discounts and stock more essential items, as inflation dents consumer spending.
The surprise forecast revision is a big blow for the company, which in May joined larger rival Walmart (NYSE:) in reporting a steep drop in quarterly profit, sending shockwaves through the retail industry.
With soaring inflation and higher gas prices, consumers are changing their shopping habits, catching many retailers off guard and forcing them to offer more discounts.
Target said it would focus on clearing excess inventory in the second quarter, cancel orders and speed up parts of the supply chain that could be affected by “external volatility”.
The company is also prioritizing categories such as food and beverage, and household essentials over discretionary items such as home goods.
Target’s strategy to keep a big portion of its products affordable is also proving to be costly for the retailer, with the company now saying it would raise prices to offset the unusually high transportation and fuel costs.
“While these decisions will result in additional costs in the second quarter … (it will result) in improved profitability in the second half of the year and beyond,” Target Chief Executive Officer Brian Cornell said.
The company now expects second-quarter operating margin to be about 2%, compared with its prior estimate of 5.3%. It also expects margins to be around 6% for the second half of the year, while maintaining its sales goals for the year.
Target’s stock has lost about a third of its value so far this year.