We’ve had some additional time after earnings to really evaluate the overall operating environment. We have to be decisive and get out in front of this to make sure this doesn’t linger through the back half of the year – Target (TGT) CEO Brian Cornell (quoted in “Target Signals High Inventory Will Hit Profit” [SUBSCRIPTION REQUIRED], WSJ A1, Wednesday 6/8)
Target’s inventory problem is turning out even worse than it expected just a short time ago. Its latest warning could portend a promotional bloodbath among retailers this summer – Jinjoo Lee, “Target Inventory Warning Portends Retail Bloodbath” [SUBCRIPTION REQUIRED], WSJ 6/8
It’s going to be a bad second quarter for retailers due to a mismatch between their inventories and shifting consumer demand. But I credit Target’s (TGT) management for confronting the situation and getting out in front of it.
TGT said yesterday that it will be highly promotional this quarter in order to get rid of bloated, mismatched inventory. As a result, 2Q22 operating margin is expected to come in at only 2% – versus the 5.3% they guided to less than a month ago. Obviously that means the bottom line will be crushed as well. TGT shares closed down 2.31% Tuesday.
But TGT isn’t the only one. If they’re having this problem, you can bet Walmart (WMT), Costco (COST) and a bunch of other lesser retailers are too. TGT is just the first one to address the issue; the others are sure to follow.
At the end of the day, consumers still need to buy the things TGT and WMT sell and their management teams will adopt to the tricky operating environment. Also, their stocks have discounted the bad news at this point. Therefore I remain long and bullish both stocks.