Home Business NewsBusiness Inventory woes as Target misses again, highlighting risk to US profit forecasts

Inventory woes as Target misses again, highlighting risk to US profit forecasts

by LLB Reporter
9th Jun 22 11:57 am

A second profit warning in three weeks from US retailer Target would have been no surprise to anyone who could read a balance sheet, because the firm’s inventories were growing so much faster than its sales.

Unless customer purchases picked up speed – a risky bet, given surging fuel, food and energy costs – Target was in danger of having to discount those stocks of goods to shift them. A warning on margins as the company focuses on ‘inventory optimisation’ has wider implications beyond just Target. There must now be a chance the retailer cuts back on orders as it manages its inventory bulge, and that will hit manufacturers, transport stocks and potentially the wider US economy.

AJ Bell Investment Director Russ Mould said: “Target’s inventories of goods on the shelves and in warehouses have outpaced growth in sales for four straight quarters.

“In its fiscal first quarter to the end of April, Target’s sales grew by 4%, or $951 million, year-on-year. The balance sheet shows that inventory rose by 43% or $4.5 billion

“Something had to give – either revenue growth picked up or Target had to stop buying and start discounting.

“Target has now admitted that it has started discounting and swallowing fines and penalties that result from cancelling orders on its suppliers.

“This combination means management now expects the operating margin to slide to 2% in the second quarter, compared to 5.3% in the first and 9.8% a year ago.”

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