Target saw its profits drop by 90% in the second quarter of 2022, which it says was "driven primarily" by its efforts to shed unwanted inventory.
The Minneapolis-based retailer had been caught by surprise by shifting consumer demands as the nation gradually recovered from the pandemic, and announced in June it would be slashing prices and canceling orders in certain categories as it sought to address its excess goods.
The company said it had seen sales weaknesses in larger ticket items such as TVs, furniture, and kitchen appliances as Americans shifted away from pandemic spending, and focused more on travel, dining out, and "dressier clothes."
In its Q2 results released Tuesday, Target posted profits of $183 million – 33 cents per share – which represented a 90% drop on last year, even though its revenue grew by 3.5% to $26 billion.
CEO Brian Cornell said the price-cutting efforts it undertook "put significant pressure on our near-term profitability," but added that "we’re confident this was the right long-term decision in support of our guests, our team and our business."
Although Target took steps to shed its excess goods, its total inventory actually increased by 1.5% over the quarter, and 36% year-on-year, though this is partly down to the impact of inflation driving up the value of goods.
In a statement, Target said: "This year's gross margin rate reflected higher markdown rates, driven primarily by inventory impairments and actions taken to address lower-than-expected sales in discretionary categories, as well as higher merchandise, inventory shrink, and freight costs. "
It was the second consecutive drop in profits reported by Target after it reported a 40% dip in Q1. Its main rival, Walmart, also saw a dip in profits but nowhere near as large as Target's, though CNN reports Walmart did say it expect its annual earnings to drop 8-10%.