But Target reported that its price cuts did little well: It ended the quarter with 1.5% more inventory than it did three months ago and 36% more than a year ago.
The company said it reduced the amount of discretionary items it holds in warehouses, but noted Target’s sales of those items “put significant pressure on our near-term profitability.”
Falling earnings, once again
Target’s quarterly net income fell to $183 million, down significantly from $1.8 billion during the same period a year ago.
Also, adjusted earnings per share of 39 cents was well below the 72 cents forecast by analysts surveyed by Refinitiv. Sales of $26 billion were up slightly from a year ago and roughly in line with forecasts.
‘Feeling the effect of inflation’
The environment remains “challenging” for Target and similar retailers, CEO Brian Cornell told investors Wednesday. But Target is seeing “an encouraging start to back-to-school” shopping season, he said.
He believes the impact on earnings in the recent quarter should not be repeated: “The high-level story is: The vast majority of the financial impact of these inventory actions is now behind us.”
Still, this is a difficult time to be a retailer, given the unpredictability of consumer spending activity and the impact of macro factors such as inflation.
And spending at gas stations fell $1.2 billion in July compared to June, which was cited by Hennington as lower gas prices.
Target’s Heavy Reliance on Discretionary Versus Walmart
These trends are giving Target a tougher competition than rival Walmart, which derives a greater share of its sales and profits from essentials like groceries. Target usually relies more on those discretionary items.
Walmart has a reputation for offering the lowest prices among big-box retailers across multiple categories — but in its earnings report on Tuesday, the company said sales to middle- and high-income shoppers increased.