A shopping cart is seen at a Target store in the Brooklyn neighborhood of New York, USA, November 14, 2017. REUTERS / Brendan McDermid
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June 7 (Reuters) – Target Corp (TGT.N) on Tuesday lowered its quarterly profit margin forecast a few weeks earlier and said it should offer deeper discounts to clean up inventory as inflation rises for decades affects demand.
The surprise revision of the outlook caused Target shares to fall by almost 7% in the first negotiations and affected the retail sector and the wider markets.
The retailer said it will lower prices in the second quarter, cancel orders with suppliers, strengthen parts of its supply chain and prioritize categories such as food and household items.
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Rising inflation is forcing consumers to change their shopping habits, catching many unsuspecting traders and forcing them to offer more discounts.
Target, along with Walmart (WMT.N), had reported a much sharper-than-expected drop in quarterly earnings than expected in May, causing shock waves in the retail industry. Read more
At the time, Target said its inventory was up 43 percent from a year earlier, as demand for high-margin discretionary items such as appliances and televisions declined.
“Target was a retailer that had done exceptionally well in managing inventory challenges, but now, when consumers … are stopping to see where they spend, what was once an advantage can bite again,” he said. Jane Hali & Associates analyst Jessica Ramirez said.
Target’s strategy of keeping most of its products affordable compared to its rivals is proving costly, with the company now saying it would raise the prices of some items to offset unusually high transportation and fuel costs.
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The company now expects second-quarter operating margin to be 2%, compared to its previous estimate of 5.3%. It also expects margins to hover around 6% for the second half of the year.
However, Target maintained its sales targets for the year, prompting some Wall Street analysts to say that the company’s aggressive measures could help it get ahead later in the year.
“While this is a painful time for Target, taking your medications (again) in the first trimester and in the second trimester prepares for a better second half with cleaner inventories … (and) it also prepares for to a better second half for stocks, “said DA Davidson analyst Michael Baker.
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Report by Aishwarya Venugopal, Susan Mathew and Uday Sampath in Bangalore; Assembly of Anil D’Silva
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