Target profit plunges 90% as it sells off unwanted inventory

Target on Wednesday said its quarterly profit fell nearly 90% from a year ago, missing by far Wall Street expectations.

The company reported quarterly earnings of $183 million, or 39 cents per share, missing estimates of 72 cents. Operating margin rate tumbled to 1.2% in the second quarter from 9.8% a year earlier.

Steep discounts on apparel, electronics and home goods felt short to lure customers who are keeping away from nonessential items. Target’s inventory rose 1.6% to $15.3 billion from the prior period.

With all retailers struggling to cope with unwanted merchandise, the Minneapolis-based firm said it is now positioned for a rebound.

“If we hadn’t dealt with our excess inventory head on, we could have avoided some short-term pain on the profit line, but that would have hampered our longer-term potential,” Chief Financial Officer Michael Fiddelke said on a call with reporters. “While our quarterly profit took a meaningful step down, our future path is brighter.”

Target now expects full-year revenue growth in the low to mid-single digits.

The company said food and beverage was the strongest category in the three-month period, with comparable sales growth in the low double digits. Beauty grew in the high single digits and essentials grew in the mid-single digits.