Target warned investors Tuesday that its profits will take a short-term hit as the company faces problems with canceling orders and unwanted merchandise.
“We thought it was prudent for us to be decisive, act quickly, get out in front of this, address and optimize our inventory in the second quarter. Take those actions necessary to remove the excess inventory and set ourselves up to continue to be guest relevant with our assortment,” Target CEO Brian Cornell said to CNBC.
Shares fell about 7% in early trading following the news.
Target will make room for “those categories that are relevant today” such as groceries, beauty items and household essentials.
The second biggest retail company in the U.S. cut its profits expectations for the fiscal second quarter. Target now expects an operating margin rate will be roughly 2%, down from around 5.3% expected last month.
Inventory became a huge problem for all U.S. retailers who are also struggling with high inflation, supply chain disruptions and customers not spending their money.
Target said it still expects revenue growth to be in the low to mid-single digits for the full year and to maintain or gain market share in 2022.