The target warns of high margin pressure as the excess cargo weight is high

June 7 (Reuters) – Target Corp. (TGT.N) On Tuesday it cut its quarterly profit margin forecast a few weeks ago and said it would offer a deeper rebate to clear inventory as it would take a toll on decades-high inflation demand.

The surprising Outlook revision sent Target’s shares down nearly 7% in early trade and weighed heavily on the retail sector and broader markets.

The retailer said it would cut prices in the second quarter, cancel orders with suppliers, strengthen parts of its supply chain and prioritize items such as food and household essentials.

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Rising inflation is forcing consumers to change their shopping habits, forcing them to offer more discounts without catching too many retailers.

Target in partnership with Walmart (WMT.N), Which recorded a much steeper-than-expected fall in quarterly profits in May, sent shock waves into retail. read more

At the time, Target said its inventory was up 43%, and demand for high-margin preferred items such as kitchen appliances and televisions was down compared to the previous year.

A shopping cart is found on November 14, 2017 at a Target store in Brooklyn, New York. REUTERS / Brendan McDermid

“The target is a retailer who excels at managing inventory challenges, but now consumers … if they stop pausing to see where they are spending, one benefit may bite again at some point,” said Jane Haley & Associates analyst Jessica Ramirez.

Target’s strategy of keeping most of its products affordable compared to its competitors is proving to be expensive, with the company now claiming to be raising the prices of some products to offset unusually high transport and fuel costs.

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The company now expects the second-quarter operating limit to be around 2%, compared to its previous estimate of 5.3%. It is also expected to have 6% limits in the second half of the year.

However, Target maintained its sales target for the year, prompting some Wall Street analysts to suggest that the company’s aggressive measures could help it topped the list later in the year.

“While this is a painful period for the target, taking their drug (again) in Q1 and Q2 sets up a better second half with cleaner reserves … (and) sets 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; Editing by Anil de Silva

Our standards: Thomson Reuters Trust Principles.

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