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Target’s earnings take a huge hit as retailer sells off unwanted inventory

A sign outside of a Target department store on June 07, 2022 in Miami, Florida. Target announced that it expects profits will take a short-term hit, as it marks down unwanted items, cancels orders and takes aggressive steps to get rid of extra inventory.
Joe Raedle | Getty Images

Target will report its fiscal second-quarter earnings before the bell on Wednesday, as inflation shakes up consumers’ spending patterns.

Here’s what Wall Street expects, according to Refinitiv consensus estimates:

Earnings per share: 72 cents expectedRevenue: $26.04 billion expected

Investors will listen for updates on Target’s inventory — which is under close scrutiny after the big-box retailer cut its profit outlook earlier this summer. At the time, Target said it would have to cancel merchandise orders and mark down TVs, small kitchen appliances and other unwanted goods to clear the way for the back-to-school and holiday seasons.

Target, like other retailers, is trying to adjust to rapid changes in shopping behavior. Consumers are not only getting hammered by the higher cost of groceries, rent and gas because of inflation. They also have tighter budgets as pre-pandemic expenses return, such as booking pricier vacations, sending kids to summer camp or commuting to the office.

Rival Walmart surprised Wall Street on Tuesday when it beat earnings and revenue expectations for the fiscal second quarter. Like Target, it had already cut its profit outlook, however, due to a glut of excess merchandise.

Target has a different sales mix than Walmart, which could influence its performance. Walmart, the country’s largest grocer by revenue, draws most of its annual sales from food. That has helped the discounter woo even middle- and upper-income families who want to spend less money on necessities during an inflationary period.

Target, on the other hand, draws only about 20% of annual sales from food and beverage, according to its annual report. It relies more heavily on sales of apparel, home decor, electronics and other discretionary items.

As of Tuesday’s close, Target’s shares are down 22% so far this year. Shares closed on Tuesday up more than 4%, after getting lifted by Walmart’s news.

This story is developing. Please check back for updates.

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