Target profits exceed expectations despite inflation hits, Pride merchandise backlash
Target’s second quarter sales were hit by inflation and a negative, widely publicized reaction by some customers to its Pride merchandise, the Associated Press reports.
The Minneapolis retailer expects high interest rates, which makes credit cards more expensive to use, and higher prices on food to continue to put a strain on customers and on Wednesday, the chain cut its profit and sales expectations for the year. In lowering its forecast, Target also cited the end of the student loan moratorium, which had provided one-time college students a little more financial breathing room.
Profit came in above expectations, however, as the chain brought inventories closer in line with cautionary spending on discretionary items by customers.
Shares rose 8% in pre-market trading before the opening bell Wednesday despite trimming profit expectations for the year.
Target is among the first major U.S. retailers to report quarterly financial results, and the impact of rising prices and elevated interest on its customers will get a lot of attention ahead of a raft of quarterly reports from companies like Walmart and others.
CEO Brian Cornell said higher prices for food and household essentials are taking a bigger chunk out of the paychecks of customers, who have also pulled back on buying some goods in favor of travel or spending time out of the house in other ways.
Target also faced a unique problem during the most recent quarter, becoming one of the companies that was targeted for its LGBTQ+ support — in particular, its displays of Pride Month merchandise. It pulled some items in particular regions and made other changes after encountering hostility from some customers who confronted workers and tipped over displays.
Cornell said that the company has learned from the backlash and said it will be more thoughtful in merchandise offerings for its heritage months, which celebrate various ethnic and marginalized groups.
Target earned $835 million, or $1.80 per share, in the quarter that ended July 29. That compares with $183 million, or 39 cents per share, in the year-ago period.
Sales fell nearly 5% to $24.77 billion as shoppers focused more on groceries than discretionary items. Business in the quarter was also hurt because results were being compared with heavy discounting in the year-ago period that was meant to clear unwanted inventory.
Inventory at the end of the second quarter was 17% lower than last year, reflecting a 25% reduction in discretionary categories like fashion and home furnishings.