What's going on?
Retail giant Target issued its second profit warning in three weeks on Tuesday.
What does this mean?
Target’s investors were sent sprawling last month by the biggest one-day drop in the company’s share price since 1987. But just as they were dusting themselves off, Target’s given them another shove: the retailer just cut its profit outlook again, as it takes “aggressive steps” to reduce a stockpile of products that was 43% bigger last quarter than the same time in 2021. Target said the move will make room for big-sellers eventually, but that it’s going to have to offer big discounts and cancel orders in the meantime. Investors looked down at their scraped knees, scowled up at Target, and sent its stock down 10%.
Why should I care?
The bigger picture: What’s a retailer to do?
Target was sort of painted into a corner here: the company needed to stay stocked up enough that it wouldn’t run out of merchandise amid all the supply bottlenecks, but not so much that it ended up with an excess of useless goods. That’s a sweet spot the retailer clearly wasn’t able to hit, even before record inflation changed spending habits even more. At least it wasn’t the only one: Walmart is in a similar position after having chartered its own ships earlier this year to keep the goods coming.
Zooming out: Good things come to Kohl’s who wait.
If Kohl’s only issue was how much stock it had, the pandemic-bruised department store probably wouldn’t have been forced to look for a buyer. Kohl’s announced on Monday that it’s in exclusive negotiations to be bought out for $60 a share by retail company Franchise Group, which would value the business at around $8 billion. Investors think this could finally be the start of the end of a sale process that’s been dragging on for more than half a year, and its stock jumped 10%.