Target updates 2022 plan focused on inventory optimization
Target is setting in motion a set of actions intended to rightsize its inventory for the balance of the year and create additional flexibility to focus on serving guests in a rapidly changing environment. These actions are intended to further build on the company’s record of growth and market share gains.
Target said it is planning several actions in the second quarter, including additional markdowns, removing excess inventory and canceling orders. The action plan also includes the addition of incremental holding capacity near U.S. ports to add flexibility and speed in the portions of the supply chain most affected by external volatility; pricing actions to address the impact of unusually high transportation and fuel costs; and working with suppliers to shorten distances and lead times in the supply chain.
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Additionally, the company said that it is further accelerating work that’s already in flight, including rapid revisions to sales forecasts, promotional plans and cost expectations by category. Specifically, the company is planning for continued strength in frequency categories like Food & Beverage, Household Essentials and Beauty, and is planning more conservatively in discretionary categories like Home, where trends have changed rapidly since the beginning of the year.
Target also is pursuing aggressive options to control costs, including ongoing work with vendors to help offset inflationary pressures, driving continued operating efficiencies and reducing costs while preserving a strong guest experience. Finally, Target noted that it continues to build additional capacity in the company’s upstream supply chain to support its future growth by adding five distribution centers over the next two fiscal years.
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Target said that all of the actions announced today are the result of the company’s ongoing assessment of current industry performance, the operating environment and consumer trends.
“Target’s business continues to generate healthy increases in traffic and sales, despite sustained volatility in the macro environment, including shifting consumer buying patterns and rapidly changing operating conditions," said Brian Cornell, chairman and CEO of Target.
Cornell added, "Since we reported our first quarter results, we have continued to monitor external conditions and have determined the necessary actions to remain nimble in the current environment. The additional steps we are announcing today will ensure that we deliver for our guests while driving further growth. While these decisions will result in additional costs in the second quarter, we’re confident this rapid response will pay off for our business and our shareholders over time, resulting in improved profitability in the second half of the year and beyond.”
In light of the decisions announced today, and based on the its current expectations for the economy and consumer environment, Target now expects its second-quarter operating margin rate will be in a range around 2%. For the back half of the year, Target now expects an operating margin rate in a range around 6%, a rate that would exceed the company’s average fall season performance in the years leading up to the pandemic.
Target continues to expect full-year revenue growth in the low- to mid-single digit range, and expects to maintain or gain market share in 2022.