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Target Warns Second Time of Weaker Profit, Bloated Inventories, and Slumping Demand

Target said inventory rose 43% as demand for outdoor furniture, small appliances and some electronics declined faster than expected.
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Image courtesy of Hedgeye

Image courtesy of Hedgeye

For the second time in a month Target issued a warning about falling consumer demand.

Please consider Target Warns of Weaker Profit as it Faces Overstuffed Stores, Inflation-Weary Shoppers

Two weeks after reporting lower-than-expected profits, Target said Tuesday it will further reduce some of its profit estimates for the year because it will more quickly unload excess inventory in the current quarter. 

“We’ve had some additional time after earnings to really evaluate the overall operating environment,” said Target Chief Executive Brian Cornell in an interview. That includes watching consumer behavior as they face high rates of inflation, he said, and seeing many other retailers talk about high inventory levels during their earnings presentations.

“Coming so soon after its downbeat quarterly results, today’s update from Target comes across as somewhat careless,” said Neil Saunders, managing director of GlobalData. The update could signal that demand for some categories, such as home goods—an area where Target sells a variety of products—has deteriorated further, said Mr. Saunders, “All that said, the actions Target is taking are correct.”

Target said it aims to cancel orders with suppliers when possible or use promotions to remove all excess inventory during the current quarter. Canceling will result in additional fines, while discounting reduces the profitability of each sale

At Walmart’s annual shareholder meeting last week, executives said around 20% of the elevated inventory consists of items the company wishes it didn’t have, but much of the rest is to restock shelves or sell later this year.

Not Just Target

Expect a Deep Recession to Start This Quarter or Early Third Quarter

On June 2 I commented Expect a Deep Recession to Start This Quarter or Early Third Quarter

This triggered a response from multiple people on Twitter laughing because June is the last month in this quarter.

Yes, but the most retail sales numbers are for April. Data is lagging reality. 

What about job?

Not Close to Recession? 

Please note the lagging nature of jobs and the discrepancy between jobs and employment.

Home Sales 

Media Spin or the Real Deal? 

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Recession skeptics abound as do proponents of the "softish" landing theory.

Code Words

May 17 Flashback: Retail Sales Easily Beat Expectations, US Treasury Yields Jump in Response

On May 17, I reported Retail Sales Easily Beat Expectations, US Treasury Yields Jump in Response

When I saw that report I mentally placed recession later in the year. But the very next day Target warned.

May 18 Flashback: Target Plunges 25%, What About Yesterday's Big Retail Sales Blowout?

Please recall Target Plunges 25%, What About Yesterday's Big Retail Sales Blowout?

The alleged retail sales blowout does not match reports at Target, Walmart, Kohls, and Lowes. 

Looking ahead, new and existing home sales will be negative on demand for appliances, furniture, durable goods, landscaping, kitchen cabinets, etc.  

We are one retail sales revision away from a second consecutive quarter of negative real final sales, the true bottom line GDP number. 

And judging from the repeat warning from Target, we may not even need that revision.   

This post originated at MishTalk.Com.

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