Target warns of more margin squeeze, cuts outlook

STORY: Less than three weeks after reporting dismal results that rang alarm bells on Wall Street, Target on Tuesday again warned of trouble ahead due to unwanted inventory, as decades-high inflation continues to upend supply and demand at U.S. stores.

Target cut its profit margin outlook for the quarter, which it had just issued May 18, and said it would have to cancel orders or offer deeper discounts to clear out inventory.

The surprise revision comes as soaring inflation has changed U.S. consumers shopping habits, catching many retailers off guard and forcing them to offer more discounts.

Target, as well as Walmart, had reported a much steeper-than-expected drop in quarterly profit last month, sending shockwaves through the retail industry.

At the time, Target said its inventory rose 43%, compared with a year earlier, as demand for high-margin discretionary items such as kitchen appliances and TVs evaporated in favor of necessities like food and gas.

Target's strategy to keep most of its products affordable compared with its rivals is proving to be costly, with the company now saying it would raise prices on some items to offset the unusually high transportation and fuel costs.

But Target maintained its sales goals for the year, prompting some Wall Street analysts to say the company's aggressive measures to offload inventory could help it come out on top later in the year.

Shares of Target fell 7% in morning trading but had pared most of the losses by midday.

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