Net earnings at Target took a steep dive for the second straight quarter as the company felt the impact of inventory reduction efforts.
The discount giant reported net earnings of $183 million in the second quarter of fiscal 2022, down a whopping 90% from $1.82 billion in the same quarter a year earlier. This followed a more than 50% year-over-year drop in the first quarter of fiscal 2022. Second quarter adjusted earnings per share (EPS) of $0.39 decreased 89% compared with $3.64 in the second quarter of 2021.
Operating income was $321 million in the quarter, down 87% from $2.5 billion a year earlier, reflecting a decline in the company's gross margin rate. The second quarter operating income margin rate was 1.2%, compared with 9.8% in the prior-year period. The second quarter gross margin rate was 21.5%, compared with 30.4% in 2021.
Target's total revenue rose 3.5% to $26 billion, reflecting total sales growth of 3.3% and a 14.8% increase in other revenue. Comparable sales grew 2.6%, with same-store sales growth of 1.3% and comp digital sales growth of 9%. It was the retailer's 21st consecutive quarter of sales growth.
In addition, traffic rose 2.7%, while same-day services rose 11%, led by mid-teens growth in drive-up services. Food and beverage sales grew in the low double digits.
Target opened five new stores during the quarter, and completed its 1,000th store remodel since 2017. So far this year, 80 Ulta at Target shops have opened, with more than 250 planned for the full year.
“I want to thank our team for their tireless work to deliver on the inventory rightsizing goals we announced in June,” said Brian Cornell, chairman and CEO of Target. “While these inventory actions put significant pressure on our near-term profitability, we’re confident this was the right long-term decision in support of our customers, our team and our business.”
The actions Cornell referred to include setting additional markdowns, removing excess inventory and canceling orders. In addition, Target plans to build additional capacity in its upstream supply chain to support future growth by adding five distribution centers over the next two fiscal years.
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While the company says it is planning cautiously for the remainder of the year, Target is maintaining its prior guidance for full-year revenue growth in the low- to mid-single-digit range, and an operating margin rate in a range of around 6% in the back half of the year.
“I’m really pleased with the underlying performance of our business, which continues to grow traffic and sales while delivering broad-based unit-share gains in a very challenging environment,” said Cornell. “Looking ahead, the team is energized and ready to serve our guests in the back half of the year, with a safe, clean, uncluttered shopping experience, compelling value across every category, and a fresh assortment to serve our customers’ wants and needs.”
Minneapolis-based Target Corporation operates nearly 2,000 stores and an e-commerce site.
This story originally appeared on Chain Store Age.