Target Corporation (NYSE: TGT) shares retreated, dragging down consumer retail sector-related exchange traded funds, after announcing a plunge in quarterly profits that fell short of even the lowest Wall Street estimates.
On Wednesday, the VanEck Vectors Retail ETF (RTH) and the Consumer Discretionary Select Sector SPDR (XLY) both dropped 0.9%.
Meanwhile, Target shares were 2.4% lower on Wednesday. TGT makes up 4.5% of RTH’s underlying portfolio and 2.1% of XLY.
Target revealed quarterly profits decreased by almost 90% year-over-year as the big box department store chain implemented steep discounts on merchandise to unload unwanted inventory that had been built up following the COVID-19 pandemic consumer buying spree.
Due to its aggressive actions, the company’s quarterly profits came in well below Wall Street’s expectations, even after it issued lower guidance warnings twice.
“I want to thank our team for their tireless work to deliver on the inventory rightsizing goals we announced in June. 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 guests, our team, and our business,” Brian Cornell, chairman and chief executive officer of Target Corporation, said in a note. “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 guests’ wants and needs.”
Nevertheless, now that Target has dumped the dead weight on its bottom line, the company has outlined a much rosier full-year outlook, arguing that it is in a position to rebound with the holiday season coming up.
“If we hadn’t dealt with our excess inventory head-on, we could have avoided some short-term pain on the profit line, but that would have hampered our longer-term potential,” Chief Financial Officer Michael Fiddelk told reporters, CNBC reported. “While our quarterly profit took a meaningful step down, our future path is brighter.”
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