Companies Are Finally Rebuilding Their Inventories. What That Means for Profits.
By Jacob SonenshineFollow
May 29, 2022 7:00 am ET
https://archive.ph/gZMzd#selection-973.0-993.67
Let’s break it down: Target’s sales for the most recent quarter of $25.2 billion beat analysts expectations of $24.5 billion, but the retailer needed a bigger beat for profits to surpass estimates. The profit of $2.19 a share was well below expectations for $3.07.
And that miss was because Target’s operating margin of 5.3% fell short of expectations for 8.1%, which brings us back to pricing: The company couldn’t fully offset rising costs with price increases.
Soaring inventory certainly didn’t help the profit margin. Target’s inventory rose 43.1%, while sales grew only 4%. Having so much inventory makes it hard to raise prices as much as management would like—and analysts at Cowen are now warning of markdowns on products in the coming quarters.