The news: Slashing prices on home appliances, patio furniture, and other discretionary items to rid itself of excess inventory caused Target’s profit to plunge nearly 90% in Q2.
Investors had expected earnings per share of 72 cents—a far cry from the 39 cents that Target actually reported. That stood in sharp contrast with Walmart, which like Target had warned investors that it was taking drastic steps to adapt to consumers’ shifting spending patterns, but beat analysts’ expectations.
A speed bump: Target’s results were a clear dud, as they fell short of Wall Street’s expectations by a wide margin—even after the company lowered its guidance twice.
One reason for optimism: Target’s long-term strategy of leveraging its stores to fulfill online orders continues to pay off.
A second reason for optimism: The retailer’s “bold effort to rightsize” its inventory via discounting enabled it to avoid the incremental costs of storing and managing the excess goods in softening categories. It also positioned Target to roll out “new, fresh and fashionable items” in faster-growing areas such as food and beverage, beauty, and essentials, CEO Brian Cornell said on the retailer’s earnings call.
The big takeaway: While there’s no spinning a 90% dip in profit, Target appears to have endured short-term pain to position it for success in the second half of the year and beyond. In ridding itself of items people don’t want and leaning in on value—in particular, its private label products—Target has plenty of reason for optimism.
This article originally appeared in Insider Intelligence's Retail & Ecommerce Briefing—a daily recap of top stories reshaping the retail industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.