THE WALL STREET JOURNAL. WSJ.com BUSINESS | EARNINGS Target's Profit Sinks as Retailer Unloads Unwanted Inventory Operating margin misses forecast after push to cut prices and cancel orders to clear glut of goods By Sarah Nassauer A glut of inventory sank profit at Target Corp. further than it expected, sparking investor concerns about the company's response to an oversupply problem haunting retailers from Walmart Inc. to the parent of T.J. Maxx. Target's net earnings fell 90% and operating margin declined to 1.2% in the quarter ended July 30, the company said in its quarterly earnings report Wednesday. The report, which came after the company forecast in June that operating margin would shrink to roughly 2%, provided a new tally of the rising cost of the retailer's effort to swiftly unload unwanted products. Like many other retailers, Target didn't foresee the sharp reversal in buying behavior that has taken place in recent months as shoppers, squeezed by inflation, shifted more spending to travel and cut back on patio furniture, small electronics and other items that were in high demand for much of the Covid-19 pandemic. Target took a more aggressive approach than some of its competitors, slashing prices and canceling orders to clear out the glut as quickly as possible. On Wednesday, executives spent much of an extended call with analysts answering questions about Target's shrinking margins and strategy for dealing with its inventory problems. Target Chief Executive Brian Cornell said on a separate call with reporters that he didn't want to deal with excess inventory for years, potentially degrading the customer worker experience. and "Today the vast majority of the financial impact of these inventory actions is now behind us," he said. In the current quarter the company expects a roughly $200 million impact from its effort to reduce inventory, Chief Financial Officer Michael Fiddelke said on a conference call Wednesday. The company expects operating margin to rise to 6% in the second half of the year. Target shares Wednesday $175.34. to fell close 2.7% at T.J. Maxx parent said Wednesday that inventory rose 39% in the most recent quarter, while sales fell 1.9%. The company said it is comfortable with its inventory levels and that lower gasoline prices could boost consumer spending for its goods. Aug. 17, 2022 Large retail chains including Walmart and Home Depot Inc. have reported higher sales for the most recent quarter driven by consumers' willingness to absorb price increases. The results so far indicate Americans continue to spend even as they shift purchases away from nonfood items to offset the effects of inflation. Overall retail sales-a measure of spending at stores, online and in restaurants were flat in July as gasoline prices fell, compared with an increase of 0.8% in June, the Commerce Department said Wednesday. Stripping out gasoline and auto sales, retail sales rose 0.7% in July. Walmart, like Target, has discounted goods to pare excess inventory. Those efforts ate into last quarter's profit and will continue in the current quarter, executives said Tuesday. Target executives said traffic gains and the overall spending strength among its core shoppers are evidence that the retailer can put the inventory issues behind it. The retailer believes it is gaining market share by unit sales in all major categories, executives said. Target shoppers are buying fewer discretionary items as