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Why is Target stock crashing? TGT shares slump after inventory surplus

The retail giant has too much inventory that people aren’t buying. Putting it on clearance will hit operating margins hard.

Why is Target stock crashing? TGT shares slump after inventory surplus
[Source Images: John Kuczala/Getty]

One of America’s largest brick-and-mortar retailers is seeing its shares get hit hard in pre-market trading this morning. Target shares (ticker TGT) are down over 9% after it announced plans to drastically reduce its inventory, reports CNBC.

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The company told investors that it expects its profits will decline due to a decision to mark down prices on existing inventory in order to get it out of stores. The idea here is to put lots of the excessive stock that Target is carrying onto clearance, to move it and make room for products that customers actually do want to buy. As Target CEO Brian Cornell told CNBC:

We thought it was prudent for us to be decisive, act quickly, get out in front of this, address and optimize our inventory in the second quarter — take those actions necessary to remove the excess inventory and set ourselves up to continue to be guest relevant with our assortment.

But Target’s move to aggressively jettison overflowing stock now means the company expects its operating margins for its second fiscal quarter to drop from 5.3% to somewhere around 2%. That announcement spooked investors, sending Target shares downward in pre-market this morning.

Target competitors Walmart and Costco have also seen their shares drop this morning in pre-market trading. Walmart and Costco are both currently down over 3% as of the time of this writing.

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