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Target said it was “planning cautiously” for the rest of the year after the U.S. retailer’s efforts to offer customer discounts and shift inventory caused a bigger-than-expected drop in second-quarter profit.

The company spooked investors in June when it issued its second profit warning in less than a month and said it would have to cancel orders and offer deeper discounts to buyers hit by high inflation.

Target cut its second-quarter operating margin forecast to 2% from 5.3%. On Wednesday, it reported an even lower margin of 1.2% as it worked to reduce excess inventory and cited higher freight and transportation costs.

Chief Executive Brian Cornell said Target faced a “very challenging environment” and stressed that it was working on meeting the “correct sizing goals” announced in June.

“While these inventory actions put significant pressure on our near-term profitability, we believe it was the right long-term decision to support our customers, our team and our business,” Cornell said.

The Minneapolis-based group posted net income of $183 million for the three months to July 30, compared with $1.81 billion in the same quarter last year and less than half of the $396 million profit predicted by analysts surveyed by Refinitiv.

Revenue for the quarter of $26.03 billion was up from $24.82 billion a year ago, but lower than analysts’ forecast of $26.61 billion.

Target’s shortfall comes after retailer Walmart and home improvement chain Home Depot reported resilient consumer spending on Tuesday despite inflation concerns weighing on U.S. shoppers.

Target, which along with retailer Walmart serves as a guide for the U.S. consumer, said it was “planning cautiously” for the remainder of the year and maintaining its previous guidance for revenue growth across the entire year. year in the low to mid single digit range. and an operating margin of around 6% in the second half of the year.

Target shares were down 3.7% in premarket trading on Wednesday.

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