Unsold U.S. retail inventory a challenge after dismal earnings season

Fri May 20, 2016 7:38am EDT
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By Nandita Bose

CHICAGO (Reuters) - A pile-up of unsold inventory across U.S. retail chains is likely to squeeze profits further as stores struggle to make up for a weak first quarter marred by weak sales and share declines.

Moving the stale stock of mostly clothes, accessories and electronics is likely to lead to bigger discounts and steeper markdowns, which in turn would reduce chances for a swift profit rebound.

Tepid consumer demand for small discretionary purchases is likely to compound the problem, analysts said.

Disappointing sales by some of the biggest retailers including Target Corp (TGT.N: Quote), Macy's Inc (M.N: Quote), JC Penney (JCP.N: Quote) and Kohl's Corp (KSS.N: Quote) are likely to lead to even more promotions and discounts to woo customers

Target's shares fell to a 52-week low on Wednesday after its sales missed estimates.

Macy's stock fell as much as 15 percent on Wednesday after it reported a drop in sales and cut guidance.

Target Chief Executive Brian Cornell, speaking after the company released its earnings, cautioned investors about the impact of the stock build-up.

"Many of our competitors are sitting on meaningful excess inventory, which we expect will extend the very intense promotional environment into the months ahead," he said.   Continued...

A man in short sleeves carries shopping bags near Herald Square during unseasonably warm weather in the Manhattan borough of New York December 27, 2015. REUTERS/Pearl Gabel