Target profit crumbles as inflation-weary consumers shun discretionary spending

Aug 17 (Reuters) - Target Corp (TGT.N) reported a bigger-than-expected 90% fall in quarterly earnings and missed comparable sales estimates on Wednesday as aggressive discounting fell short of reversing a slump in spending on discretionary goods.

U.S. retailers have cut their profit forecasts in recent weeks as consumers squeezed by higher prices of everything from toothpaste to gas curtailed spending on items like apparel and electronics.

Target, which relies more on discretionary categories, has been hit harder compared to retailers like Walmart Inc (WMT.N) that stock a greater portion of their shelves with food and other everyday essentials.

That focus helped larger rival Walmart on Tuesday beat estimates as its core base of low-to-middle income shoppers flocked to its stores for bargains on groceries. read more

Shares of Minneapolis-based Target fell 3.3% in premarket trading, set to add to this year's 22% drop.

The company's operating margin rate tumbled to 1.2% in the second quarter, below the 2% forecast last month and 9.8% a year earlier, due to costs related with clearing out excess merchandise.

The big-box retailer reiterated it would return to an around 6% annual operating margin rate but said it was still "cautious" on demand for discretionary items.

"The vast majority of the costs to get our inventory where we wanted it are behind us... we're well positioned to see improved profit performance in the back half of the year," Chief Financial Officer Michael Fiddelke said on a media call.

Target's comparable sales rose 2.6% in the quarter ended July 30, below analysts' average estimate of a 3.3% increase, according to IBES data from Refinitiv.

The company reported quarterly earnings of $183 million, or 39 cents per share, missing estimates of 72 cents.

Even with the heavy discounting, inventory rose 1.6% to $15.3 billion at the end of the quarter from the prior period. Analysts had estimated a 21% fall. read more

The increase in inventory was due to the company expediting product shipments for the back-to-school and holiday shopping periods in a still "choppy" supply chain environment, Chief Executive Brian Cornell said.