‘We are in an environment many of us haven’t seen before’

Target (TGT) CEO Brian Cornell cited inflation and “historic highs with inventory levels” as he pulled back the curtain on his major decision to aggressively markdown inventory amid “an environment many of us haven’t seen before” in remarks on Tuesday.

“I recognized after a few weeks of looking at our own stores, analyzing our business, looking at competition, and hearing from our team that we [had] to address this problem upfront,” Cornell explained at an event held at The Economic Club of New York.

“And as opposed to letting it linger quarter after quarter for three or four quarters,” he added, “we made the tough decision based on what we were seeing in the industry, and back from our guests, our team, the best thing to do was: Let’s deal with this upfront and deliver on time.”

Earlier this month, the retailer said that it’s aiming to cut inventory by offering discounts, canceling orders, and taking a harder look at expenses. In light of the actions, Target cut its second-quarter operating margin outlook.

“We are in an environment many of us haven’t seen before,” Cornell added.

Target CEO, Brian Cornell speaks during an interview on the floor of the New York Stock Exchange November 28, 2014. REUTERS/Brendan McDermid

“We’re all seeing what’s happening with fuel prices across the country,” Cornell said. “And we’re the second-largest net importer in the US We have, obviously, a significant supply chain, and we’re planning for freight and transportation [costs] to grow by $1 billion. That number doubled almost overnight.

He continued: “I also talked about the fact that inventors were way up. And I left New York, and I spent time in different parts of the country, in our stores and in competition, and looking at syndicated data, and recognized that US Retail overall, we’re looking at historic highs with inventory levels.”

Target’s stock is down 14% in June alone, lagging the S&P 500’s decline of 11%, per Yahoo Finance Plus data.

That said, Cornell struck an upbeat tone on the key back to school shopping season.

“We’re ready for back to college,” the Target CEO said. “We’re ready for the holiday season, which I think is going to be big across America… And so I’m betting that we’re going to have a big back to school season in America and back to college will be big, and adults will be having parties for Halloween and kids will be trick-or-treating.”

Gas tax holiday will ‘only fuel the demand’

In the wide-ranging interview, Cornell was also asked about a gas tax holiday floated by the Biden administration over the weekend.

The executive is not convinced a plan would offer any long-term relief to consumers feeling the pain at the pump.

“We have a classic supply and demand challenge,” Cornell said. “And in all due respect to a gas holiday, it’s only going to fuel the demand. It’s doing nothing to increase supply. So that’s a temporary, almost a mini stimulus, but it’s time to fundamentally change the supply and demand curves for fuel and transportation.”

Cornell added: “I think about applying longer term solutions and figure out how we…get out in the oil fields and figure out what needs to change. How do you incentivize more production. But you have a classic supply and demand situation here.” that is out of whack right now. And increasing demand is not going to help lower those prices over the long term.”

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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