At this time last year, retail inventories peaked. In the year since, industry players have worked to align inventory levels with demand, often sacrificing short-term profits. Entering the second quarter of 2023, the efforts of many retailers and brands are beginning to show results: most companies, though not all, saw inventories decline and profit margins rise, while leaner inventories combined with faster supply chains have enabled supply chain managers to chase popular categories through sourcing practices.

Retailers hope this will allow for the most profitable sales possible in a low-demand environment. As the industry moves deeper into the third quarter, here is a comparative analysis of key operational metrics for some retailers and brands in the second quarter.

Walmart

Executive comments (CFO John Rainey):"The team continues to perform exceptionally well in inventory management, with inventory down 5% at the end of the quarter, including an 8% decline at Walmart U.S. We are pleased with the progress in inventory levels, the supply chain has normalized, and the inventory mix has improved. In an uncertain macro environment, we remain disciplined in general merchandise purchasing to reduce potential risks when demand weakens."

Target

Executive comments (COO John Mulligan):"Our earnings exceeded expectations this quarter, a testament to the agility and resilience of our team, who successfully navigated multiple challenges. The team deserves credit, but this year's leaner inventory also provided more operational flexibility than last year, when the team was dealing with excess inventory. This year, with clean facilities, a renewed focus on retail fundamentals, and ongoing efficiency efforts, the team achieved significant profit growth despite challenging revenue."

Kohl's

Executive comments (CEO Tom Kingsbury):"As we implement new planning and allocation processes, we are more responsive to customer demand, using more discretionary buying budget to chase trends and reduce risk, maintaining better inventory levels on core basics, and improving inventory flow from distribution centers to the sales floor. Looking ahead to fall, we are optimistic about current inventory levels and our ability to manage inventory with continued discipline."

Macy's

Executive comments (CEO Jeff Gennette):"Ultimately, our inventory at the end of the second quarter was down 10% from last year and 18% from 2019. We remain disciplined in our inventory commitments, flexing the timing and depth of promotions and markdowns, and using data-driven tools to shorten seasonal clearance events by several weeks. Sell-through rates were better than expected, and markdowns were not as deep as anticipated. Thanks to the cross-functional team's flexibility and embrace of new ways of working."

"Entering the third quarter, our stores and online environment are cleaner and easier to navigate. Merchandise is fresh and seasonal, with the ability to use discretionary buying budgets and chase areas of strength, all improving the omnichannel shopping experience."

Dollar General

Executive comments (CEO Jeff Owen):"We are strategically accelerating inventory reduction through expanded promotional markdowns, primarily on non-consumables. While this is expected to pressure operating profit by approximately $95 million in the second half of the year, we believe it will drive traffic and reduce excess inventory faster. We believe this adjustment supports our operational priorities as a low-cost operator and will accelerate improvements in store and supply chain efficiency, as well as in areas such as shrink, damage, and cash flow."

Dollar Tree

Executive comments (CFO Jeff Davis):"While inventory is below last year's levels, it remains elevated due to early arrival of imported goods. As the supply chain rapidly recovers, seasonal imports from Asia arrived much earlier than our planned third-quarter arrival times. Going forward, we will continue to manage inventory and related accounts payable to improve free cash flow generation."

Under Armour

Executive comments (CFO David Bergman):"I want to remind everyone that our inventory is in a very healthy state. There is not much old product in inventory, and we are normalizing to last year's leaner inventory levels. Therefore, I believe we have a good balance between promotional activity and the need to clear inventory, while keeping third-party discount clearance channels in the 3% to 4% range of revenue, which we consider reasonable."

Nike

Executive comments (CFO Matt Friend):"Regarding inventory, we continue to feel very good. Nike inventory dollars were down 10% compared to the same period last year. Total marketplace inventory units, including Nike and wholesale partners, were down double digits compared to last year."

"Partner-owned inventory units were flat to last year and are planned to remain lean in the second quarter, a meaningful achievement following higher wholesale shipments in fiscal 2023. Overall, we are very satisfied with the relationship between marketplace inventory levels and retail sales, and we will begin to increase wholesale shipments in the second half of the year."

Lululemon Athletica

Executive comments (CFO Meghan Frank):"I would say we have made significant progress. On a cost basis, there is still a higher level of air freight in the inventory balance. Therefore, I don't think it's fully optimized yet, and inventory turnover is slightly slower than historical levels. Our long-term goal is to return inventory turnover to normal historical levels. So there is still room for improvement, but the team has done a great job navigating the dynamic supply chain and positioning inventory to capitalize on the demand upside we are seeing and experiencing."

Abercrombie & Fitch

Executive comments (CFO and COO Scott Lipesky):"The supply chain is in good shape, with freight costs, transit times, and performance significantly improved from last year. With the supply chain functioning normally, we can again operate the business the way we want, using chase order models to read and react, driving inventory receipts. Inventory was down 30% from last year in the quarter, with both brands and all regions leveraging our chase capabilities."

"We continue to expect inventory at the end of the third quarter to be below last year. By year-end, we expect inventory to be flat to down versus last year."

American Eagle Outfitters

Executive comments (CFO Mike Mathias):"Compared to last year, gross profit increased by $83 million, up 22% to $453 million, with gross margin up 680 basis points to 37.7%. The improvement was primarily driven by better merchandise margins. Inventory discipline drove lower markdowns, and we maintained a focus on healthy promotions. Additionally, we absorbed $25 million in freight headwinds from last year and $30 million in incremental markdowns related to end-of-season clearance."

Gap Inc.

Executive comments (CFO Katrina O'Connell):"Inventory at the end of the second quarter was down 29% from last year. This includes a 9-point decline related to in-transit inventory (due to last year's supply chain challenges) and a 6-point decline from releasing most of the packed and held inventory balance. The remaining 14-point decline is due to more efficient inventory management."

"As you know, we made significant progress in reducing inventory at the end of fiscal 2022. In fiscal 2023, we continue to focus on disciplined buying and leveraging responsive levers. Therefore, we plan for year-over-year inventory declines at the end of the third quarter to be roughly in line with year-to-date trends."

Data Notes

The data used in this report primarily comes from retailers' quarterly or annual reports.

Each retailer reports inventory and cost of sales in securities filings, but the specific financial data underlying these metrics may differ. For example, some retailers include warehousing costs in cost of sales, while others do not specify. Where possible, metric differences are noted in the charts.

Since not all retailers report operating margin or inventory turnover, Supply Chain Dive calculated these using published revenue, operating profit, cost of sales, and inventory data. Therefore, data in this report may differ slightly from rounded totals reported by retailers.