Target Slashes 2017 Outlook as Holiday-Quarter Sales Fall -- 2nd Update
February 28 2017 - 12:47PM
Dow Jones News
By Khadeeja Safdar
Target Corp.'s chief vowed to invest billions to lower prices
and remodel stores, an admission that the retailer's focus on
trendy merchandise wasn't enough to draw shoppers to its
stores.
Chief Executive Brian Cornell defended his strategy Tuesday
after Target reported sales and profit declines for the holiday
quarter. The company also said its 2017 profits would fall as much
as 25% below what Wall Street had forecast. Its shares were down
11% to $58.97 in recent trading after falling as much as 14%
earlier in the session. The shares have erased nearly all the gains
since Mr. Cornell took the reins in August 2014.
Calling 2017 "a year of investment," Mr. Cornell said Target
would put $2 billion this year and $7 billion over the next three
years into improving its stores, launching exclusive brands and
developing its supply chain and digital capabilities. The company
is also spending $1 billion to lower prices this year in an effort
to grab more market share.
Mr. Cornell said he expects Target to return to earnings growth
in 2019. This multiyear plan "is the right path for the company
now," he added. "It will be the right path for the company 10 years
from now."
The changes come more than a year after rival Wal-Mart Stores
Inc. began pouring money into revamping its stores, lowering prices
and expanding its e-commerce operations -- changes that reversed a
sales slump. Target has also been squeezed by the expansion of
Amazon.com Inc., which shares many customers and products with
Target.
Under Mr. Cornell, Target has centered much of its growth
strategy around its roughly 1,800 stores. On Tuesday, he said it
plans to launch more than a dozen exclusive brands in categories
like apparel and accessories over the next two years and open more
than 100 smaller locations in college towns and urban areas in the
next three years.
Since he became CEO, Mr. Cornell helped Target regain its
footing after a massive credit-card breach and a failed expansion
into Canada. But the former PepsiCo Inc. and Sam's Club executive's
turnaround efforts began to stall last year and Target reported
weak sales during the critical holiday period.
Analysts predict that Target will continue to lose market share
to Amazon and other online sellers if it doesn't do more to adapt
to the digital age. In a recent study, Goldman Sachs found that
Target customers are more likely to have an Amazon Prime membership
than those of Wal-Mart and other discount retailers.
Some have suggested drastic cost-cutting moves. Target needs to
consider closing stores and exiting underperforming categories such
as media, John Zolidis, an analyst at Buckingham Research Group,
wrote in a research note this week.
Brick-and-mortar chains are struggling with dwindling foot
traffic and shrinking profit margins as more U.S. consumers do
their shopping online. Several retailers, including Macy's Inc.,
Sears Holdings Corp. and J.C. Penney Co., have recently announced
plans to close hundreds of stores to combat weak sales.
Comparable sales in Target's digital business rose 34% in the
fourth quarter but still make up only a fraction of overall
revenue. Mr. Cornell initially targeted 40% online sales growth
over five years, but the company didn't reach that goal in
2016.
During the fourth quarter, Target's sales at stores open at
least a year fell 1.5%, which was the low end of the company's
guidance. The company also predicted that comparable sales, which
include online revenue, would fall this year.
Target said it would use more of its stores to fulfill online
orders and work to cut its inventory -- something its operating
chief John Mulligan said it had too much of. "We need to get faster
and more reliable," he said.
Overall for the quarter, Target reported a profit of $817
million, or $1.45 a share, down from $1.43 billion, or $2.32 a
share, in the year-ago period. Sales fell 4.3% to $20.69
billion.
--Joshua Jamerson contributed to this article.
Write to Khadeeja Safdar at khadeeja.safdar@wsj.com
(END) Dow Jones Newswires
February 28, 2017 12:32 ET (17:32 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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