TGT Target Corp

By Khadeeja Safdar 

Target Corp.'s chief vowed to invest billions to lower prices and remodel hundreds of stores, an admission that the retailer's focus on trendy merchandise wasn't enough to attract shoppers.

Chief Executive Brian Cornell defended his brick-and-mortar-centric strategy Tuesday after Target reported sales and profit declines for the holiday quarter, and gave an even gloomier outlook. The company said its 2017 profits would fall as much as 25% below what Wall Street had forecast.

The warning sent Target shares skidding 12% to $58.87 in Tuesday afternoon trading. The shares have now erased nearly all the gains since Mr. Cornell took the reins in August 2014 in the wake of a massive customer-data breach.

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 investing $1 billion this year to lower prices and drive digital sales that come at a lower margin.

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 and regaining its cachet for selling fashionable products. He pushed the addition of specialty foods and trendy labels developed in-house, such as children's apparel brand Cat & Jack.

Although Mr. Cornell said Target would continue to push style and new brands, on Tuesday he took a page out of Wal-Mart's script by saying the company needed to return to "everyday low pricing."

Mr. Cornell said the company planned to revamp as many as 600 locations over the next three years, and open 100 smaller locations in college towns and urban areas. There are no plans for mass closings, he said, and the retreat of department stores was an opportunity for Target to grab market share. "We are not mall-based," he added.

Since he became CEO, Mr. Cornell helped Target regain its footing after the credit-card breach. He exited the Canadian market and sold the company's pharmacies to CVS Health Corp. But the former PepsiCo Inc. and Sam's Club executive's turnaround efforts began to stall last year, as fewer shoppers visited Target's stores and spending moved online.

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.

"We believe structural changes have been at Target's doorstep for years, but the company's strong connection with next-generation consumers and moms led us to believe it could steadily move its business more online," wrote analysts at Piper Jaffray. "That was clearly too optimistic."

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 14:43 ET (19:43 GMT)

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