Target Sales Continue Skid -- WSJ
May 18 2017 - 3:02AM
Dow Jones News
By Khadeeja Safdar
Target Corp. sales continued to fall in its most recent quarter
as the retailer said it would invest billions in redesigning
stores, launching exclusive store brands and lowering prices.
The Minneapolis-based company's sales at stores open at least a
year fell 1.3% in its fiscal first quarter ended April 29, thanks
in part to lower foot traffic and average orders. Sales fell 1.1%
to $16.02 billion. Its profit rose to $681 million, or $1.23 a
share, from $632 million, or $1.05 a share, in the year-ago
period.
While the profit exceeded Wall Street's expectations, "we're not
doing any high-fives in the room here today," Target's Chief
Executive Brian Cornell said during a call with analysts.
"Our results are not where we want them to be, and we have much
more work to do," he said.
Target plans to invest $7 billion over the next three years on
store improvements, new brands and developing its digital and
supply-chain capabilities. It also expects to sacrifice about $1
billion of potential profit to lower prices and drive lower-margin
digital sales.
The company has been squeezed in recent years by Amazon.com
Inc.as shopping moves online, and by Wal-Mart Stores Inc., which
has remodeled stores and lowered prices. Wal-Mart is scheduled to
report results Thursday.
U.S. retailers have closed stores at a record pace this year as
they feel the fallout from decades of overbuilding and the growth
of e-commerce. Several chains have filed for bankruptcy protection,
including teen retailer Rue21 on Monday. Mr. Cornell said he
expects to see pressure from closings and liquidations, though they
represent a business opportunity in the long term.
Target shares rose 3% to $56.21 in morning trading Wednesday,
though analysts cautioned that the company exceeded earnings
targets that it had previously lowered.
"It should have been obvious that [Target] was going to easily
beat," wrote John Zolidis, an analyst at Buckingham Research Group,
since it "guided to a sequentially much worse performance and the
environment, while difficult, didn't change that much since the
holidays."
Mr. Cornell said the company is pursuing merchandising and
marketing efforts to re-establish Target as a low-price competitor
on key items. "We believe that consumer perception of value at
Target has not reflected how low our out-the-door prices really
are," he said.
The company also highlighted its swimwear line, Shade &
Shore, and said it expects to pick up market share from rivals like
Victoria's Secret, which began phasing out the category last
year.
In addition to working on its existing stores, Target has
recently opened smaller stores in New York City and other urban
markets. It is also attempting to improve online margins, raising
the free shipping minimum to $35 from $25 and encouraging shoppers
to make bigger purchases with a new test program that allows them
to order a box of household essentials delivered within two days
for a flat fee.
Digital sales in the fiscal first quarter grew to 4.3% of total
revenue, up from 3.5% in the same quarter last year, with
comparable digital channel sales increasing 22%.
Target's food and beverage comparable sales continued to fall,
despite its efforts to improve a category that serves as a big
traffic driver and accounts for 20% of its sales. Last year, the
company walked away from an acquisition of Phoenix-based grocery
chain Sprouts Farmers Market Inc.
Earlier this year, Target replaced its grocery chief, hiring
former Kroger Co. executive Jeff Burt. "Our food or beverage
businesses are not where we want them to be," said Mr. Cornell.
Target backed the full-year profit forecast of $3.80 to $4.20 a
share that it issued in February, which at the time fell far short
of Wall Street's expectations. It said on Wednesday that there was
an increased chance it would exceed the midpoint of that range.
Write to Khadeeja Safdar at khadeeja.safdar@wsj.com
(END) Dow Jones Newswires
May 18, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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