Target's Sales Rise but Spending Pinches Profits -- Update
November 15 2017 - 11:13AM
Dow Jones News
By Khadeeja Safdar
Target Corp. posted higher quarterly sales but profits fell and
the retailer gave a disappointing earnings outlook for the holiday
period, as the big-box chain spends heavily to revamp stores, lower
prices and raise wages.
The company said sales at stores open at least a year increased
0.9% in the quarter ended Oct. 28, compared with a 0.2% decline in
the same period last year. It forecast earnings for the holiday
quarter of $1.05 to $1.25 a share, lower than what Wall Street was
expecting.
Shares of the retailer fell more than 8% in Wednesday morning
trading following the report. The stock is down 16% on the year as
investors worry about competition from Wal-Mart Stores Inc. and
Amazon.com Inc., which are pushing down prices.
"We've entered the season in a very different position versus
last year, " said Chief Executive Brian Cornell on a conference
call. "That's reflected in the start that we've seen to the season
and the approach we're taking throughout the fourth quarter."
After weak holiday performance in 2016, Target has been making
headway on its three-year plan to spend $7 billion on stores and
digital improvements. On Wednesday, Mr. Cornell highlighted
improvements in ship-from-store capabilities, the launch of new
brands, store remodels and a revamped promotional strategy.
Despite higher third-quarter sales, both in stores and online,
Target's profits fell 21% to $480 million, or 88 cents a share, in
the three months ended Oct. 28. The company's profit margins
declined and expenses rose as it remodeled stores and invested in
lower prices.
The company also expects higher compensation costs driven by
investments in employee hours and wages. Earlier this year, Target
said it planned to hire 100,000 temporary workers over the holiday
period -- a 40% increase from last year -- and was raising its
hourly minimum wage to $11 this year.
Target's progress has been slow and costly, said Neil Saunders,
managing director at GlobalData Retail, in a note following the
earnings release.
"The latest results from Target are undoubtedly another step in
the right direction," Mr. Saunders wrote. "It has also cost the
company a great deal to travel even this short distance."
As part of its investment plan, the company has lowered prices
on thousands of household items, a move that has made it more
competitive with Wal-Mart. Target executives said they are planning
fewer and more effective promotions this holiday season.
Target opened 12 stores during the quarter, most of which were
smaller locations in urban areas. It has also remodeled 110 stores
so far this year. Sales have increased 2% to 4% in those recently
renovated stores. The company plans to finish remodeling 1,000
locations out of its 1,800 store fleet in the next three years.
Target expects comparable sales growth in the holiday period of
flat to 2%, translating into growth of flat to 1% for the full
year.
Write to Khadeeja Safdar at khadeeja.safdar@wsj.com
(END) Dow Jones Newswires
November 15, 2017 10:58 ET (15:58 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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