Target Sales Get Lift From Remodels but Spending Squeezes Margins
May 23 2018 - 8:05AM
Dow Jones News
By Allison Prang and Khadeeja Safdar
Target Corp. posted higher quarterly sales as the big-box chain
invested in its stores and received a boost from a strong economy.
But the spending weighed on profit margins.
The company said comparable sales increased 3% in the quarter
ended May 5, compared with a decline of 1.3% in the same period
last year. The figures include stores open at least a year and
online sales.
Shares of Target, which have gained about 16% since the start of
the year, fell 6% in premarket trading as Wall Street was expecting
better profit gains.
The company's gross margins fell slightly from a year earlier as
spending on store remodels, lower prices and higher wages pressured
results.
Chief Executive Brian Cornell said customer traffic to the
company's stores was the strongest in years and he expected profit
and sales gains to accelerate in the current quarter.
Like other brick-and-mortar chains, Target has been spending
heavily to adjust to changes in the retail landscape amid
competition from Amazon.com Inc., which has been capturing online
sales, and Walmart Inc., which has been fixing up stores and
expanding its digital efforts.
Since the start of last year, Mr. Cornell embarked on a
multibillion-dollar spending plan. He lowered prices and invested
in its private-label brands, store renovations and opening stores
in urban areas. Last year, the company bought grocery delivery
startup Shipt for $550 million to build up its same-day delivery
capability.
Target's first quarter profit rose 5.9% to $718 million, or
$1.33 a share, compared with $678 million, or $1.22 a share for the
same quarter a year ago. Total sales climbed 3.5% to $16.56
billion.
Mr. Cornell said the company's grocery and homegoods segments
had strong growth in the latest quarter, helping to balance out
categories that were "temperature-sensitive."
The company expects second quarter same-store sales to rise in
the low- to mid-single digits from a year ago. The company
maintained its financial goals for the full year.
Target isn't the only brick-and-mortar chain that has benefited
from better economic conditions. Walmart Inc. and Macy's Inc. both
reported rising same-store sales for the latest quarter.
Target is remodeling more stores this year, adding locations in
urban areas and expanding delivery and pickup options. It is also
testing out a new distribution strategy that would help with
stocking smaller stores. In the company's first quarter, it
finished remodeling 56 locations.
Write to Allison Prang at allison.prang@wsj.com and Khadeeja
Safdar at khadeeja.safdar@wsj.com
(END) Dow Jones Newswires
May 23, 2018 07:50 ET (11:50 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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