Target Sales Get Lift From Remodels but Spending Squeezes Margins -- Update
May 23 2018 - 11:15AM
Dow Jones News
By Sarah Nassauer and Khadeeja Safdar
Target Corp. said sales are rising as the big-box chain benefits
from a strong economy and recent investments in stores and online,
but those investments continue to weigh on profits.
The company on Wednesday said sales in existing stores rose 3%
in the quarter ended May 5, boosted by more shoppers visiting
Target's stores and website. Chief Executive Brian Cornell said
customer traffic to stores was the strongest in over a decade of
quarterly figures.
But profit margins fell from a year earlier as the retailer
spent on store remodels, lower prices and higher wages. Meanwhile,
cooler weather in early April delayed spending on some
higher-margin seasonal purchases, executives said.
Target expects margins to improve throughout the year as some of
those investments lessen and the retailer focuses on cost cutting,
said Cathy Smith, Target's chief financial officer.
"The consumer is very healthy and they are spending more time
shopping at Target," Mr. Cornell said. Target is gaining market
share across all product categories, he said.
Shares of Target, which are up about 10% since the start of the
year, fell 5% in morning trade as Wall Street was expecting better
profit gains.
Like other brick-and-mortar chains, Target has been spending
heavily to adjust to changes in the retail landscape. It faces
competition from both Amazon.com Inc. online, as well as the
country's largest retailer, Walmart Inc., which has been fixing up
stores and expanding its digital efforts.
A strong economy and investments to improve stores and grow
online are propelling some retailers forward. Earlier this month
Walmart and Macy's Inc. both reported rising same-store sales for
the latest quarter.
But many traditional retail chains continue to struggle. J.C.
Penney reported weak quarterly sales last week. On Tuesday, the
company said CEO Marvin Ellison would leave to become CEO of Lowe's
Co, another retailer trying to improve sales results. Lowe's
reported sales in existing stores rose 0.6% on Wednesday, blaming
cooler spring weather.
Target has invested heavily to grow its business. 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.
Store sales contributed more to quarterly sales growth than
e-commerce did, which "completely justifies Target's decision to
focus on and invest in stores," said Neil Saunders, managing
director of GlobalData Retail. However, lower profit margins will
remain in focus, Mr. Saunders said. "Continued effort is needed to
drive top-line growth," he said.
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.
Online sales grew 28% in the quarter, up from 21% the previous
year.
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 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.
Allison Prang contributed to this article.
Write to Sarah Nassauer at sarah.nassauer@wsj.com and Khadeeja
Safdar at khadeeja.safdar@wsj.com
(END) Dow Jones Newswires
May 23, 2018 11:00 ET (15:00 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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