Target Cuts Outlook in ‘Difficult’ Environment
MINNEAPOLIS (AP) — Target cut its profit and comparable-store sales outlook amid stiffer competition and its own stumbles in areas like grocery sales.
The discounter’s second-quarter net income fell nearly 10 percent, though that was better than what most had expected.
Sales at stores open at least a year fell 1.1 percent, reversing seven straight quarters of gains.
Shares fell nearly 4 percent in before the opening bell Wednesday.
The quarter underscores challenges that Target and other retailers face from Amazon.com and shoppers who remain cautious about spending while in its aisles.
Target has been trying to reinvigorate its operations under Brian Cornell, who took the helm two years ago. He wants to regain the retailer’s cheap chic status and make Target more nimble after a series of headline-grabbing setbacks, including a pre-Christmas 2013 debit and credit card breach that damaged sales and profits for months.
Cornell has made some great strides and has recast the executive ranks at Target.
It’s focusing on key merchandising categories like fashion, home furnishings and wellness products. The company has spruced up its presentation and created vignettes to feature its home products. The company is also creating new brands such as Cat & Jack, a children’s clothing that is expected to generate annual sales of $1 billion. The collection hit stores this summer in time for the crucial back-to-school season.
And while it’s shifting more assets from stores to online operations, there are signs of headwinds in that area. Online sales rose 16 percent in the second quarter, lower than the 23 percent gain in the first quarter.
It’s also trying to pump up grocery sales, which represents about 20 percent of its total business. It’s marketing more organic, natural or gluten free products. Target’s nonperishable items have been doing well, but it’s still having trouble getting shoppers to pick up fruits and vegetables, according to analysts.
The company now expects earnings this year in the range of $4.80 to $5.20, lower than the $5.20 to $5.40 it had projected earlier.
Same-stores sales could fall as much as 2 percent in the second half of the year, Target said.
Net income for the quarter was $680 million, or $1.16 cents per share. That compares with $753 million, or $1.18 per share in the year-ago quarter.
Adjusted per-share earnings were $1.23, easily beating projections of $1.14 from Wall Street, according to a survey by Zacks Investment Research.
“While we recognize there are opportunities in the business, and are addressing the challenges we are facing in a difficult retail environment, we are pleased that our team delivered second quarter profitability above our expectations,” said Cornell.
Revenue fell 7.2 percent to $16.2 billion.
Shares fell $2.87 to $72.61 per share in premarket trading.