Target CEO Cornell Calls Q1 Result ‘Strong Execution…in a Choppy Market’

Target CEO Cornell Calls Q1 Result ‘Strong Execution…in a Choppy Market’

The retailer fared better than it and analysts expected, despite drops in revenue and same-store sales.

Target inspired confidence in a number of investors on Wednesday when it reported better-than-expected first quarter results.
Shares rose more than 4 percent in pre-market trading after the Minneapolis-based retailer topped both its own and Wall Street’s forecasts on revenue, earnings per share and same-store sales activity. However, company stock closed Wednesday at $55.04, finishing just 1 percent up from the prior day.
Target earned $681 million, or $1.21 a share, on sales of $16.02 billion during the first three months of the year.
Thompson Reuters analysts anticipated adjusted earnings of 91 cents a share based on $15.62 billion in sales. Target itself had anticipated its adjusted earnings per share wouldn’t rise above $1.
All in all, Target CEO Brian Cornell called the company’s performance “strong execution … in a choppy environment.”
Overall, revenue fell 1.1 percent year-over-year due to a 1.3 percent drop in same-store sales, which Target said was a result of less foot traffic and smaller basket sizes. Analysts predicted a larger same-store sales drop of 3.7 percent. Meanwhile, digital sales rose 22 percent following 23 percent growth during the very same period last year.
“After starting the quarter with very soft trends, we saw improvement later in the quarter, particularly in March,” Cornell said.
To keep and regain customer interest, Target kicked off its three-year, $7 billion-plus investment plan this year. The massive project involves the “reimagining” of more than 600 existing stores—about one-third of its retail operations—and the addition of 100 new small-format locations. During that time, money will also be dedicated to introducing new brands and establishing “hyperlocal distribution centers” that quickly ship orders to customer homes, similar to Amazon’s Prime Now service.
Throughout the course of 2017, Target expects to add 30 small-format stores and complete 100 remodels. Stores that receive a makeover are expected to see a sales bump of about 2 to 4 percent, Cornell said in a call to investors.
Looking both short- and long-term, Cornell said up to a $60 billion market opportunity would be “up for grabs,” in reference to the recently bankrupt retailers (such as American Apparel, HHGregg and Gordmans) as well as future ones.
“Unlike many competitors, we have the resources to allow us to invest in the transformation of our business and position Target to compete in this new era in retail,” he said. “As we look ahead to the second quarter, we’re committed to maintaining the cautious posture that served us well in the first quarter.”
Target anticipated a low single-digit drop in same-store sales during its second quarter and adjusted earnings per share in the range of 95 cents to $1.15. Sales, it said, likely won’t turn positive until next year or beyond.
“While we’re certainly pleased that Target’s first quarter performance was better than expectations, we’re not doing any high fives,” Cornell said. “Our first quarter performance is not what we expect to deliver over time.”
Meanwhile, competitor Wal-Mart posted its first quarter results on Thursday. The Bentonville, Arkansas-based retailer said foot traffic grew in its stores, leading to a 1.4 percent rise in same-store sales. Overall revenue grew by 1.4 percent to $117.5 billion, while its profits were down just slightly to $5.25 billion.