Target’s Turnaround Comes To A Halt
Target cut its outlook for the year after reporting shrinking revenue and profit in its second quarter, along with the first same-store sales drop since before Brian Cornell became CEO more than two years ago.
The 1.1 percent drop in sales from locations open a year or more is a clear sign that the Minneapolis-based retailer is struggling to retain foot traffic, a challenge facing the discount retail industry at large.
In the three-month period ending July 30, Target’s sales totaled $16.2 billion, a 7.2 percent slide from the $17.4 billion it reported last year. The company’s profits also sunk 9.7 percent from $753 million a year ago to $680 million this quarter. As a result, its earnings per share fell to $1.17, which surpassed Wall Street expectations of $1.12.
“While we recognize there are opportunities in the business, and are addressing the challenges we are facing in a difficult retail environment,” Cornell said, “we are pleased that our team delivered second quarter profitability above our expectations.”
In a conference call this morning, Cornell pointed to the transition of Target pharmacies to CVS Health as one of the reasons behind the company’s 2.2 percent decline in customer traffic.
Target’s own forecast predicted as much as a 2 percent drop in same-store sales for the quarter. The company said it would maintain that expectation going forward into the crucial back-to-school season.
Arguably the largest issue Target is facing at the moment involves its grocery business. Perishable foods like fresh meat, fruits and vegetables—items that typically drive traffic to grocery stores—are not being picked up by shoppers fast enough and are eating away at Target’s profits, according to the Wall Street Journal. Currently, Target’s grocery business makes up one-fifth of its revenue.
The company is also looking to ramp up its digital sales growth, a category that slowed in the second quarter (up 16 percent) compared to the same period a year ago (up 30 percent). Online competition is stiff for Target, particularly in the face of Amazon and potentially Walmart, which is acquiring Jet—an Amazon rival—for $3.3 billion.
Other large-scale retailers are taking significant steps to bolster online sales. Macy’s, most recently, said it would shut down 100 stores to commit more to its web retail front.
In a release, Cornell said, “looking ahead, we remain focused on our enterprise priorities as we continue to see the benefits of investing in Signature Categories, store experience, new flex-format stores and digital capabilities. Although we are planning for a challenging environment in the back half of the year, we believe we have the right strategy to restore traffic and sales growth over time.”
Target dropped its full-year outlook from the $5.20 to $5.40 earnings per share it was predicting earlier to $4.80 to $5.20 now.
Target stock tumbled more than 6.5 percent in early morning trading to $70.56 following the company’s second quarter report.