Thursday, May 19, 2016

TARGET STRUGGLES WITH BRICKS VS CLICKS

Target Gives Weak Forecast as Sales Decline

Retailer cites ‘increasingly volatile consumer environment’ and sees a weaker quarter than analysts expect


Target said a ‘very intense promotional environment’ is weighing on the retail sector. ENLARGE
Target said a ‘very intense promotional environment’ is weighing on the retail sector. Photo: Associated Press
Target Corp. said consumers pulled back on spending in the first quarter and warned that sales at existing stores could fall in the second quarter--the first such decline in two years.
Chief Executive Brian Cornell cited “an increasingly volatile consumer environment” and said he expects “excess inventory” at other retailers to “extend the very intense promotional environment into the months ahead.”
Shares of the company tumbled fell 7.3% to $68.22 in afternoon trading.
Sales at existing stores rose 1.2% in the quarter ended April 30, short of Target’s 1.5% to 2.5% annual target. Target warned the metric would be flat to down 2% in the current quarter. A decline would be a first for Target since Mr. Cornell took over as CEO in 2014.
Target joins a growing list of retailers reporting a disappointing start to the year. Last week soft results from department stores like Macy’s Inc. and Nordstrom Inc. illustrated shoppers’ shift away from brick-and-mortar stores and sparked declines across the retail sector. That pressure was renewed Wednesday and shares in Wal-Mart Stores Inc. fell 2.2%. Wal-Mart is slated to report quarterly results Thursday morning.
Off-price chain TJX Cos. and home improvement stores like Home Depot Inc. have reported healthy traffic and spending at their locations, suggesting that consumers are willing to spend but are being more selective about where.
Recent data from the U.S. Commerce Department showed that consumer spending in April rose to the best level in more than a year. In the past year, Internet and catalog sales have grown more than three times as fast as overall sales, up 10.2%, while department-store sales sank 1.7% over the past 12 months.
Despite weakness in the first half of the year, Target said it still considers its full-year earnings forecast “achievable.” Mr. Cornell said the spending slowdown at the start of the year was the result of consumer caution and unusually cold and wet weather in certain regions.
“It’s been a very wet and cold start to the year and it’s reflected in our sales,” he said. “We haven’t seen anything from a structural standpoint that gives us pause.”

The Minneapolis company has also been spending aggressively to beef up digital sales in a retail environment where foot traffic is dwindling and more Americans are making purchases from Amazon.com Inc. and other online retailers.
In the first quarter, Target’s digital sales rose 23%, down from a 38% clip a year earlier. Online sales represented 3.5% of Target’s top line, a smaller chunk than the 5% achieved in the holiday period, though up from 2.8% a year earlier.
Shoppers continued to buy in bulk from the big-box store, but Target said customers started making fewer trips for smaller purchases. “We have seen some trip erosion with guests coming in for that fill-in trip,” Mr. Cornell said on a conference call.
The company said home goods were a bright spot in the latest period growing 4%, while electronic sales continued to decline. Same-store sales in apparel increased between 2% and 3%, but the category began to weaken in April, executives said.
Aside from working to boost digital sales, Mr. Cornell has been trying to reshape the company by fixing up stores and improving its merchandise selection. Target has also been working to revamp its food business by adding organics and fresh offerings. Same-store sales in the food category fell slightly in the first quarter despite growth in perishable items.
In his latest move announced Tuesday, Mr. Cornell hired Nordstrom veteran Mark Tritton to be Target’s next chief merchandising officer, filling the position vacant since last summer.
Overall for the quarter, Target reported a profit of $632 million, down from $635 million a year earlier. Revenue declined 5.4% to $16.2 billion, largely due to the sale of its pharmacy and clinic businesses to CVS Health Corp. last fall. Analysts had forecast $16.32 billion in revenue, according to Thomson Reuters.
For the current quarter, Target expects to post $1 to $1.20 in adjusted earnings per share, well below the $1.36 analysts have projected.
Write to Khadeeja Safdar at khadeeja.safdar@wsj.com and Lisa Beilfuss at lisa.beilfuss@wsj.com