24 May 2017

Target Lowers Earnings Outlook

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Target Corp cut its outlook for the second time this year as traffic at its stores fell again, even though the discounter ramped up promotions to bring shoppers in. The profit warning came after rival Wal-Mart Stores Inc. lowered its own financial forecast last week, highlighting that Target is struggling not only with problems of its own making but also a persistent shift in shopper habits.

The dimmer outlooks are an indication that the brutal promotional war retailers are waging for lower- and middle-income shoppers will remain intense into the holidays. On Wednesday, Target reported a 62% drop in earnings for the period ended Aug. 2, as losses in Canada continued and margins shrank due to heavy discounting. The price cuts didn't entirely work. Target rang up 1.3% fewer transactions at U.S. stores open more than 13 months, its seventh straight quarter of falling traffic.

Overall, Target reported earnings for the quarter of $234 million, down from $611 million a year earlier. Sales edged up 1.7% to $17.41 billion. The company's shares were up 1.2% at $59.98.

Target's U.S. same-store sales came in flat for the quarter, as customers did spend more per visit. John Mulligan, Chief Financial Officer, said Target needs to keep the discounts flowing, even at the risk of training customers to expect lower prices. Margins fell to 30.4% in the latest quarter from 31.4% a year earlier. Later, the company will try to get better merchandise onto its shelves, something that Target strayed away from in recent years as it took fewer risks.

Turning around that trend is one of the main challenges facing new Chief Executive Brian Cornell, who also has experience running Wal-Mart's Sam's Club unit, must also figure out how to make Target more competitive in a world where more shoppers buy online.

Another looming issue is Canada. Target bungled its entry into the country last year by opening too many stores at once and not getting its supply chain in order. The company is lowering prices there to be more competitive, but the latest quarter produced another $204 million in losses, bringing total losses in the country to more than $1.8 billion. Sales at Canadian stores open more than 13 months were down 11.4%.

Click here to access the full article on The Wall Street Journal. 

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