Target Corp posted a surprise increase in third-quarter
profit as sales in the U.S. topped its own forecast, a sign the retailer
continues to mend from a multiyear malaise capped by last year’s data breach. The
better-than-expected results sent shares about 5% higher in mid-morning
trading, and provide a promising base for new Chief Executive Brian Cornell to
try to restore luster to the big-box retailer.
Profit grew 3.1% in the period and sales at established U.S.
stores gained 1.2%, above the company’s August projection of an increase of as
much as 1%. Target said results were strong during the back-to-school season
and in the weeks before Halloween, events during which Target historically has
thrived. And digital sales rose 30%, contributing to half of the overall sales
increase.
Target expects the momentum to continue into the holiday
shopping period, forecasting a 2% rise in same-store sales in the U.S. in the
fourth quarter, helped by initiatives such as free shipping on all online
orders and 40% off all apparel during Black Friday.
The retailer continues to wrestle with the challenge that
fewer shoppers are visiting its stores. The number of shopper transactions in
the U.S. edged down 0.4% in the third quarter, marking eight straight periods
of declines, though it was the narrowest drop in more than a year. And there
are signs that Target is willing to compromise profitability to bring in
reluctant shoppers.
Target is trying to dig itself out of a multiyear funk, as
shoppers visited the retailer less often because of lackluster merchandise and
fewer new products—a disappointment for customers expecting the type of
cheap-chic fashions and housewares that gave Target cachet and earned it the
“Tar-zhay” nickname. Shopping habits changed, too, as more people found they
could easily make their purchases online, eliminating the need to visit stores
and the accompanying impulse purchases.
Mr. Cornell is leading the turnaround. Hired from PepsiCo Inc.
this summer, he has pledged to focus on critical categories like
fashion, furniture, baby items and beauty products that Target hopes can help
it stand out. His strategies had little effect on the third-quarter results,
given the long lead time in buying merchandising and setting plans. The results
show that Target’s management team laid the groundwork needed for the period’s
performance. Target also had help from the outside too. Like rival Wal-Mart
Stores Inc., Target saw a boost from lower gas prices, giving shoppers
more money to spend, Mr. Mulligan said.
It is also struggling to salvage a botched expansion
into Canada, where inventory issues have left shelves bare and prices have been
criticized as too high. Sales at established stores in Canada rose 1.6% in the
third-quarter. But Target lost another $211 million in Canada this past
quarter, pushing overall losses past the $2 billion mark since the retailer’s
north-of-the-border foray began last year. Target says that some of the
problems in Canada are getting better, adding that after the holiday season the
company will have better insight into whether it should continue there or exit.
Overall, Target reported earnings for the quarter ended Nov.
1 of $352 million, up from $341 million a year earlier. Sales rose 2.8% to
$17.73 billion, topping the $17.56 billion expected by analysts polled by
Thomson Reuters.
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