Target slumps as it cuts outlook

Target Corp TGT.N reported a almost 10 percent fall in quarterly profit on Wednesday, hurt by a slump in demand for apparel.

Net earnings for the second-quarter decreased 9.7 percent to $680 million from last year’s $753 million, with earnings per share declining to $1.16 from $1.18 in the previous year.

CEO Brian Cornell said on a conference call that he expected retailing to stay competitive as consumers remain cautious with their purchases. As comparable digital-channel sales rose 16% in the second quarter, Target is looking to continue investing in its digital capabilities. Cornell said customer visits declined during the quarter across product categories. Grocery sales represent about 20 percent of Target’s total business but it has seen disappointing results from perishables like fruits and vegetables. Chief Financial Officer Cathy Smith said the retailer plans to dial up grocery promotions and marketing efforts, which have been largely focused on style items.

Shares fell $4.95 to $70.53 in morning trading Wednesday.

Target also saw a wide variability in sales by markets, noting weakness on the East Coast but pockets of strength in parts of California.

Target has been trying to reinvigorate itself under Cornell. Apple’s own earnings results for the same quarter had a weak year-over-year compare for revenue and iPhone sales. Zacks Investment Research cut Target Corp. from a “hold” rating to a “sell” rating in a research report on Tuesday, May 3rd. “It was a significant drag … and Apple played a significant role there”.

To predict whether Target’s report foreshadows what’s to come for Walmart, we need to look at what caused Target’s sluggish sales.

But Target’s latest stumble is clearly a sign that Americans aren’t as willing to spend with reckless abandon as they once were.

Target was under pressure ahead of the open on Wednesday as the retailer cut its outlook for the year.

The No. 2 discount chain reported a 1.1 percent comp decline in its second quarter ended August 1.

Excluding items such as debt retirement losses and the impact of the sale of its pharmacy business to CVS Health Corp., Target earned $1.23 per share. The firm had revenue of $16.20 billion for the quarter, compared to the consensus estimate of $16.31 billion.

Adjusted earnings per share from continuing operations for the quarter topped analysts’ expectations, while quarterly revenues missed their estimates.

The company also lowered its full-year guidance in adjusted earnings per share to a range of $4.80 to $5.20, lower than its prior forecast of $5.20 to $5.40. A month ago, analyst EPS consensus estimated earnings of US$1.13 per share.

According to Target’s press release: “Based on the current retail environment, the company believes it is prudent to lower its expectations for comparable sales in the second half of the year”.