Target shares drop after earnings report shows sales slowing

Customers enter a Target Corp. store in Chicago earlier this week.
Customers enter a Target Corp. store in Chicago earlier this week.

Target Corp. shares tumbled Wednesday after quarterly sales missed analysts' estimates and the chain delivered a gloomy forecast, adding to evidence that the biggest U.S. retailers are suffering from a slump.

Target's same-store sales -- a measure of stores open for at least a year -- gained 1.2 percent in the first quarter, which ended April 30, the Minneapolis company said in a statement Wednesday. Analysts had predicted 1.6 percent growth, according to Consensus Metrix.

But overall revenue fell to $16.2 billion, or 5.4 percent, from $17.1 billion, falling short of analysts' expectations.

Chief Executive Officer Brian Cornell cited "an increasingly volatile consumer environment" and colder weather in the Northeast. As it copes with the slowdown, the company expects same-store sales to range from flat to down as much as 2 percent in the second quarter. But Cornell said it is too early to tell whether the pullback by consumers will persist through the rest of the year.

"We have seen the impact of climate and a more cautious consumer," Cornell told reporters on a conference call. "We haven't seen anything from a structural standpoint that gives us pause."

The stock fell as much as 9 percent to $66.98, the biggest intraday decline since December 2008. It had been up 1.4 percent this year through Tuesday's close. Shares closed at $68, down $5.61, or nearly 8 percent, in trading Wednesday on the New York Stock Exchange. Shares have traded as low as $65.50 and as high as $85.81 over the past year.

Target's results also dragged down shares of Wal-Mart Stores Inc., which reports its earnings today. Its stock closed at $63.15 on Wednesday, down $1.95, or 3 percent, in trading on the New York Stock Exchange.

Target's results follow a string of weak earnings reports from some of the country's largest retailers, including Macy's and Gap. Even Home Depot, a bright spot in the retail industry, saw its shares sink this week over concerns about slowing growth.

Although the U.S. Commerce Department reported stronger retail sales for April, Americans appear to be shifting spending away from traditional stores. Instead, more of them are putting their money toward online shopping or investing in homes, vehicles or technology.

Cornell said e-commerce sales were a "bright spot" in the first quarter. They grew 23 percent, though that was a slowdown from the 38 percent growth Target experienced a year earlier.

In stores, Target hasn't seen a material effect from a boycott effort over restrooms, Cornell said. Conservative groups targeted the chain after its announcement last month that it would allow transgender customers to use the restroom of their choice. The move has drawn protests, but they only affected a "handful of stores," Cornell said.

The company has successfully used cost cuts to bolster profit. It reported earnings of $1.29 a share for the quarter, excluding one-time expenses, beating the average analyst estimate of $1.19.

"We plan to successfully implement our long-term strategy, even in the face of a challenging short-term consumer landscape," Cornell said.

Before Target's earnings release Wednesday, analysts had been raising concerns that the retailer might not be able to keep up with Wall Street's growth expectations. Analysts at Wolfe Research and Cleveland Research downgraded the company, citing a slowdown in sales last month.

A key challenge ahead for Target will be revamping its grocery department and improving the quality of its fresh foods and supply chain, said Scott Mushkin, an analyst for Wolfe Research. It also will have to battle increasing competition from Amazon.com Inc., which is continuing to expand its same-day delivery and announced recently that it would start offering a monthly Prime membership.

"The overall retail climate remains generally underwhelming," Mushkin said. "The climate appears to have deteriorated to a certain degree across retail from late March and into April."

Information for this article was contributed by staff members of The Associated Press.

Business on 05/19/2016

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