NEW YORK -- A cautious outlook on the crucial Christmas shopping season overshadowed progress Target made in bringing more customers to its stores, pulling its shares down sharply Wednesday. The shares of other retailers fell as well, even though overall economic figures show people still spending.
Target reported higher customer traffic numbers and better sales at established stores as its investments in improving its stores and online capabilities appear to be paying off. But those changes, as well as its moves to cut prices and raise employee wages, are dragging down profits.
The discount chain reported a 21 percent drop in fiscal third-quarter profit.
Target's stock fell $5.93, or nearly 9.9 percent, to close Wednesday at $54.16.
Seeking to soothe investors, Chief Executive Officer Brian Cornell said that while the fourth quarter is "always competitive," the retailer is entering the holiday period with "lots of confidence."
"While the bulk of the season is still ahead of us, we are very happy to see how these early efforts have set the tone for the season," Cornell said.
Target, like all traditional retailers, is in fierce competition with Amazon.com and needs to cater to the growing number of shoppers who transition seamlessly between store aisles and mobile phones when they shop.
But the company is in a stronger position than it was a year ago. Minneapolis-based Target had said in February that it would spend more than $7 billion to revamp its stores and online businesses over the next few years. Cornell said that those investments are either exceeding or meeting expectations.
Revenue at stores open at least a year rose 0.9 percent, better than analysts had predicted. It was also the second-consecutive quarter that metric rose. Online sales rose 24 percent, and customer traffic was up 1.4 percent.
As part of that, Target is offering new store brands, eight of which are available for the first time this Christmas shopping season. That includes Hearth & Hand with Magnolia, a lifestyle brand from Chip and Joanna Gaines of HGTV's Fixer Upper. Target now also has dedicated sales associates in areas like beauty and electronics.
Target also is rolling out and testing new delivery options, though it's playing catch-up. It's now shipping online orders from 1,400 of its 1,800 stores for faster delivery, and says it expects to ship more than 30 million items from its stores during the peak four weeks of the Christmas shopping season, up from 18 million last year. It's testing same-day delivery (for a fee) at four New York City stores.
Target also is testing store-curb pickup for online grocery orders at 50 stores in the Minneapolis area. In comparison, Wal-Mart has more than 1,000 stores that offer curbside pickup for online grocery shoppers and plans to double that figure next year.
"As much as Target is making progress, we believe it needs to be bolder and more creative," Neil Saunders, managing director of GlobalData Retail, said in a report.
He noted that many legacy issues, such as a lack of stock control, which leaves frequent gaps on shelves, also need to be fixed.
Target reported a third-quarter profit of $480 million, or 88 cents per share, for the period ended Oct. 28. That compares with $608 million, or $1.06 per share, a year earlier.
Earnings, adjusted for one-time items, came to 91 cents per share, or a nickel better than Wall Street had expected, according to a survey by Zacks Investment Research.
Revenue at $16.67 billion exceeded forecasts and was up from $16.4 billion in last year's third quarter.
For the quarter ending in January, Target expects earnings per share of $1.05 to $1.25, shy of Wall Street projections for $1.27. The company expects full-year earnings of $4.40 to $4.60 per share. That compares with previous guidance of $4.34 to $4.54 per share.
In August and September, Target introduced four new brands -- A New Day in women's apparel; Goodfellow & Co. for men; Project 62 in modern home goods; and athletic leisure line JoyLab.
While Cornell said the company was pleased by the reception to the new brands, the company's apparel sales were slightly down in the quarter. He attributed the dip to the industrywide softness in the category and noted that Target gained market share.
"It was incredibly warm throughout the quarter," he told reporters. "We didn't see that cold weather boost we expected. ... But as the weather turned cold, the guests reacted well to our assortment."
Target also is boosting holiday hiring this year to 100,000 people, up from 70,000 last year, as it looks to improve customer service and put more manpower into initiatives such as in-store pickup during the Christmas shopping season. It also has boosted its hourly minimum wage to $11 in October, which increased its expenses in the quarter.
Information for this article was contributed by the Minneapolis Star Tribune.
Business on 11/16/2017