Target's Sales Rise but Spending Pinches Profits -- Update

By Khadeeja Safdar 

Target Corp. posted higher quarterly sales but profits fell and the retailer gave a disappointing earnings outlook for the holiday period, as the big-box chain spends heavily to revamp stores, lower prices and raise wages.

The company said sales at stores open at least a year increased 0.9% in the quarter ended Oct. 28, compared with a 0.2% decline in the same period last year. It forecast earnings for the holiday quarter of $1.05 to $1.25 a share, lower than what Wall Street was expecting.

Shares of the retailer fell more than 8% in Wednesday morning trading following the report. The stock is down 16% on the year as investors worry about competition from Wal-Mart Stores Inc. and Amazon.com Inc., which are pushing down prices.

"We've entered the season in a very different position versus last year, " said Chief Executive Brian Cornell on a conference call. "That's reflected in the start that we've seen to the season and the approach we're taking throughout the fourth quarter."

After weak holiday performance in 2016, Target has been making headway on its three-year plan to spend $7 billion on stores and digital improvements. On Wednesday, Mr. Cornell highlighted improvements in ship-from-store capabilities, the launch of new brands, store remodels and a revamped promotional strategy.

Despite higher third-quarter sales, both in stores and online, Target's profits fell 21% to $480 million, or 88 cents a share, in the three months ended Oct. 28. The company's profit margins declined and expenses rose as it remodeled stores and invested in lower prices.

The company also expects higher compensation costs driven by investments in employee hours and wages. Earlier this year, Target said it planned to hire 100,000 temporary workers over the holiday period -- a 40% increase from last year -- and was raising its hourly minimum wage to $11 this year.

Target's progress has been slow and costly, said Neil Saunders, managing director at GlobalData Retail, in a note following the earnings release.

"The latest results from Target are undoubtedly another step in the right direction," Mr. Saunders wrote. "It has also cost the company a great deal to travel even this short distance."

As part of its investment plan, the company has lowered prices on thousands of household items, a move that has made it more competitive with Wal-Mart. Target executives said they are planning fewer and more effective promotions this holiday season.

Target opened 12 stores during the quarter, most of which were smaller locations in urban areas. It has also remodeled 110 stores so far this year. Sales have increased 2% to 4% in those recently renovated stores. The company plans to finish remodeling 1,000 locations out of its 1,800 store fleet in the next three years.

Target expects comparable sales growth in the holiday period of flat to 2%, translating into growth of flat to 1% for the full year.

Write to Khadeeja Safdar at [e-mail]

(END) Dow Jones Newswires

November 15, 2017 10:58 ET (15:58 GMT)

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