Target Tumbles After ‘Volatile’ Spending Weighs on Sales Growth

Target Sales Falter, Second-Quarter Forecast Disappoints
  • Discount chain becomes latest big U.S. retailer to disappoint
  • Wal-Mart and Costco, which haven’t posted results, also drop

Target Corp. shares fell the most in more than seven years after quarterly sales missed analysts’ estimates and the discount chain delivered a disappointing forecast, adding to evidence that the biggest U.S. retailers are suffering from a slump.

Target’s same-store sales gained 1.2 percent in the first quarter, which ended April 30, the Minneapolis-based company said in a statement Wednesday. Analysts had predicted 1.6 percent growth, according to Consensus Metrix.

Chief Executive Officer Brian Cornell cited “an increasingly volatile consumer environment” and colder weather in the Northeast, adding his voice to the chorus of retailers complaining of sluggish demand. 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. Target’s disappointing results also dragged down shares of Costco Wholesale Corp. and Wal-Mart Stores Inc., which reports its earnings Thursday. Wal-Mart’s stock dropped as much as 3.6 percent to $62.75, while Costco declined up to 3.5 percent.

Target’s results follow a string of weak earnings reports from some of the country’s largest retailers, including Macy’s Inc. and Gap Inc. Even Home Depot Inc., a bright spot in the retail industry, saw its shares sink this week over concerns about slowing growth. While 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” last quarter. They grew 23 percent, though that was a slowdown from the 38 percent growth Target saw a year earlier.

Target also hasn’t seen a material impact from a boycott effort over bathrooms, he 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 it’s only affected a “handful of stores,” Cornell said.

Belt Tightening

Meanwhile, the company has successfully used cost cuts to bolster profit. It reported earnings of $1.29 a share last quarter, 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.

Prior to Target’s earnings release on 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 will also have to battle increasing competition from Amazon.com Inc., which recently announced it would start offering a monthly Prime membership and is continuing to expand its same-day delivery.

“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.”

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