Target turnaround taking hold

Target Corp.’s efforts to turnaround its business appear to be taking hold — at least based on its better-than-expected first quarter performance.



The discounter broke through the gloom that has characterized many other retailers’ first quarter results with earnings and sales that beat the Street and its own expectations. The company also gave a brighter outlook for the full year.



Target's net income rose to $681 million in the quarter ended April 29, from $632 million a year ago. Excluding items in the latest period, Target earned $1.21 a share, easily beating analysts' estimate of 91 cents per share.



Revenue fell 1.1% to $16.02 billion, higher than the $15.62 billion analysts were expecting. Same-store stores fell 1.3%. Analysts had predicted a 3.6% drop. Online same-store sales rose 22%, contributing 0.8 percentage points to overall same-store sales growth.



“Target’s first quarter financial performance was better than our expectations, reflecting strong execution by our team as they delivered for our guests in a very choppy environment,” said Brian Cornell, chairman and CEO of Target. “After starting the quarter with very soft trends, we saw improvement later in the quarter, particularly in March.”



Target plans to spend $7 billion over the next three years to remodel stores, speed up expansion of small-format stores in urban markets and college campuses, bolster online operations, and lower prices. The retailer also plans to launch 12 new brands over the next two years. The first new brand, a home décor and bedding/bath line called Cloud Island, will roll out later this month, the company said Wednesday.



“We are in the early stage of a multi-year effort to position Target for profitable, consistent long-term growth, and while we are confident in our plans, we are facing multiple headwinds in the current landscape,” said Cornell.



“As a result, we will continue to plan our business prudently while preparing our team to chase business when we have an opportunity.”



Neil Saunders, managing director of GlobalData Retail, commented that Target’s foremost issue is the quality of its stores.



“These (the stores) are far too functional, change too infrequently, and offer very little in the way of inspiration,” he said. “Such a position means that Target struggles to pull in customers - something our data shows is getting worse over time, especially among younger millennial consumers.” For more of his comments, click here.



Target said it expects second-quarter earnings of 95 cents to $1.15 a share, compared with an average projection of $1. And it expects earnings above the midpoint of its previous forecast of $3.80 to $4.20 a share.