Target sales growth slows in Q3; company upbeat about holiday
Target's (TGT) turnaround plan appeared to have a slight slowdown as the pace of growth in same-store traffic and sales fell from the second quarter.
The company's third-quarter earnings met expectations Wednesday, but sales missed. Shares ended the day down 4.3% at $69.78.
But the company is upbeat about the upcoming holiday season. It raised the lower end of its full-year guidance saying that it is confident in its merchandising and marketing plans as it enters the most critical season of the year.
Retail earnings have been somewhat mixed, with companies including Macy's and Nordstrom reporting weakness in the past week. The news has sent retail stocks down over worries about the holiday shopping season, particularly as some retailers reported slower sales through October due to warm weather.
Target has been trying to gain back the chic status it had lost in recent years with trendier products and better in-store displays that include mannequins in apparel sections and inspirational table settings in home and better integration between its stores, Web and mobile. It has been pushing four categories in particular — apparel and accessories, baby, kids and wellness. Sales in those areas grew more than 2½ times faster than the company average in the quarter that ended Oct. 31.
That's down, though, from the growth those categories saw in the second quarter, when they grew three times as fast as the company average. Growth in sales at stores open at least a year and traffic were also slightly below the second quarter, but still up 1.9% and 1.4% respectively.
Still, the results show "the strategy is taking hold and guests are responding," Chief Financial Officer Cathy Smith said on a conference call with the news media.
Target has also been improving its food products, a business Smith said grew in the third quarter. Stores have more of Target's in-house line of Simply Balanced items and are focusing on fresh food. Target is testing a partnership with grocery-delivery service Instacart and a higher-end cafe concept at the front of some stores.
The company needs to continue to make its merchandise display more appealing and work to reduce out-of-stocks, said Neil Saunders, CEO of retail research agency Conlumino.
"Target’s tendency to merchandise everything on grocery-style shelves may well be beneficial for productivity, but it is not the most interesting way of merchandising and often fails to show products in their best light," he wrote in a note about the company's results. "Target is only part-way through this evolution and has more work to do in creating a cohesive proposition."
Target reported earnings of $549 million, up 56% from $352 million in the year-ago quarter. On a per-share basis, the company earned 87 cents, or 86 cents a share adjusted for one-time gains and losses. Analysts expected earnings of 86 cents a share, according to Thomson Reuters I/B/E/S.
The retailer had sales of $17.61 billion, up 2.1% from $17.25 billion in the same period a year ago. That slightly missed expectations for sales of $17.63 billion, based on analysts surveyed by Zacks Investment Research.
Target raised the lower end of its full-year guidance, to earnings per share between $4.65 and $4.75, up from a range of $4.60 to $4.75, in part due to confidence the retailer has for the holiday season, Smith said.