Target to spend billions on battling rivals after Holiday low, expect new clothing, accessories offe
Billions. No, not the US television series, but what should be the suitable title for Target Corp’s mission to return to glory and beat fierce rivals Wal-Mart and Amazon.
In what chief executive Brian Cornell calls “a year of investment” – $2bn in 2017 and a total of $7bn over the next three years will go to upgrading stores, developing online ops, launching exclusive brands (including apparel and accessories), improving supply chain, and cutting on-shelf prices.
Cornell said he expects Target to return to earnings growth in 2019, noting the new multi-year plan “is the right path for the company now… It will be the right path for the company 10 years from now.”
But its shares closed down over 12% Tuesday and is not difficult to understand why. Target reported sales and profit declines for the Holiday quarter and slashed its 2017 profit forecast, 25% below analysts’ forecast.
Q4 sales fell 4.3% to $20.69bn, down for the sixth straight quarter, while comp sales slipped 1.5%, at the low end of its own estimate and short of analysts’ view. Although comparable digital sales jumped 34% in the final quarter they remain just a fraction of overall revenue. Cornell initially targeted 40% online sales growth over five years, but failed to reach that goal in 2016.
Profits fell sharply to $817m/$1.45 a share from $1.43bn/$2.32 a year ago.
“It’s clear from our results that wasn’t enough,” Cornell said in a conference call following the Q4 trading statement.
Also on Tuesday, Cornell said Target plans to launch more than a dozen exclusive brands in categories including apparel and accessories (no details yet) over the next two years and open more than 100 smaller locations in college towns and urban areas in the next three years.
The changes come more than a year after direct rival Wal-Mart Stores began investing heavily to revamp stores, expand its e-commerce operations and reduce prices, that all helped to reversed a sales slump.
Target forecast full-year earnings of $3.80-$4.20 per share from continuing operations, while analysts’ on average were expecting its profit to top $5.00.
Target said it expects same-store sales to decline in the low-single digit percentage range in fiscal 2017, after reporting a fall of 0.5% in 2016. Analysts were expecting comp sales to increase 0.4% in 2017.