Target Posts Weaker Sales, Plans Store Redesigns, More Brands -- 3rd Update

By Khadeeja Safdar Features Dow Jones Newswires

Target Corp. sales continued to fall in its most recent quarter as the retailer said it would invest billions in redesigning stores, launching exclusive store brands and lowering prices.

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The Minneapolis-based company's sales at stores open at least a year fell 1.3% in its fiscal first quarter ended April 29, thanks in part to lower foot traffic and average orders. Sales fell 1.1% to $16.02 billion. Its profit rose to $681 million, or $1.23 a share, from $632 million, or $1.05 a share, in the year-ago period.

While the profit exceeded Wall Street's expectations, "we're not doing any high-fives in the room here today," Target's Chief Executive Brian Cornell said during a call with analysts.

"Our results are not where we want them to be, and we have much more work to do," he said.

Target plans to invest $7 billion over the next three years on store improvements, new brands and developing its digital and supply-chain capabilities. It also expects to sacrifice about $1 billion of potential profit to lower prices and drive lower-margin digital sales.

The company has been squeezed in recent years by Amazon.com Inc.as shopping moves online, and by Wal-Mart Stores Inc., which has remodeled stores and lowered prices. Wal-Mart is scheduled to report results Thursday.

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U.S. retailers have closed stores at a record pace this year as they feel the fallout from decades of overbuilding and the growth of e-commerce. Several chains have filed for bankruptcy protection, including teen retailer Rue21 on Monday. Mr. Cornell said he expects to see pressure from closings and liquidations, though they represent a business opportunity in the long term.

Target shares rose 3% to $56.21 in morning trading Wednesday, though analysts cautioned that the company exceeded earnings targets that it had previously lowered.

"It should have been obvious that [Target] was going to easily beat," wrote John Zolidis, an analyst at Buckingham Research Group, since it "guided to a sequentially much worse performance and the environment, while difficult, didn't change that much since the holidays."

Mr. Cornell said the company is pursuing merchandising and marketing efforts to re-establish Target as a low-price competitor on key items. "We believe that consumer perception of value at Target has not reflected how low our out-the-door prices really are," he said.

The company also highlighted its swimwear line, Shade & Shore, and said it expects to pick up market share from rivals like Victoria's Secret, which began phasing out the category last year.

In addition to working on its existing stores, Target has recently opened smaller stores in New York City and other urban markets. It is also attempting to improve online margins, raising the free shipping minimum to $35 from $25 and encouraging shoppers to make bigger purchases with a new test program that allows them to order a box of household essentials delivered within two days for a flat fee.

Digital sales in the fiscal first quarter grew to 4.3% of total revenue, up from 3.5% in the same quarter last year, with comparable digital channel sales increasing 22%.

Target's food and beverage comparable sales continued to fall, despite its efforts to improve a category that serves as a big traffic driver and accounts for 20% of its sales. Last year, the company walked away from an acquisition of Phoenix-based grocery chain Sprouts Farmers Market Inc.

Earlier this year, Target replaced its grocery chief, hiring former Kroger Co. executive Jeff Burt. "Our food or beverage businesses are not where we want them to be," said Mr. Cornell.

Target backed the full-year profit forecast of $3.80 to $4.20 a share that it issued in February, which at the time fell far short of Wall Street's expectations. It said on Wednesday that there was an increased chance it would exceed the midpoint of that range.

Write to Khadeeja Safdar at khadeeja.safdar@wsj.com

(END) Dow Jones Newswires

May 17, 2017 11:43 ET (15:43 GMT)