Target's Lower Prices Pay Off as Sales Rise -- Update

By Cara Lombardo Features Dow Jones Newswires

Customers spent more at Target Corp. in its most recent quarter, as the retailer embarked on a three-year, $7 billion plan to refresh its interiors and cut prices.

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Target posted a 1.3% rise in same-store sales, driven by increased digital sales and a modest gain in foot traffic. That is an improvement from a 1.1% decline a year ago and slightly better than analysts expected.

The Minneapolis-based retailer also raised its fiscal year outlook and now expects an adjusted profit of $4.34 to $4.54 a share, up from its previous expectation of $3.80 to $4.20 a share.

The results sent shares up 4.9% in premarket trading Wednesday. The stock is down nearly 25% so far this year.

Target has been launching exclusive brands and sprucing up its stores in an effort to keep customers from being wooed away by Wal-Mart Stores Inc., which has lowered prices, and Amazon.com Inc., which benefits as more types of shopping move online.

Amazon's plan to purchase Whole Foods Market Inc. increased the pressure on Target to improve its lagging grocery business, especially because the two companies are chasing many of the same customers. Target announced earlier this week that is testing a same-day delivery program in New York and plans to buy a logistics-software company, which could give it more ways to deliver online orders.

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It is also piloting a program in Minneapolis that lets customers fill a box with home items such as laundry detergent and breakfast cereal for a flat fee, which is similar to a current Amazon offering.

Target Chief Executive Brian Cornell said in prepared remarks that while the recent sales boost is encouraging, the company is forging ahead with major changes that will "build an even better Target that will thrive in this new era of retail."

The company expects similar same-store sales growth in the second half of its fiscal year as the first half. It also expects a third-quarter adjusted profit of 75 to 95 cents a share.

Overall, Target reported a profit of $672 million, or $1.22 a share, compared with $680 million, or $1.16 a share, a year earlier. Excluding items, the company earned $1.23 a share, unchanged from a year ago. Analysts polled by Thomson Reuters had expected adjusted earnings of $1.19 a share.

Write to Cara Lombardo at cara.lombardo@wsj.com

Target Corp.'s efforts to cut prices and improve its digital operations showed signs of success in its latest quarter, as store sales rose for the first time in a year and the retailer raised its profit forecast.

Sales at stores open at least a year rose 1.3%, driven by stronger-than-expected foot traffic and an increase in online sales. The average amount customers spent fell 0.7%, another effect of the lower prices.

In a call with analysts Wednesday, Target Chief Executive Brian Cornell attributed the improved results to the company's lower prices, which helped it cut down on discounts.

"We saw a meaningful increase in the percent of our business done at regular price and a meaningful decline in the percent on promotion," he said. "This demonstrates the progress we've already made and gives us confidence we're on the right track."

Target has been struggling to compete with Amazon.com Inc., which is benefiting from the movement of consumer shopping online, as well as Wal-Mart Stores Inc., which has been remodeling its brick-and-mortar stores and lowering prices. In February, after Target posted profit and sales declines and issued a profit warning, it said it would invest billions to improve stores, launch exclusive brands and cut prices.

Target shares, which are down 23% so far this year, rose 2% in morning trading.

GlobalData Retail analyst Neil Saunders applauded the results, saying in a research note that "after a long run of decline, green shoots are finally showing at Target." The uptick in store sales, he said, "suggests that some of Target's initiatives are starting to pay dividends."

Comparable digital sales increased 32% in the quarter, up from 16% growth in the same period last year. Food and beverage sales were flat, while sales increased in other categories, including essentials and hardlines.

Target plans to double its number of small-format stores this year, remodel more than 100 existing stores and expand a next-day delivery service for online orders. On Monday, it said it was buying a logistics startup, Grand Junction, to help it expands its same-day delivery offering for in-store purchases.

Mr. Cornell said that Target is also launching four more house brands this quarter, part of its plan to launch 12 by the end of next year.

Amazon's deal to buy Whole Foods Market Inc. has put renewed focus on Target's grocery business, which has had declining food sales despite efforts to improve the assortment it sells. On Monday, Target said it has hired executives from Wal-Mart and General Mills Inc. to accelerate its grocery strategy.

The company said it now expects full-year profit of $4.34 to $4.54 a share, up from its previous forecast of $3.80 to $4.20 a share. It expects its same-store sales growth in the second half of its fiscal year to be roughly the same as the first half.

Overall, Target reported second-quarter profit of $672 million, or $1.22 a share, compared with $680 million, or $1.16 a share, a year earlier. Revenue rose 1.6% to $16.43 billion from $16.17 billion.

Cara Lombardo contributed to this article.

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

(END) Dow Jones Newswires

August 16, 2017 10:42 ET (14:42 GMT)