Target Shares Fall After Earnings Report Reveals Weak Outlook

Popular big box retailer Target has reported, this week, that sales and earning are lower than Wall Street expected after a disappointing holiday season. This has also caused the retailer to project a weaker outlook for 2017 as a whole. As a result, shares in Target stock fell more than 13 percent in early trading on Tuesday; the company is now on pace to its worst day since August 31 of 1998, when shares fell 16 percent.

Looking at the numbers more closely, Target listed its fourth-quarter adjusted earnings at $1.45 a share, which is significantly lower than Wall Street’s estimates of $1.51. In addition—perhaps more importantly, same-store sales fell by 1.5 percent, also missing Wall Street estimates of a 1.3 percent decline. On the other hand, though, competitor Walmart (US) delivered a same-store sales gain of 1.8 percent in the fourth quarter.

In an effort to restore business, Target CEO Brian Cornell has strategized perhaps the stores need a makeover. On Tuesday, he told investors: “Some buildings just don’t reflect the brand — we have some old, tired stores that haven’t been updated in years,” noting that the company has plans to remodel at least 100 stores this year and then another 250 next year, to complete roughly 600 refurbishes by 2019.

It might seem, then, that perhaps the company will look for new ways to cut costs, which might result in the [upper] discount retailer to resort to Walmart or Kroger-like tactics. Instead, Cornell confides that they plan to embrace a new convenience model (like carrying fresh, ready-made sandwiches) instead of moving towards the one-stop-shop model (the way Wal-marts often have a deli, bakery, optical services, etc).

Accordingly, Frank N. Magid Associates SVP for Retail, Matt Sargent, comments, “Grocery will likely to continue to be an overall drag on both Target’s profits and store traffic. An aggressive store remodeling effort has the potential to bring grocery back to the forefront for Target, but will not likely be realized until later in 2017.”
Cornell goes on to say, “Efforts have not been enough to win in this challenging marketplace,” adding that the marketplace is putting “stress” on Target’s financial model. As such, the company is looking to invest $1 billion in operating margins this coming year.

Still, revenue only slightly short of estimates—$20.69 billion versus $20.7 billion—as expected by Thomas Reuters. It is a fair amount of money, but catching it early and restructuring quickly could encourage a more immediate recovery.

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