Minneapolis -- Target Corp. on Wednesday reported a 61.7% drop in Q2 earnings. The chain also lowered slashed its annual profit outlook as it continues to deal with weak results in Canada, sluggish U.S. sales and the lingering effects of its data breach.
Target earned $234 million in the quarter ended Aug. 2, down from $611 million in the year-ago period.
Revenue rose 1.7% to $17.4 billion, slightly above the $17.38 billion analysts had expected.
Same-store sales were flat in the United States, but down 11% in Canada, which the chain attributed to “grand opening” sales surges of its Canadian locations that inflated 2013′s results. Target noted it is making “important changes to operations and the merchandise assortment” in Canada, with a focus on delivering improved results by this holiday season.” Last week, the retailer outlined key initiatives, including a price-matching program and a merchandising partnership with celebrity designer Sarah Richardson. Operating profits in Canada declined 20.8% to a $208 million second quarter loss, compared to a $169 million loss the prior year.
There were some positive signs in the chain’s results. Target’s digital sales, including flexible fulfillment, grew more than 30% in the quarter, approximately double the industry growth rate. The company also said customer traffic is “slowly recovering” with July same-store sales up more than 1%.
“While results from the quarter didn’t meet our expectations, we are seeing some early signs of progress as we work to improve results in the U.S. and Canada,” John Mulligan, Target’s executive VP and CFO, said in a statement. He went on to add that “better U.S. sales have continued into August, driven by early back-to-school results.”
Looking ahead, Target said it expects 40 to 50 cents per share in third quarter earnings — not including any future data breach expenses.
On a full-year basis, Target predicts that it will record $3.10 to $3.30 in adjusted earnings per share, a lower range than its prior $3.60 to $3.90 per-share guidance.
In August, Target named PepsiCo executive Brian Cornell as its new CEO.
“In the coming weeks and months I will be focused on listening and learning from Target team members in the U.S. and Canada, and working with the leadership team to develop guest-focused, strategic plans to position Target for long-run success,” Cornell said in a statement.