Target misses bullseye in Q4 as profit, sales fall; gives weak 2017 outlook
Strong online sales were not enough to help Target Corp. overcome a very disappointing fourth quarter, whose sales and earnings were far below Wall Street expectations. And the discounter offered a weak outlook for 2017.
Target on Tuesday issued a full-year profit forecast that was far below market expectations, and said it plans to invest more money into enhancing its digital online platform and cutting prices. The chain said it would sacrifice gross margins this year to stay ahead of the competition.
For the three months ended Jan. 28, Target earned $817 million, or $1.46 per share, down from $1.43 billion in the year-ago period. Taking out certain items, earnings were $1.45 per share, or 5 cents less per share than industry analysts had projected.
Sales dropped 4.3% to $20.7 billion, down from $21.6 billion last year. Same-store sales fell 1.5%, the third consecutive quarter of declines.
Target’s digital performance, however, was strong, with a 34% jump in sales over last year. That was higher than Walmart, whose online sales rose 29% in the fourth quarter.
“Our fourth quarter results reflect the impact of rapidly-changing consumer behavior, which drove very strong digital growth but unexpected softness in our stores,” said Brian Cornell, chairman and CEO of Target.
Looking ahead, Cornell said the chain was making meaningful investments in its business and financial model “to position Target for long-term, sustainable growth in this new era in retail.”
“We will accelerate our investments in a smart network of physical and digital assets as well as our exclusive and differentiated assortment, including the launch of more than 12 new brands, representing more than $10 billion of our sales, over the next two years.”
“In addition, Target will invest in lower gross margins to ensure it we are clearly and competitively priced every day,” Cornell said. “While the transition to this new model will present headwinds to our sales and profit performance in the short term, we are confident that these changes will best-position Target for continued success over the long term.”
Analysts expressed some caution:
“On the profit front more generally, we have some reservations about the coming fiscal year, especially since Target has clearly stated it will invest in lower prices even at the expense of slimmer margins,” commented Neil Saunders, managing director of GlobalData Retail. “Part of this is a sensible recognition of heightened price activity in the market. However, we would also caution that Target should not chase Walmart on price, as it is a battle that cannot easily be won. We also believe that many of Target’s issues are not solely price related.” (For more analysis, click here.)
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.
The discounter said it expects same-store to fall in the low-single digit percentage range in fiscal 2017. Analysts were expecting an increase of 0.4%.