Target Q2 earnings fall but top Street; plants red flag for full year

Target Corp. on Wednesday reported second quarter earnings that exceeded Wall Street expectations, but the discounter lowered its guidance for the full year amid declining sales and what it called a “difficult retail environment.”



Net income for the quarter was $680 million, or $1.16 cents per share, versus $753 million, or $1.18 per share in the year-ago quarter. Adjusted per-share earnings were $1.23, easily outdistancing analysts’ projections of $1.12.



Revenue fell 7.2% in the quarter to $16.17 billion, just short of estimates, from $17.43 billion in the year-ago period. The loss reflected a 1.1% decrease in same-store combined with the removal of pharmacy and clinic revenues from this year’s results. (In December 2015, Target completed the sale of its pharmacy business to CVS Health.) It was the chain’s first same-store sales decline in six quarters.



Same-store sales in Target’s key (“signature”) categories, which include baby, kids and wellness, outpaced total comparable sales by approximately 3%. Online sales increased 16%, compared to a 30% increase in the same period last year.



“While we recognize there are opportunities in the business, and are addressing the challenges we are facing in a difficult retail environment, we are pleased that our team delivered second quarter profitability above our expectations,” said Brian Cornell, chairman and CEO of Target. “Looking ahead, we remain focused on our enterprise priorities as we continue to see the benefits of investing in Signature Categories, store experience, new flex-format stores and digital capabilities. Although we are planning for a challenging environment in the back half of the year, we believe we have the right strategy to restore traffic and sales growth over time.”



Citing a challenging retail environment, Target said it was “prudent” to lower its expectations for comparable sales in the second half of the year. In both the third and fourth quarters of 2016, the retailer now expects same-store sales growth in the range of (2.0) percent to flat.



For the full year, The company now expects to earn $4.80 to $5.20 a share, compared with prior guidance of $5.20 to $5.40.