Target's Quarterly Sales Outlook Disappoints; Shares Slip

By Nandita Bose

CHICAGO -- Target (TGT) forecast disappointing sales for this quarter and said it expected consumer demand to remain choppy, causing its shares to give up early gains.

Earlier Wednesday, the fourth-largest U.S. retailer reported a higher-than-expected quarterly profit and raised its full-year earnings forecast, citing strong demand for clothing and other merchandise at the center of its growth plan.

Chief Operating Officer John Mulligan said on a conference call with analysts that he expected sales at stores open at least a year to increase 1 percent to 2 percent this quarter, including digital sales growth of about 30 percent.

%VIRTUAL-WSSCourseInline-908%Analysts called the comparable sales estimate conservative.

Target's same-store sales rose 2.4 percent in the second quarter ended on Aug. 1, which research firm Consensus Metrix said beat market expectations of 2.2 percent. A 30 percent rise in digital sales contributed 0.6 percentage points.

Target also said it urgently needed to adjust inventory levels so that its shelves are sufficiently stocked.

In the year since Brian Cornell became chief executive officer, Target has been promoting a narrower set of "signature" products including apparel, baby products and wellness items including organic goods.

Sales of those products increased three times faster than the company average during the second quarter ended on Aug. 1, Mulligan said.

Under Cornell, Target has also reshuffled its management, exited its struggling Canadian operations and spent more on online sales.

In March, Cornell announced a restructuring plan to eliminate several thousand corporate jobs and revamp grocery operations. It also included a $1 billion investment in technology in areas such as supply chain.

For the fiscal year, Target said it expected earnings of $4.60 to $4.75 a share, excluding special items. Analysts on average forecast $4.62, according to Thomson Reuters I/B/E/S.

In May, the company had raised the lower end of its forecast by 5 cents a share to between $4.50 and $4.65.

Excluding restructuring charges and other special items, earnings rose to $1.22 a share from $1.01 a year earlier. Analysts on average were expecting $1.11, Thomson Reuters I/B/E/S said.

Net sales rose 2.8 percent to $17.4 billion, meeting Wall Street expectations.

Target shares rose as much as 5.4 percent in the morning, but were down 1.1 percent at $79.45 by early afternoon. At Tuesday's close, the stock had risen 6 percent this year.

-Yashaswini Swamynathan contributed reporting from Bangalore.