Target’s Mixed Bag Earnings

It was a good news/bad news situation with Target’s Q2 earnings report, though perhaps with somewhat more bad news than good news.

On the upside, Target’s earnings did manage to outpace analysts’ expectations. On the not so bright side, same-store sales were down for the first time in two years, and the big box retailer is revising its estimates for yearly performance down.

Naturally, The Street is less than excited by this report.

By the numbers, Target reported a profit of $680 million, or $1.17 a share, down from $753 million, or $1.18 a share, a year earlier. Revenue was down by 7.2 percent  to $16.17 billion. Analysts had projected $1.12 in adjusted earnings per share on $16.18 billion in sales.

The firm’s full revenue estimate is now forecast to be $4.80 to $5.20 in adjusted earnings per share. In May, Target was still setting that projection at $5.20 to $5.40 per share, despite weak performance figures. However, it seems turnaround has not come as soon expected, as Target is also revising its same-store sales projections, expecting them to be flat at best and down 2 percent at worst. For the current quarter Target is forecasting an adjusted 75 cents to 95 cents a share. Analysts had predicted 95 cents.

“Based on the current retail environment, the company believes it is prudent to lower its expectations for comparable sales in the second half of the year,” Target CEO Brian Cornell noted in a statement. “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.”

For now though, the story is not about growth. Same-store sales were down 1.1 percent when measured against a year ago at this time, which is better than the 2-percent drop that was expected, but still a drop. The fall is the first since April 2014 and worst since the start of 2014. Digital sales were also a bit sluggish during the quarter, rising 16 percent versus 23 percent in the first quarter and nearly half of the 30+ percent of a year ago at this time.

Target is suffering from many of the endemic hassles — falling foot traffic, changing consumer habits, etc — to big box retail in the era of eCommerce’s growing ascendence. Target also has the additional difficulty of an underperforming grocery segment.