Financial Performance

Target’s Earnings Miss on Heavy Spending

The retailer "may hit the top line, like you saw this quarter, but will we see that flow through to the bottom line?" one analyst says.
Matthew HellerMarch 6, 2018

Target continued its sales turnaround in the fourth quarter but the retailer’s heavy spending on refurbishing stores, delivery logistics, and customer service weighed on profit, disappointing investors.

Target shares fell 4.4% to $71.79 on Tuesday even though its same-store sales rose 3.6% in the latest quarter and overall revenue increased 10% to $22.8 billion. Analysts had expected a comparable sales gain of 3.1% and revenue of $22.5 billion.

The strong momentum of the holiday period continued into the New Year, with growth in the number of customer transactions and the average amount shoppers spent per trip. Online sales climbed 29%, contributing 1.8 percentage points to same-store sales growth.

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Target has boosted sales by, among other things, refurbishing stores with more open layouts and launching exclusive home furnishing and apparel brands.

“Target has also made big strides with its e-commerce operations, and that’s helped the company’s sales as it tries to catch up to Walmart and Amazon in the online shopping race,” CNN Money reported.

But the fourth-quarter sales numbers were apparently overshadowed by Target’s miss on profit. The company earned an adjusted $1.37 per share as increased expenses hampered profit margins. Analysts said a promotional environment for certain categories — particularly toys — likely squeezed earnings further.

“I think you have a situation where Target is doing a lot of investing in the business,” Joe Feldman, an analyst at Telsey Advisory Group, told CNBC. “I think there is some concern that there is a lot of expense related to this. [Target] may hit the top line, like you saw this quarter, but will we see that flow through to the bottom line?”

Target CEO Brian Cornell conceded in the company’s earnings announcement that Target has more to do before its turnaround is complete.

“While we have a lot left to accomplish, our progress in 2017 gives us confidence that we are making the right long-term investments to best position Target for profitable growth in a rapidly changing consumer and retail environment,” he said.

For fiscal 2018, Target is forecasting a low-single digit increase in same-store sales.