Target shares dive on earnings outlook, price cut plans
NEW YORK: Target Corp said it will rely more on low prices to compete with rivals like Wal-Mart and Amazon, admitted many of its stores needed freshening up, and told Wall Street its sales and profit estimates for 2017 are too high.
Shares of the retailer plunged to 2-1/2-year lows in heavy trading.
Many of its rivals fell, too, including deep discount chains that will now face tougher competition on prices.
For investors, the news was a shocking reminder that US retailing remains a cutthroat business.
Target vowed aggressive promotions at a meeting with analysts and investors, saying new brands and investments in technology and small stores will allow it to eventually win back market share.
Although its e- commerce operation is growing, Target reported its third straight quarter of lower sales from existing stores, citing ‘ unexpected softness’ at its stores.
Target also forecast first- quarter profit short of Wall Street estimates.
Shares sank 12.1 per cent to US$ 58.79, their biggest one- day per centage drop since 2008.
The stock has lost a quarter of its value since the holiday shop- ping season started in November, back to levels last seen in August 2014.
The retail industry faces pressure from lackluster US economic growth, intense competition from Amazon.com and other online rivals and concerns about President Donald Trump’s planned border tax.
With Tuesday’s announcement, Target’s brand identity as a source for ‘cheap chic’ fashion and other low- cost stylish goods is giving way to the push for lower prices, analysts said.
That prompted declines across the retail sector.
Dow component Wal-Mart Stores Inc closed down 1.1 per cent, Kroger Co fell 1.3 per cent and Macy’s Inc lost 1 per cent.
Dollar General Corp fell 4.9 per cent and Dollar Tree was down 3.6 per cent.
Shares of Amazon, whose market cap exceeds all those companies combined, closed down slightly.
The drop in Target shares also reflects missteps by the company, said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.
“Target didn’t do its job of trying to engage its customers and the theory is they may have lost the ability to do it,” she said.
“That’s what the (stock) market is telling you.” The retailer plans ‘aggressive promotional activities’ that would erode its operating profit by US$1 billion this year, chief executive Brian Cornell said at the meeting on Tuesday.
Revamping older stores is also part of Cornell’s plan.
Target has “a large percentage of the portfolio where the buildings just don’t match the brand. They are old. They’re tired. And they have not been updated in years,” he said on a conference call.
Target said it planned to invest US$ 2 billion in 2017 on analytics, supply chain and opening 100 more small-format stores in urban neighborhoods and college markets. — Reuters