Target revamp working amid skepticism

NEW YORK — Target’s ambitious plan to remake itself is driving more people to its stores and its website, where they are spending more for everything from fashion to towels. But the cost of such a massive overhaul is extensive, and it took some of the shine off a strong quarter of sales.

In the race to modernize, Target’s profit margins are under significant pressure. The bottom lines of traditional retailers are getting bruised trying to hold Amazon.com at bay.

Late last month, Walmart reported weak fourth-quarter profits as it stumbled with e-commerce sales during the crucial holiday season.

Where investors punished Walmart by selling off shares, the reaction to Target was more subdued Tuesday, suggesting that the traditionally irascible Wall Street may be giving the retailer what it needs most: more time to win over consumers.

Still, shares closed down 4.8 percent, and a number of industry analysts seemed exasperated with the fickleness of Wall Street in what they believe is a turnaround story.

“While we understand the concern over increasing costs, we are critical of voices that see this as a weakness,” wrote Neil Saunders, managing director of GlobalData. “We take the contrary view: if it is to grow, Target needs to invest — including in customer service, which affects wages. The alternative, which is to restrict or throttle investment, may deliver more profit in the short term, but it will be to the detriment of long-term performance.”

Target had a profit of $1.1 billion, or $2.02 per share. That compares with $817 million, or $1.45 per share, in the year-ago period.

Earnings, adjusted for onetime gains and costs, were $1.37 per share, which is 2 cents short of analyst projections.

Revenue rose 10 percent to $22.77 billion.