Cost cuts, apparel strength help Target’s bottom line
In a season dotted with notable earnings misses among retailers, Target bucked the industry trends by reporting strong earnings Wednesday, its bottom line lifted by brisk apparel and home goods sales as well as intensive cost-cutting.
The company said second-quarter earnings were $753 million, or $1.18 per share for the three month period ended Aug. 1. That compares with $234 million, or 37 cents per share, a year earlier.
The company also said it would raise its annual outlook to earnings of $4.60 to $4.75 a share, compared with a previous forecast of $4.50 to $4.65 a share.
The stock rose 0.7 percent to $80.87 in New York. Shares of the Minneapolis-based company are up 6.5 percent this year.
Sales at stores open for at least a year grew 2.4 percent, in line with company’s expectations. Online sales jumped 30 percent, contributing 0.6 percentage point to the sales increase, Target said. Trimming expenses
The retailer’s cost-cutting drive appeared to be bearing fruit. Under Brian Cornell, who became chief executive a year ago, Target has embarked on an effort to save $2 billion over two years from corporate revamping, leaner supply chains and more efficient product sourcing.
In March, the retailer said it would cut several thousand jobs over two years, mostly at its Minneapolis headquarters, as it struggled to overcome a string of difficult years.
“We worked hard on our cost initiative,” Target’s chief financial officer, John Mulligan, who Monday was promoted to the newly created role of chief operating officer, told reporters on a conference call. “We had great expense discipline across the team.” Apparel gains
Still, Mulligan highlighted strong sales in the retailer’s signature categories, especially in apparel, where he said investments in product and store presentation had helped Target log strong gains in an area in which many of its rivals continue to struggle.
Another area of the store that Target has vowed to revamp, groceries, appeared to be taking more time.
Target announced this year that it would make its grocery aisles more like those of Whole Foods Market, with more organic and gluten-free fare, along with specialty yogurt, granola, coffee and tea, and wine and craft beer.
“That remains an opportunity for us,” Mulligan said when he was asked how that revamp was going. “We’re still in a test and learn mode.”
Department store chains Macy’s and Kohl’s both reported last week declines in their secondquarter profits and weak sales as shoppers have been pulling back buying traditional items like clothing and gravitating more toward services or going out to eat.
Wal-Mart Stores, the world’s largest retailer, announced Tuesday a 15 percent drop in its secondquarter income and cut its annual outlook as its investment in its stores, ecommerce and increases in wages for hourly workers are dragging down results. But those efforts are perking up sales and traffic. A case in point
But Target isn’t getting hurt by that shift away from clothing, showing that shoppers will still buy the right item at the right price.
Cornell succeeded Gregg Steinhafel, whose abrupt departure in May 2014 capped a tumultuous year for the company. It was hurt by a massive credit-card breach before Christmas 2013 that sent shoppers temporarily fleeing. The company also botched a major expansion into Canada that the company pulled the plug on earlier this year.