Target Corp. forecast better-than-expected profit for the full year, indicating the big-box retailer’s turnaround plans are starting to generate results.
Adjusted earnings per share are projected in a range of $7.50 to $8.50 in the current fiscal year, the company said in a statement on Tuesday. The midpoint is above the average of estimates compiled by Bloomberg.
“Target saw a healthy, positive sales increase in February, serving as an important milestone on our path back to growth this year, and reinforcing my confidence in the momentum we’re building and the future we’re creating together,” Chief Executive Michael Fiddelke said.
The strong profit guidance shows how Target is making progress at improving its performance. It’s aiming to end a three-year sales slump by investing to improve merchandise, refresh its stores and integrate new technology into its operations. At the same time, it needs to fend off competitors as shoppers become increasingly price-sensitive.
Target said it expects a “small increase” in comparable sales for the year, without providing a figure. Net sales are expected to grow about 2%.
Credited for popularizing “cheap chic” across the U.S. in past decades, Target has struggled following its pandemic-era boom. The weakness has sparked a crisis at the storied retailer as it loses market share.
A key challenge is that households are spending less on home decor and other discretionary items — key areas for Target — and prioritizing low-priced necessities. The retailer has less exposure to groceries, which contribute to less than a quarter of its sales, while its high level of imported goods has made it more vulnerable to disruption from tariffs.
New CEO
Fiddelke, a company veteran who was previously chief operating officer, started his role in February. Executives are holding a financial community meeting Tuesday in Minneapolis, and analysts are eager to hear about plans to recapture growth. The retailer previously said it would increase capital spending by 25% to $5 billion this year to remodel stores, open new locations and fund other improvements.
In his first month as CEO, Fiddelke’s changes have included a reshuffling of leadership after two senior leaders left and the elimination of about 500 roles. Target also added two directors to the board, which is chaired by former CEO Brian Cornell.
During a town hall with employees after taking over, Fiddelke, 49, acknowledged that the company had lost the trust of some shoppers and workers, and pledged to rebuild those connections. He has said the company would focus on key categories and create an assortment and shopping experience that’s distinctive.
Traffic and sales accelerated in December and January, with food, beverage, beauty and toys selling well during the latest quarter.
Adding to the urgency is the fact that Walmart Inc., which also has a new chief executive, is making inroads with wealthier consumers. Costco Wholesale Corp., meanwhile, has also continued to grow as its Kirkland brand and the warehouse club model resonate with shoppers.
Some areas of Target’s business have improved in recent months. Its beverage section has performed better thanks to new items, while toys, video games and sporting equipment have also ramped up. Across Target stores, the company is also pushing workers to offer friendlier service.
But the retailer still has work to do in winning back shoppers and regaining its authority in style.
“To drive sustained momentum, the team will need to convince the street that the changes they’re making today will enable them to better compete with the likes of Walmart/Amazon, resulting in more consistent top-line performance,” RBC Capital Markets LLC analyst Steven Shemesh wrote Tuesday in a note.
Minneapolis unrest
Target found itself at the center of immigration-related unrest as President Trump’s deportation campaign focused on Minnesota, sparking protests and the killing of two Americans by federal agents. Immigration officials also briefly detained a pair of Target employees. The situation prompted some store staff to call out of work and other employees to share their frustration about the company’s lack of a public stance on the unrest.
Target signed a letter along with a large number of other Minnesota-based companies calling for an easing of tensions.
Target is among the latest retailers to report quarterly results during this earnings season. In recent weeks, consumer-facing companies have painted a picture of a U.S. consumer who remains cost-conscious but is still spending on items that have good value or are unique. Retailers have said they are assessing the impact of the Supreme Court’s ruling striking down global levies.
Kang writes for Bloomberg.
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