Target Beating Wal-Mart in Race for Turnaround


Target is beating Wal-Mart in the race to beef up sales.

Target Corp. on Wednesday reported a nearly 52 percent surge in its first-quarter profit on strong sales of more-profitable items like fashion and baby products, evidence that its efforts to turn around its business are paying off.

The results handily beat Wall Street expectations on all fronts, and the Minneapolis-based retailer boosted the bottom end of its annual profit outlook.

That’s in contrast with rival Wal-Mart, which missed Wall Street estimates with its earnings report a day earlier. It showed a 7 percent decline in first-quarter profit, dragged down by its recent moves to raise wages for hourly workers and increase spending in its online operations.

Both saw their third straight quarters of increases for a key sales measurement, but Target’s pace was roughly double that of Wal-Mart.

Both big-box retailers are trying to turn around their business after a long stretch of sluggish sales and traffic declines. They’re dealing with a still-tough economy and shoppers who want to buy online or in smaller stores for convenience.

Target, which caters to customers who have a little more money than Wal-Mart shoppers, aims to reinvent itself as a more nimble and innovative company and is trying to reclaim its reputation as a cheap chic retailer under CEO Brian Cornell.

Cornell and Wal-Mart’s U.S. division CEO, Greg Foran, both took those jobs last August.

Under Cornell, Target pulled the plug on its money-losing expansion into Canada earlier this year so it could focus on its U.S. business, where it has made cost-cutting moves including eliminating 1,700 positions.

Target is also doubling down on a handful of areas like fashion, children’s products and home furnishings. It’s also reimagining its grocery area and wants to focus on organic, natural, gluten-free and locally produced food.

“The momentum we’ve seen so far makes us more confident than ever that we’re moving in the right direction and encourages us to move even faster,” Cornell told investors during a conference call Wednesday.

Under Foran, Wal-Mart is seeking to bolster its position as the low-price leader. It also aims to beef up its customer service and have tidier stores. It has been vocal about its move to increase wages and training to make its hourly employees happier. It’s hoping that happier employees will help improve customer service and thus lead to better sales.

Still, both Wal-Mart and Target acknowledge they’re not getting much help from an improving economy or lower gas prices. Both Target and Wal-Mart executives said shoppers are using the extra money to pay down debt or save.

Target said it earned $635 million, or 98 cents per share, in the quarter ended May 2. That compares with $418 million, or 66 cents per share, a year earlier.

Revenue rose nearly 3 percent to $17.1 billion. Revenue at stores open at least a year rose 2.3 percent.

Target Chief Financial Officer John J. Mulligan told reporters that Target was able to pull back on discounts compared with a year ago, helping to boost profit margins. And Target’s signature areas like fashion, baby products and health and wellness items had sales increases more than double the company average.

Online, sales surged nearly 38 percent for the quarter.

Target said it now expects earnings per share to be in the range of $4.50 to $4.65 for the fiscal year, up from the original forecast of $4.45 to $4.65 per share. Analysts were expecting $4.56 per share for the year, according to FactSet.

In trading Wednesday, Target shares rose 26 cents, or 0.3 percent, to $78.18, and Wal-Mart shares dropped 53 cents, or 0.7 percent, to $75.90.

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