Breakingviews: Target’s wobbly aim will take time to correct

Published Tue, Feb 28 20174:16 PM EST

Breakingviews

Jennifer Saba

Target Chief Executive Brian Cornell is asking for patience. The U.S. retailer reported abysmal quarterly results, missing expectations and wiping out some $5 billion of stock-market value in the process. Pressures from the likes of Wal-Mart and Amazon are clearly taking a toll. A 34 percent jump in online sales is encouraging but Target will continue to struggle with changing shopping habits. The now $33 billion retailer known for its bull's-eye red-and-white logo said its adjusted earnings forecast for 2017 will be in the range of $3.80 to $4.20 per share, well below the $5 that analysts had previously forecast. Same-store sales are expected to decline rather than increase slightly, as analysts originally expected. More from Breakingviews : Starbucks embarks on ultimate market test: Italy Cornell was blunt in his requests during an annual investors' day on Tuesday: Target is taking the long view and margins will take a hit. The firm plans to invest heavily – some $7 billion over three years – buffing up its stores, rolling out new brands, and re-evaluating its footprint of more than 1,800 stores in the United States, especially in urban areas. Target is optimistic that it is in a strong financial position to pick up some market share as other retailers shoulder burdensome debt. Moody's reckons that nearly 14 percent of its retail and apparel portfolio, including the owner of J Crew and Gymboree, is now composed of distressed issuers – the largest showing since December 2009. In the meantime, Target is bracing for a wave of price cuts from these struggling peers as well as Wal-Mart, which is further squeezing its suppliers. On the digital front, Target plans to utilize what it considers a well-stocked quiver. Its storefronts, which serve as distribution points, allow people to shop online and pick up their order during the same day. Digital sales have grown to $3.4 billion last year, nearly 5 percent of the total top-line of $70 billion, from $1.4 billion in 2013. Yet investors looking for guideposts beyond this year will be out of luck when the retailer stops providing guidance. Target's wobbly aim will take time to correct – something its owners seem unwilling to give for now. For more independent commentary and analysis from Reuters Breakingviews, visit breakingviews.com

Shoppers at a Target store in Chicago.

Jim Young | Reuters

The now $33 billion retailer known for its bull's-eye red-and-white logo said its adjusted earnings forecast for 2017 will be in the range of $3.80 to $4.20 per share, well below the $5 that analysts had previously forecast. Same-store sales are expected to decline rather than increase slightly, as analysts originally expected.