Target's Q2 same-store sales fall in 'difficult retail environment'

Dive Brief:

Target Corp. Wednesday released Q2 earnings results that met or beat Wall Street expectations: The retailer reported $16.17 billion in revenue for the quarter, compared to forecasts of $16.18 billion in revenue cited by CNBC.
Q2 same-store sales decreased 1.1%, in line with the company’s guidance of flat to down 2% and in line with analyst expectations for down 1%. This is Target’s first negative same-store sales measure since the first quarter of 2014, according to CNBC. E-commerce sales rose 16% over last quarter, below the 23% increase in the first quarter and the 34% increase during the last quarter of last year.
The retailer lowered its guidance, saying fiscal year earnings would be between $4.80 per share to $5.20, down from previous guidance of between $5.20 and $5.40. Target said same-store sales in the second half of the year would fall another 2% after previously saying they would be flat year over year.

Dive Insight:

Target is feeling the crunch of a “difficult retail environment," according to CEO Brian Cornell, but the retailer plans to continue focusing on its signature categories as well as new store formats and its in-store experience. Same-store sales growth in those categories, which include Style, Baby, Kids, and Wellness, outpaced overall same-store sales by approximately 3 percentage points, the company said.

“While we recognize there are opportunities in the business, and are addressing the challenges we are facing in a difficult retail environment, we are pleased that our team delivered second quarter profitability above our expectations,” Cornell said in a statement. “Looking ahead, we remain focused on our enterprise priorities as we continue to see the benefits of investing in Signature Categories, store experience, new flex-format stores and digital capabilities. Although we are planning for a challenging environment in the back half of the year, we believe we have the right strategy to restore traffic and sales growth over time.”

The gloomy earnings report comes as a tough blow for the retailer. Although some of the poor results were expected by analysts and Target in their forecasts, the decline in same-store sales — as well as the retailer's shrinking digital growth — is not inspiring confidence on Wall St. Shares of Target fell about 6-7% in early trading after the market opened this morning.

Target's smaller increase in e-commerce growth is another area of concern. Target's saw 16% growth this quarter, but last quarter saw 23% growth — and that was less than the 34% growth reported in the last quarter of last year. While any growth is good growth, the shrinking growth numbers are a bad indicator for the retailer. Adding to the problem is that e-commerce and omnichannel sales often enjoy much slimmer margins than in-store sales, thanks to higher costs and price pressures.

E-commerce competition from Amazon appears to be taking its toll on the retailer. JP Morgan analyst Chris Horvers told CNBC's "Squawk Box” that Target needs to break past its declining same-store sales numbers.

"Target being in line is not good enough," he said. "They're playing catch up so they should be outperforming the market at this point.”