Target's first decline in traffic in a year and a half gets industry talking

Target´s unexpected 2.2 percent drop in traffic in the period comprehended between May and July got the market talking, as analysts don´t quite understand what triggered the first decline in that metric in a year and a half.

The decline has been the biggest slide the retailer has noted since it suffered a data breach a few years ago. Things didn´t get any better for Target in terms of comparable sales, as this indicator also dropped for the first time in two years, prompting a lower-than-expected forecast.

On the back if the news the stock tanked Wednesday, closing at 70.63 dollars per share, down 4.85 dollars or 6.4 percent.

Some analysts are of the opinion of Sean Naughton from Piper Jaffray and point at Amazon as the main reason for Target’s trip. “Clearly this was a step in the wrong direction,” said Piper Jaffray’s analyst. “Some of the concern is now going to be about Amazon’s continued success and the potential for Prime Now [Amazon’s delivery service within two hours on select items] becoming more ubiquitous across the country with people being able to get things more quickly.”

”Dificult retail environment” weights Target´s Q2 earnings

Reporting seasonal figures, Target said Wednesday that its second-quarter earnings fell 9.7 percent to 680 million dollars and lowered its sales estimate for the rest of the year, citing "a difficult retail environment." Adjusted earnings per share totaled 1.23 dollars, higher than the 1.13 dollars predicted by analysts who were polled by S&P Global Capital Intelligence.

Sales were down 7.2 percent to 16.2 billion dollars, matching the analysts' estimates. Sales at stores open at least a year, a key metric for retailers, fell 1.1 percent. Comparable digital channel sales grew 16 percent, published ‘USA Today’.

Brian Yarbrough, an analyst with Edward Jones, says that these quarterly results and lowered guidance are quite a setback for CEO Brian Cornel, now two years into the job. “I think [Cornell] has done a lot of great things, but a lot of the low-hanging fruit is gone,” Yarbrough said referring to some of Cornel´s attempts to revive the brand, including closing the company’s ailing stores in Canada, selling its unprofitable pharmacies to CVS and laying off thousands of headquarters employees.

“We’re not altering our strategic focus,” Target´s CEO said in an attempt to assure investors that the company “It’s making sure we get our strategies in balance and we deliver against both signature categories and those important household essentials that drive traffic to our stores and put cars in the parking lot.”

On the upside, apparel sales at Target were the bright spot in Target´s seasonal blunt report. The strong figures for clothing sales were a refreshing breeze for a market that has seen major players such as Macy’s, Nordstrom and Kohl’s announcing reduced forecasts, store closes and dire sales.

Executives at Target decided to play it safe with a conservative outlook, lowering the company´s full-year guidance for adjusted earnings to a range of 4.80 to 5.20 dollars per share, compared to their past forecast range of 5.20 to 5.40 dollars.

Image: Target website