Target (NYSE:TGT) reported earnings on Wednesday. The company posted an adjusted earnings of 78 cents per share - a decrease of almost 21% from the 98 cents per share the company posted for the same quarter last year. GAAP earnings were 37 cents per share. The numbers came in line with the forecast the company gave a few weeks ago, but the company still opted to lower its forecast for 2014. Target also announced Wednesday that it expects its 2014 adjusted EPS to fall between $3.10 and $3.30, down from prior guidance of $3.60 to $3.90, with GAAP EPS for 2014 falling 48 cents below its adjusted EPS.
The market remained encouraged on news of a small improvement in sales. "While results from the quarter didn't meet our expectations, we are seeing some early signs of progress as we work to improve results in the U.S. and Canada," said John Mulligan, executive vice president and chief financial officer of Target Corporation. "In the U.S., traffic trends continue to recover and monthly sales are improving, with July comparable sales up more than 1 percent." While Reuters explained, "Target's same-store sales have either declined or failed to show growth in the past six quarters. Customer traffic has fallen for nine straight quarters, but is now showing signs of recovery. The fall in traffic slowed to 1.3 percent in the second quarter from 2.3 percent in the first quarter." In addition, Target's digital sales grew over 30% during the second quarter.
But the problem isn't necessarily in sales. Target's margins are shrinking. The company's second-quarter gross margin rate came in at 30.4%, down from 31.4% in the same quarter last year, driven by promotions and discounts. In an article I wrote on Target a few weeks ago (Read the article here), I said the problem with Target was that "Customers are focusing on sale merchandise or not buying at all." The company's reports Wednesday demonstrate that. I said then that "Either Target will have to re-establish itself as a higher quality, style-forward alternative to Wal-Mart (NYSE:WMT), introduce convenient ways to deliver products to its customers like Amazon (NASDAQ:AMZN), or it will need to reorient its sales plan to compete against even lower priced stores, like Family Dollar (NYSE:FDO) or Dollar General (NYSE:DG)." And the company's most recent earnings report only confirms that opinion.
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