MINNEAPOLIS _ Target Corp. experienced its first comparable sales drop in more than two years in the May-to-July period, the company said Wednesday, and executives lowered their outlook for the rest of the year.
While executives at the Minneapolis-based retailer had hoped for sales trends to recover in the second half of the fiscal year, they said they now expect the challenging retail landscape to continue and sales to be flat or down as much as 2 percent in the upcoming third and fourth quarters. It had previously set a target of growing those sales 1.5 percent to 2.5 percent.
Target shares fell 6 percent in early trading.
Chief executive Brian Cornell told analysts on a conference call that the biggest issue in the second quarter was a 2.2 percent decline in traffic to the store _ a softness he attributed in part to the transition of its pharmacies to CVS Health Corp., which led to some disruptions.
He also noted that electronics sales were down by a double-digit percentage. Sales of Apple Inc. products fell 20 percent in the quarter.
And, while Target focused considerable energy on improving its grocery department, Cornell said that part of the store continues to be challenged amid price deflation and strong competition.
Target executives lowered full-year profit guidance to a range of $4.80 to $5.20 per share adjusted for one-time events. They previously forecast a range of $5.20 to $5.40.
The latest results and its forecast were yet more proof that spending patterns have been changing, with consumers more interested in spending to remodel their homes at off-price and online outlets while department stores and general merchandise stores have been struggling.
In a nod to the uneven landscape, Target executives had forecast sales in the second quarter to be flat to down 2 percent. Sales at existing stores in the May-to-July period ended up dropping 1.1 percent.
Target's net profit dropped 9.7 percent to $680 million, down from $753 million in the same period a year ago. But when adjusted for one-time expenses, earnings were $1.23 a share, which was better than the range of $1 to $1.20 the company had forecast and the $1.12 that analysts were expecting.
Revenue was $16.2 billion, in line with analysts' expectations and down 7.2 percent from $17.4 billion from the same period a year ago. That is largely a reflection that pharmacy sales are no longer included in its results since the sale of that part of the business to CVS.
Cornell added that he expects the company to restore traffic and sales growth "over time."
Three months ago, Target reported lower-than-expected sales in the first few months of the year because of a cold and wet spring that depressed spending along the East Coast.
The last time Target reported a drop in comparable U.S. sales was in the first quarter of 2014 before Cornell took over as chief executive, when it had a 0.3 percent decline. That was when the company was still recovering from the massive data breach that struck it in late 2013.
On Tuesday, Home Depot reported a 4.7 percent increase in comparable sales. But Lowe's Cos. Wednesday reported weaker than expected sales and profit for the latest quarter. TJX Cos., the parent of T.J. Maxx and Marshalls, posted a 4 percent jump.
Meanwhile, many department stores chains such as Macy's, Nordstrom and Kohl's have been in a sales slump. Macy's announced last week that it will shutter about 100 stores next year, about 14 percent of its namesake department stores, as it looks to focus on its better-performing stores and invests in its website.
Wal-Mart will report its results on Thursday.
