By Richa Naidu and Siddharth Cavale
(Reuters) - Target Corp gave a full-year profit forecast far below market expectations on Tuesday as the retailer plans to pour more money into improving its online platform and cutting prices to stay relevant amid fierce competition.
The company also forecast a surprise drop in full-year sales at stores open for at least 12 months and reported weaker-than-expected quarterly same-store sales, sending its shares tumbling more than 13 percent in premarket trading.
Target, like other retailers, has struggled with falling sales as shoppers increasingly gravitate to online retailers such as Amazon.com Inc and spend more on big-ticket purchases such as cars and home renovations rather than on electronics, food and apparel.
To compete, big box retailers such as Wal-Mart Stores Inc, Aldi and Kroger Co moved early to aggressively cut prices and boost their online presence. Target, however, was unable to act as swiftly due to high costs related to a massive data breach and its decision to pull out of Canada.
Reuters reported on Friday that Wal-Mart was running a new price-comparison test in at least 1,200 U.S. stores and squeezing packaged goods suppliers in a bid to close pricing gaps with rivals.
Target upped the ante on Tuesday, saying it was ready to sacrifice gross margins this year by lowering its own prices in order to compete more effectively.
Target also laid out plans to launch more than 12 new brands exclusive to the retailer and to pour more money into integrating its bricks-and-mortar and online stores.
"Basically, (Target is) doing what Wal-Mart did about two years ago," Edward Jones consumer analyst Brian Yarbrough said.
"I think they realized that they're going to have to invest to be more competitive. ... Most people thought they were going to take guidance lower, but this is definitely much worse than feared."
Target forecast full-year earnings of $3.80-$4.20 per share from continuing operations, while analysts' on average were expecting its profit to top $5.00, according to Thomson Reuters I/B/E/S.
ONE BRIGHT SPOT
Target's same-store sales fell 1.5 percent in the important holiday quarter, missing analysts' average estimate a 1.3 percent fall. Net sales fell for the sixth straight quarter, declining to $20.69 billion.
The results compare poorly against those of Wal-Mart, which last week reported higher-than-expected U.S. sales as its low-price strategy paid off and online activity accelerated.
Excluding items, Target earned $1.45 per share in the fourth quarter ended Jan. 28, shy of the $1.51 analysts' were expecting.
One bright spot in Target's otherwise lackluster results was a 34 percent jump in digital sales.
Target said it expects sales at stores open for at least a year to decline in the low-single digit percentage range in fiscal 2017, after reporting a fall of 0.5 percent in 2016.
Analysts on average were expecting the company's same-store sales to increase 0.4 percent in 2017, according to analysts polled by research firm Consensus Metrix.
Target's shares were down 13.2 percent at $58.10 in premarket trading.
(Reporting by Richa Naidu in Bengaluru; Editing by Savio D'Souza)
Disclaimer: No Business Standard Journalist was involved in creation of this content
