By Paul Ziobro and Chelsey Dulaney
Target Corp. outdid big box rival Wal-Mart Stores Inc. at the
beginning of the year, as stronger growth in more profitable
categories like apparel and home goods produced a third straight
quarter of sales growth.
Both companies are in the middle of turnarounds after long
stretches of weak traffic and sales in their home U.S. markets. But
Target appears to have the edge for now, posting
better-than-expected earnings a day after a disappointing showing
by Wal-Mart sent that company's shares down sharply.
Minneapolis-based Target reported a 52% increase in profit to
$635 million for the three months that ended May 2, largely due to
eliminating its money-losing Canadian operations earlier this year.
Revenue rose 2.8% to $17 billion.
Sales at established stores rose 2.3%, narrowly ahead of
Target's February forecast for 2% growth, with more customers
visiting and spending more. Online sales rose nearly 38%.
The U.S. sales increase doubled what Wal-Mart reported Tuesday
and was a break from the generally dreary results posted by
retailers to start the year. The results broadly have dashed hopes
for a strong rebound among consumers enjoying lower gasoline prices
and better job prospects.
Instead, shoppers have been using the savings from lower gas
prices to pay down debt, while homeowners have been plowing money
into improvement projects. Target saw signs of that conservatism,
too. Chief Financial Officer John Mulligan said on a call with
reporters that shoppers using the company's credit cards are paying
down more of their debt instead of growing balances.
"Consumers learned a lot during the last recession," he said.
"They continue to operate conservatively."
The dynamic is turning retailing into a market-share game. And
by some measures, Target is winning.
"Everyone shops everywhere, and for us it's about getting more
trips from them and more share of their wallet," Mr. Mulligan
said.
Target's shares were up 0.6% at $78.35 early Wednesday. Wal-Mart
shares were down another 0.3% at $76.22 after dropping more than 4%
on Tuesday.
The results show that Target Chief Executive Brian Cornell, a
little more than nine months in the job, is generating good
progress on plans to refocus the retailer business on so-called
signature categories like baby and children's products, fashion and
beauty.
In the years before Mr. Cornell's appointment, Target suffered a
series of stumbles including unimaginative merchandise, a bungled
expansion into Canada and a data breach that ultimately forced
change at the top.
Target now is benefiting from focusing all of its resources on
the U.S. and trying to bring back a sense of uniqueness to its
stores. The biggest refresh is due in grocery, where sales grew
below the company average in the first quarter. Target wants to
play up healthier fare and up-and-coming smaller brands at the
expense of large packaged food companies. Target is testing new
food models in a number of markets now but isn't planning a major
change until the middle of next year at the earliest.
"We're letting consumers lead us to the right answer," Mr.
Mulligan said.
Write to Paul Ziobro at Paul.Ziobro@wsj.com and Chelsey Dulaney
at Chelsey.Dulaney@wsj.com
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