TGT Target Corp

By Paul Ziobro 

Target Corp. raised its outlook for the second time this year as higher sales of more-profitable items like clothes and home décor are helping the chain navigate a competitive retail environment.

Under Chief Executive Brian Cornell, Target has zeroed in this year on its so-called signature categories of style, baby, children and wellness. The chain has spruced up areas of its stores where those products are sold by, for instance, adding mannequins to showcase clothes. Sales in those categories rose three times faster than overall sales in the latest quarter, which were up 2.4% at stores open more than year.

The former PepsiCo executive's test will get more difficult as he enters his second year leading Target. The chain has now posted rising sales for four straight quarters after recovering from a data breach and years of lost focus on the cheap-chic style that helped it thrive. Now that some customers have come back, Target needs to make sure they keep spending.

The challenge was reflected in the guidance Target gave for the current quarter. It expects same-store sales to rise 1% to 2%, a slower pace than the prior two periods.

After trading higher earlier, Target shares slipped 0.5% to $79.90 in afternoon trading in a broader market downturn.

Target executives said Wednesday the company still needs to improve its operations and make sure its shelves are stocked better. It is a basic retail problem that is also plaguing rival Wal-Mart Stores Inc., a result of the growing complexity added to the retail supply chain by the rise of online ordering.

"Some retail fundamentals have started to suffer," Mr. Cornell said on Wednesday's earnings call. "Specifically, in-stocks in our stores have been unacceptable so far this year and our guests deserve better."

Target's sales are being helped by a broader economic recovery, especially among the higher-income demographic that Target covets, as well as lower gas prices. The retailer didn't have to run as many promotions during the quarter as anticipated because shoppers kept spending. But Chief Financial Officer John Mulligan said the changes to merchandise are paying off too.

"We'll certainly take the macro tailwinds, let's not kid ourselves," Mr. Mulligan, who is being promoted to chief operating officer soon, said Wednesday. "We feel really good about this being about the products we're offering."

Target is further ahead on its turnaround efforts than Wal-Mart, which warned Tuesday that profits will miss its goal this year. The much larger retailer--Wal-Mart had $120 billion in global revenue compared with $17 billion for Target--is spending heavily to staff stores and cut prices to generate even modest sales growth.

The latest results from U.S. retailers have been mixed, despite generally higher consumer spending this summer. Chains like Target and Home Depot Inc. that cater to a higher-income shoppers and some off-price retailers like T.J. Maxx owner TJX Cos. are doing well. Other department stores like Macy's Inc. or Kohl's Corp. are struggling to boost sales for a variety of reasons, from weaker spending by tourists to shifting timing of sales tax holidays.

Target's second-quarter earnings of $753 million were up from $234 million a year earlier, when mounting losses in Canada, an early retirement of debt and costs related to a data breach depressed results. On a per-share basis, earnings from continuing operations of $1.21 were well ahead Target's May view of $1.04 to $1.14 a share. Total sales were $17.43 billion in the quarter ended Aug. 1, up 2.8% from a year ago.

For the current year, Target now expects earnings of $4.60 to $4.75 a share, up from its prior guidance of $4.50 to $4.65.

Write to Paul Ziobro at Paul.Ziobro@wsj.com

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(END) Dow Jones Newswires

August 19, 2015 13:13 ET (17:13 GMT)

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