Target pledges to reinvest in business after weak quarter

Associated Press

NEW YORK

Target, stung by the migration of its customers elsewhere, pledged Tuesday to spruce up its stores and make other investments in its business after delivering weak quarterly results and an outlook far below what analysts were expecting.

The $7 billion investment comes as the retailer said profit for the quarter that includes the holiday season fell 43 percent, with strong online sales failing to offset weakening business at its stores. Target’s stock tumbled more than 12 percent and rattled Wall Street, as shares in Wal-Mart, Macy’s and other retailers fell as well.

Target said it will spend the $7 billion over the next three years to remodel more than 600 of its 1,800 stores, speed up its expansion of small-format stores and launch new brands. The company usually spends about $2 billion a year on such capital investments.

CEO Brian Cornell acknowledged that many of Target’s store are “old and tired” and haven’t been updated in years. The company also plans to use the backrooms not just to store merchandise but to double as mini-distribution points as Target increases the number of stores that ship directly to online shoppers as it tries to match Amazon’s two-day free deliveries for Prime customers.

Executives who laid out the plan said the spending was necessary in the long term for the company to regain its foothold in a market where shoppers are moving online more and more. Target said it expects profits to start growing again in 2019 but wouldn’t be more specific.

“Our industry is in the midst of a seismic shift,” said Cornell, who also said Target would do better by giving shoppers compelling value as well as great products and a good experience.

All traditional retailers have struggled as Amazon and other online retailers draw shoppers away. Under Cornell, Target had been cutting costs, testing smaller formats and expanding online services. But Cornell told investors those efforts weren’t enough given the accelerating shift of shoppers to online. Instead of seeing momentum in business, Target has seen three-straight quarters of declines for a key revenue measure and declining customer counts.

In contrast, Wal-Mart Stores Inc. posted another quarter of higher customer traffic and same-store sales as its efforts to merge its online services with its vast number of stores have clicked. Its reemphasis on everyday low prices have also helped to attract shoppers.