Target is getting its groove back: Turnaround takes hold

Target is on its way back.

Shoppers are visiting the company's stores more often and spending more on each trip, the Minneapolis-based discount-store chain said Wednesday. The company raised its annual profit outlook and said its second-quarter net income more than tripled.

The upbeat report is evidence efforts to spruce up fashions and other merchandise are paying off for CEO Brian Cornell, who has led the company for a year with marching orders to reinvent the "cheap chic" retailer after a series of problems.

"I think we're making very good progress right now," Cornell told investors during a conference call Wednesday. "But we're not satisfied. We know we've got more work to do to meet the needs of the guests every time they shop."

Target's results are among one of the brighter spots in retailers' second-quarter earnings season, which mostly wraps up this week.

Department store chains Macy's and Kohl's both reported last week declines in second-quarter profit and weak sales as shoppers have been pulling back buying traditional items like clothing and gravitating more toward services or going out to eat.

Wal-Mart Stores Inc., the world's largest retailer, announced Tuesday a 15 percent drop in second-quarter income and cut its annual outlook as its investment in its stores, e-commerce and increases in wages for hourly workers are dragging down results. But those efforts are perking up sales and traffic.

But Target isn't getting hurt by that shift away from clothing, showing that shoppers will still buy the right item at the right price.

Target's shares rose nearly 4 percent in morning trading.

Cornell succeeded Gregg Steinhafel, whose abrupt departure in May 2014 capped a tumultuous year for the company. It was hurt by a massive credit-card breach before Christmas 2013 that sent shoppers temporarily fleeing. The company also botched a major expansion into Canada that the company pulled the plug on earlier this year.

Cornell aims to reinvent Target as a more nimble force amid fierce competition.

The company is investing in e-commerce and said it's improving its shipping time this fall by testing a specific delivery commitment, typically two or three business days if the customer orders on a specific date. It's also adding small-format stores, including a recent one in Boston.

It's also trying to reclaim its position as the place to go for "cheap chic." Target is placing heavy emphasis on fashion, children's goods and home products. Those areas carry higher profit margins. That includes adding mannequins in the stores and improving the quality of its clothing.

For example, it recently redid the fit for its jeans, a move customers liked. And it's reacting quickly to trends. This fall, it's working with various partners to create a 300-item plaid collection including plaid diapers and plaid blankets.

And Target is bringing more organic, natural, gluten-free and locally produced food to its grocery aisles.

Cornell is also reshaping his management team. On Monday, Target promoted its Chief Financial Officer John Mulligan to the newly created role of chief operating officer. Mulligan will assume oversight of stores, supply chain and properties. Succeeding Mulligan as chief financial officer is Cathy Smith, a seasoned retail executive. The changes are effective Sept. 1.

Target has wrestled with uneven growth since the Great Recession. Its expansion into basic groceries during the downturn helped to bring in shoppers but it diluted its focus of being a style purveyor. But its business was rocked by the pre-Christmas 2013 breach and the money-losing operations in Canada.

Target's second-quarter results are benefiting from Cornell's moves.

The company said second-quarter earnings were $753 million, or $1.18 per share for the three month period ended Aug. 1. That compares with $234 million, or 37 cents per share, a year earlier.

Adjusted earnings were $1.22, above Target's range of $1.04 to $1.14 per share.

Target says revenue at stores open at least a year rose 2.4 percent, in line with expectations. In comparison, Wal-Mart's U.S. stores saw a 1.5 percent increase.

Target said that figure rose three times that rate for fashion, baby, kids and wellness items, areas the company is emphasizing in its turnaround efforts. Overall, the number of transactions rose 1.6 percent.

Online sales rose 30 percent. Mulligan told reporters Wednesday that efforts to beef up its mobile e-commerce are helping to drive more traffic to stores.

The company now believes that it will earn $4.60 to $4.75 per share for the full year. That's up from its prior projection of $4.50 to $4.65 per share.

Target's shares slipped 66 cents to $79.64 in midday trading after rising earlier Wednesday.