Target's stock stumbles, with food and pharmacy taking the blame

Target's prospects are dimmer today. The giant retailer reported Wednesday that sales and earnings fell in its most recent quarter, and the company reduced its profit goals for the rest of the year.

Under the leadership of new CEO Brian Cornell, Target had increased sales at established stores for more than a year and a half. But in the spring quarter, those sales slipped about 1 percent. And Target forecasts flat to falling sales in coming months.

Target executives offered investors many explanations. CFO Cathy Smith said the company had troubles drawing consumers to stores.

"Clearly traffic was our single biggest issue. And it was a variety of things as we dissect our business and try to say what's driving us," Smith said.

She blamed several factors: a lack of hot electronics, the transition of the in-store pharmacy business to CVS, and a grocery department that still leaves many shoppers disappointed or bored. Smith said Target has fixes in the works, especially for its grocery business, which accounts for a fifth of Target's sales.

"Even as we've improved things like freshness, it takes a while before we can convince our guests to come back and give Target a try. It'll take us a little bit of time," Smith said. "We're committed to the long haul and journey that food is going to require."

Downtown St. Paul shoppers confirmed Smith's analysis of Target's troubles.

Rachel Caulfield of Roseville shops Target about once a week. She said she's a Target fan but isn't surprised some people are shopping there less.

"I do shop Target for groceries, although I've noticed that the quality is sometimes lacking," Caulfield said. "The produce isn't always great. The clothing, it's not great quality for the price. I think the clothes should be cheaper. The fabric is really thin, especially for women's clothing."

David Lefever of St. Paul is just the opposite. He'll buy other supplies, but avoids the food at Target.

"We'll go elsewhere for that," he said. "Only if it's a need or urgent matter, then we'll pick up while we're there."

Where does Lefever prefer to shop for groceries? Aldi, another discount chain.

Kevin Major of Lexington, Kentucky, would rather go to Target than a lot of other retailers. But lately he and his wife have been shopping there less.

"It's probably been a couple of months since we've been there yeah. We've been doing online things and my wife has been going to some of the local smaller shops, instead of Target," he said.

Cornell, Target's CEO, has been trying to turn the company around after years of sluggish growth and struggles with everything from a major theft of customer data to keeping stores stocked with essential goods.

His efforts have included pulling Target out of Canada, dropping its pharmacy business and focusing on higher-margin categories such as children's, fashion, babies' and health and wellness.

Those efforts are paying off. Somewhat.

"The problem is other categories are struggling mightily and that's more than offsetting the success they're seeing in those categories," said Edward Jones retail analyst Brian Yarbrough.

He said retail is intensely competitive, with merchants constantly trying to take sales from rivals.

"I believe that Amazon has taken share. I think Walmart is gaining some of the share they probably lost over the last few years, as they've sharpened their game. That's the bigger concern," Yarbrough said. "Walmart has talked about getting more aggressive on price cuts. That could even make it more difficult in the next year for Target."

Target is hardly alone in struggling. Macy's announced earlier this month it would close another 100 stores amid slipping sales and profits. And the Commerce department recently reported retail sales at general merchandise stores fell 1 percent over the year ending in July. Non-store retailers, which includes online merchants, saw sales jump 14 percent.

Retail strategist Carol Spieckerman said Target's first same-store sales dip in a while is not alarming.

"But things have to move fast and Target can't afford to let those negative trends take hold and gain traction," Spieckerman said.

Appealing to the most loyal customers is Target's best bet for turning things around, she said.

"Through all their struggles, all of the unenforced errors, all of the changes that they're trying to digest and implement and all of the competition they face, there is still a loyal Target customer, a customer who loves shopping at Target," Spieckerman said.

One thing's for sure: Wall Street wasn't loving Target after the earnings report.

Its share price fell by about 6.5 percent to $70.63.