Target surges after sales signal turnaround is taking root

Target Corp.’s turnaround plan gained some much-needed momentum as its latest sales beat estimates, bucking the trend of gloomy results from bellwether U.S. retailers.

The stock jumped as much as 8.6 percent in early trading after Target’s first-quarter sales decline was less severe than analysts projected. Earnings also sailed past Wall Street’s most optimistic estimates, helped by a sales uptick in March, and the company gave a brighter outlook for the full year.

The results helped restore some optimism at a business that looked like another brick-and-mortar casualty, especially after bleak sales from Macy’s Inc. and other large retailers last week. Investors have grown increasingly concerned that Target can’t compete with either the scale of Wal-Mart Stores Inc. or the e-commerce prowess of Amazon.com Inc.

Against that backdrop, the latest news came as a relief.

“Less bad is the new good,” said Joe Feldman, an analyst at Telsey Advisory Group. “Give ‘em credit: They beat. But I think it doesn’t really change the overall story. They are still planning to make this a transition year.”

The stock rose as high as $59.20 in early trading after the report was released. Target had been down 25 percent this year through Tuesday’s close, hampered by concerns that it was losing ground to rivals.

Though same-store sales fell 1.3 percent in the first quarter, that was better than analysts’ prediction for a 3.6 percent drop. Earnings amounted to $1.21 a share in the period, which ended April 29, compared with an average analyst estimate of 91 cents.

That buys some time for the comeback efforts of Chief Executive Officer Brian Cornell, who aims to lower prices, refurbish more than 600 locations and introduce a dozen new exclusive brands. The $7 billion plan also includes opening 100 smaller shops in cities and college campuses over three years, part of a bid to better compete with Wal-Mart and Amazon.

“While we are confident in our plans, we are facing multiple headwinds in the current landscape,” Cornell said in a statement. “As a result, we will continue to plan our business prudently.”

The latest results prompted Target to provide rosier guidance for full-year profit. It now expects earnings above the midpoint of its previous forecast of $3.80 to $4.20 a share. Analysts polled by Bloomberg predicted $4. The company didn’t raise its comparable-sales forecast for the year: It still expects a low single-digit decline.

The first-quarter performance was better than the company’s own expectations, Cornell said, “reflecting strong execution by our team as they delivered for our guests in a very choppy environment.” The period began with very soft sales and then began to pick up — especially in March, he said.

The company expects second-quarter earnings of 95 cents to $1.15 a share, compared with an average projection of $1.

The company also said that its location in New York’s trendy Tribeca neighborhood will begin testing same-day delivery of in-store purchases next month. The store will serve Manhattan and parts of Brooklyn and Queens.

Wal-Mart, the world’s largest retail chain, reports its latest earnings on Thursday.

Target’s more upbeat outlook contrasted with the disappointing sales from department-store chains last week. Macy’s, the leader of that industry, suffered its worst stock decline since the recession after posting weak results. Kohl’s Corp., J.C. Penney Co., Nordstrom Inc. and Dillard’s Inc. also disappointed investors.

Many Target shareholders soured on the company after its fourth-quarter earnings report in February, when it warned that it would have to cut prices to compete with Wal-Mart. The news sent Target shares tumbling 12 percent, the most in more than eight years.

The concern was that Target would lose its grip on more affluent shoppers, who had helped the company earns its faux French nickname, “Tar-zhay.”

“Their performance in the fourth quarter really spooked them,” said Leon Nicholas, an analyst at Kantar Retail.

While the Minneapolis-based company is now showing signs of progress, it’s still too early to celebrate, he said.

“Show me a few quarters of results first before we throw a parade,” Nicholas said. “As far as I’m concerned the band should keep their instruments in their cases.”