US: Target Unveils $7bn Investment Plan After Weak FY

Target has announced plans to invest more than $7bn on its operations, in a major overhaul aimed at bouncing back from weak results for its 2016 fiscal year.

For the year ending 28 January 2017, sales were down 5.8% to $69.5bn, while operating profit fell by 10.1% to $4.97bn, and net profit slumped by 18.6% to $2.74bn. The results were pulled down by a 4.3% decline in sales in the fourth quarter, even as like-for-like sales were down 1.5%, and operating profit fell by 13.5%.

Target said it now expects LFL sales in fiscal 2017 to decline by a low single digit. It also said it will pump in $7bn over the next three years to gain market share and accelerate sales growth.  The changes will include growing digitisation of its stores, merging its Cartwheel and Target apps, revamping 600 outlets, and opening more small-format stores in “dense urban markets and on college campuses”.

CEO Brian Cornell noted: “We’re investing in our business with a long-term view of years and decades, not months and quarters. We’re putting digital first and evolving our stores, digital channels and supply chain to work together as a smart network that delivers on everything guests love about Target, including more than a dozen new brands we’ll introduce over the next two years.” He also said the chain will cut prices and accept lower profit margins.

However, the announcements sent shares in the company plunging by 12% yesterday, its worst drop in more than 8 years.

NAM Implications:
  • Scope for suppliers to integrate their Target trade investment plan with that of the retailer, and demonstrate the impact on financial results.