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Target Reports 61.7% Drop In Profits

Target reported higher sales in its U.S. and Canadian divisions during a quarterly earnings report call. Total sales reached $17.4 billion, a 1.7% improvement from Q2 2013. Yet total profit fell from $611 million in 2013 to $234 million due to stagnant same-store sales and costs associated with the data breach that occurred during the 2013 holiday season.

U.S. sales increased 0.7% from $16.8 billion to $17.0 billion year over year. However, Target’s Canadian business experienced the most significant boost, rising 63% from $275 million in Q2 2013 to $449 million in Q3 2014. The significant growth of Target’s Canadian segment was attributed to 48 new stores in the area that “became mature at various points during the quarter,” according to a press release. However, same-store sales remained flat in the U.S. and decreased 11% in Canada, which was driven by grand opening sales for new locations.

Digital sales, which includes e-Commerce and flexible fulfillment such as buy online, pickup in-store, also grew more than 30% in Q2 2014, presenting new expansion opportunities for the retailer.

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“While results from the quarter didn’t meet our expectations, we are seeing some early signs of progress as we work to improve results in the U.S. and Canada,” said John Mulligan, Executive VP and CFO of Target Corporation. “In the U.S., traffic trends continue to recover and monthly sales are improving, with July comparable sales up more than 1%. Better U.S. sales have continued into August, driven by early back-to-school results. In Canada, the team is making important changes to operations and the merchandise assortment with a focus on delivering improved results by this holiday season.”

Although Mulligan is optimistic for the brand moving forward, new CEO Brian Cornell is challenged to ramp up growth for Target as the industry plans for the 2014 holiday season. Specifically, Target needs to focus on omnichannel, an area where “competition is intensifying and Target remains a laggard, according to Kelly Tackett, U.S. Research Director at Planet Retail.

“One-off initiatives, such as extending operating hours in the U.S., are only a tiny part of the solution,” Tackett said. “Longer hours will boost traffic but are unlikely to deliver substantial basket size or margin improvement, as many late-night purchases will be confined to the grocery aisles.”

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