Here’s Why Target Shares Are Getting Pounded

Aug 17, 2016

Is Target's (tgt) comeback story already over?

The chic discount retailer on Wednesday reported a 1.1% decline in comparable sales in the second quarter, and more worryingly, lowered its sales forecast for the remainder of the year—including the key holiday season.

Shares were down 4% in premarket trading.

Target CEO Brian Cornell, who has been executing a transformation that until recently had yielded large improvements in sales, said in a prepared statement that the No. 3 U.S. retailer is "planning for a challenging environment in the back half of the year."

The company projects that comparable sales, a key metric that strips out the impact of newly closed or open stores and dropped business lines, could fall as much as 2%, and remain unchanged in the best-case scenario forecast.

The results, which come amid soft results for many retailers, are a big setback for the company.

Since Cornell took the reins two years ago, Target has focused more on categories he's said Target must win, such as health and wellness, kids and baby items, and stylish apparel and housewares. Indeed, comparable sales in those categories rose about 2% in the quarter.

But Target has also invested billions into beefing up its e-commerce to compete with (amzn) and Walmart (wmt). Yet digital sales growth slowed dramatically, rising 16%, compared with 23% growth the previous quarter.

Online sales only added half a percentage point to Target's comparable sales change, meaning that in-store results fell 1.6%, the result of declining store visits by customers.

Cornell, who will likely get into the details of potential remedies on a call with investors later on Wednesday, said Target thinks it has "the right strategy to restore traffic and sales growth over time."

Target's net income fell to $680 million, or $1.16 per share in the second quarter ended July 30, from $753 million, or $1.18 per share, a year earlier. Total sales fell 7.2% to $16.17 billion from $17.43 billion (much of that due to the recent sale of its pharmacy business to CVS Health (cvs).

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