Target Shares Go Flying On Smaller Than Expected Sales Decline

May 17, 2017

It was not quite the retail apocalypse for Target (tgt).

The chain on Wednesday reported a smaller than expected first-quarter comparable sales decline, buoyed by an improving retail environment in the latter two months and improving apparel sales that got a boost from a temporary collection by designer Victoria Beckham.

A 1.5% decline, though hardly a return to the good old days for Target, was far less dramatic than the 3.6% drop Wall Street analysts were fearing, according to Consensus Metrix.

After other retailers—notably Kohl's (kss), J.C. Penney (jcp), and Macy's (m)—last week reported awful quarterly numbers, investors were nervous. But by beating expectations, however modest, Target sent its shares up 7.5% in premarket trading.

Nonetheless, there was still ample reason for investors to be concerned about Target longer-term: the company said fewer customers came into stores and bought fewer items on average, an ongoing problem for the retailer, and one that shows its challenges in fighting back its biggest rivals, Walmart (wmt) and Amazon.com (amzn). What's more, online sales rose 22% in the quarter, a much slower pace than in the preceding two quarters.

Still, Target benefitted from strong demand for swimwear, and some electronics such as the Nintendo Switch gaming console. And more encouragingly, apparel sales were strong, in marked contrast to the challenges faced by department stores and specialty apparel chains of late.

Earlier this year, Target said it would be more aggressive on prices and focus more marketing on getting that message across; improve stores; overhaul many of its house brands; and develop two new ones. Those efforts would cost an expected $7 billion, news that startled investors in February as it underlined how far Target had fallen behind its rivals on certain fronts.

Revenue in the quarter ended April 29 fell 1.1% to $16.02 billion, while profit was $1.21 per share excluding certain items. Analysts on average had expected earnings of 91 cents per share on revenue of $15.62 billion, according to Thomson Reuters I/B/E/S.

Yet Target CEO Brian Cornell sounded a note of caution. "While we are confident in our plans, we are facing multiple headwinds in the current landscape. As a result, we will continue to plan our business prudently while preparing our team to chase business when we have an opportunity," he said.

And the company didn't increase its already cautious profit forecast for the year despite handily beating forecasts in the first quarter, showing that happy retail days are not here again yet.

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