Target (TGT) is hitting the reset button on how it does business after a surprisingly challenging 2016.
The discount retailer reported fourth-quarter adjusted earnings of $1.45 a share on Tuesday, badly missing Wall Street estimates of $1.51. Same-store sales declined 1.5%, also missing estimates for a 1.3% decline. For comparison, Walmart (WMT) U.S. delivered a same-store sales gain of 1.8% during the fourth quarter, propelled by lower food prices.
Target said it sees full-year earnings of $3.80 to $4.20 a share, markedly below analysts' forecasts of $5.34. Target Chief Financial Officer Cathy Smith told investors that February sales were "challenging and choppy."
"Efforts have not been enough to win in this challenging marketplace," Brian Cornell, chairman and CEO of Target, conceded to investors at a meeting on Tuesday. Cornell added the marketplace is placing "stress" on Target's financial model.
TheStreet caught up with Cornell at the event. What follows below is a brief edited version of our conversation.
For those wondering if the stock's pullback is a buying opportunity, the short answer is no. Target has some proving to do on many fronts. For the stock to work again, Target has to work again. Right now, another earnings warning by the end of the third quarter shouldn't be ruled out.
A newly remodeled Target store vs. an older one. More work to be done, says Target's CEO Cornell
TheStreet: Who is Target right now? It feels as if the company's identity is changing. On the one hand, you are now investing more in lower prices. But on the other hand, you talk about wanting to stay innovative in products and online.
Cornell: What you are seeing today is a company that is returning to its core DNA. We certainly recognize the importance of expecting more on the side of our brand promise, and that is reflected in the brands we are introducing, the changes we are making in stores to re-imagine the in-store experience while also offering amazing value. We have to make sure we balance those two elements.
We also recognize that with today's consumer environment, we have to make sure we are offering good value to the consumer.
TheStreet: Why not add delis or bakeries to Target stores so that you can drive traffic, and be more of a grocery store?
Cornell: If you think about who we are, Target is not a full-service grocery store. You don't have to spend more than a few minutes in any one our stores that sell food to recognize that we are much more akin to a Trader Joe's than to a Kroger (KR) . We have a great selection of self-service, convenient-type items, but we don't have the deli counters, we don't have meat and seafood. We don't even have ovens in our stores. And that's not part of who we are or where we are going.
We want to continue to build our food offering. We have made some progress, and have done improvements that you don't see. We are now delivering produce to our stores seven days a week to improve quality and freshness, for example. But we also know that the overall experience has to be improved and where we have made those changes in Los Angeles or in Dallas, we have seen a significant uptick in our food and beverage performance.
All of this will take time to get right. We also have to make sure we restore the trust in everyday low pricing in key food categories. But we aren't satisfied where we are, there is more work to do. It's not like we have been standing by idly; we have been making changes.