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Lower Traffic Resulted in Target’s Fiscal 2Q16 Total Sales Dip

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Target’s fiscal 2Q16 revenue on par with Wall Street’s expectations

As discussed earlier in this series, Target’s (TGT) revenue declined 7.2% to $16.2 billion in fiscal 2Q16 from $17.4 billion in fiscal 2Q15. This reflected a 1.1% decrease in comparable sales, combined with the removal of pharmacy and clinic revenues from this year’s results. In December 2015, Target closed the sale of its pharmacies and clinics business to CVS Health (CVS) for $1.9 billion. For fiscal 2Q16, Target’s revenue was in line with Wall Street analysts’ consensus estimate after missing estimates for the last two quarters.

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Reasons for revenue decline

Target’s revenue declined due to lower traffic and higher variability in sales patterns, which affected sales in all merchandise categories. However, key second quarter events such as Memorial Day, the Fourth of July, and the beginning of the back-to-school season saw strong sales performances.

Comparable digital channel sales grew more than 16% in 2Q16, compared to 30% growth in 2Q15. This contributed 0.5 percentage points to comparable sales growth. Walmart’s (WMT) e-commerce and GMV sales increased 11.8% and 13.0%, respectively, on a constant-currency basis in its comparable quarter.

Digital conversion

For Target, digital conversion has tripled across all platforms since 2013, particularly in the mobile space. Mobile sales on Target’s flagship app are more than 100% higher than last year’s sales. However, brick-and-mortar stores account for over 90% of the retailer’s sales. Other department stores like Macy’s (M) and Nordstrom (JWN) also aim to invest across stores and continue to modernize their technology platforms.

E-commerce approach

Target has been making improvements in its supply chain to cope with the additional demand posed by e-commerce and omnichannel retailing (RTH). In 2Q16, the company launched a new fully adapted site that provides an optimal digital shopping experience across all platforms, including desktops, tablets, and smartphones.

Target makes up 0.04% of the iShares Core Russell U.S. Growth ETF (IUSG).[1. Updated on August 17, 2016.]

In the next part of this series, we’ll analyze Target’s same-store sales growth.

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