MINNEAPOLIS-Sales that were less than expected played a key role in driving down Target’s first-quarter net income by 28.6 percent, to $498 million.
Net sales in the quarter, which ended on May 4, edged up 1 percent to $16.7 billion, including a drop of 0.6 percent in same-store sales. Gregg Steinhafel, Target’s chairman, president and CEO, attributed the weak sales performance to laggard sales overall, especially in apparel and other seasonal and weather-sensitive products.
The quarter was the first in which Target reported results from its Canadian stores, the first 24 of which opened in March. The Canadian segment posted sales of $86 million and an operating loss of $205 million, which was primarily due to $238 million in start-up expenses, operating expenses, depreciation and amortization related to Target’s entry into the market.
Also hurting the bottom line, selling, general and administrative expenses rose 5.8 percent in dollars and 98 basis points as a percentage of sales, to 21.5 percent. Interest expense ballooned by 243.1 percent to $629 million. Gross margin gained 58 basis points to finish the quarter at 30.8 percent.
“While we are disappointed in our first-quarter performance, we remain confident in our strategy,” Steinhafel said, “and we continue to invest in initiatives, including Canada, our digital channels and CityTarget, that will drive Target’s long-term growth.”