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Target Doesn’t See Retail Improving in Q2

Target shares (TGT) fell more than 8 percent in early trading Wednesday after the mass-market retailer issued a sober outlook for the second quarter of fiscal 2016.

The Minneapolis-based retailer said that while adjusted earnings of $1.29 per share in the first quarter were above its guidance of $1.15 to $1.25, its view of Q2 results has been “tempered by the recent slowdown in consumer trends.” For that reason, comparable store sales in the current quarter are expected to be flat to down 2 percent, while it’s pegging adjusted earnings per share (EPS) to be in the range of $1.00 to $1.20.

“We continue to see consumers spend cautiously,” Brian Cornell, chief executive officer, said on a conference call. “It’s been a very wet and cold start to the year in the Northeast and it’s been reflected in our sales.”

Revenue in the first quarter was $16.2 billion, down 5.4% from the year-ago period’s $17.1 billion, as a 1.2% increase in stores open more than a year was offset by the impact of the sale of the pharmacy and clinic businesses. This growth in comps included a 23 percent increase in comparable sales in the digital channel. Traffic, meanwhile, inched up a mere 0.3%.

To that end, Target posted a $632 million profit, down 0.4% from last year.

With that being said, the retailer’s core merchandise categories continued to outpace its overall business, growing more than three times the company average, and apparel growth was led by baby, kids and women’s ready-to-wear.

“We are pleased with our first quarter financial results, which demonstrate the effectiveness of our strategy in an increasingly volatile consumer environment,” Cornell said. “With an outstanding team, a resilient business model and a strong balance sheet, we plan to successfully implement our long-term strategy, even in the face of a challenging short-term consumer landscape.”