Target Corp's first-quarter profit came in below analyst estimates as price cuts, higher wages and investments in its online business ate into margins. Comparable store sales rose more than analysts expected, boosted by the strongest growth in customer visits in a decade. But operating income continues to reflect near-term challenges, Chief Executive Brian Cornell said on an earnings conference call.
The retailer remained confident it could hit its earlier full-year earnings outlook, however, with payoff from investments aimed at warding off competition from Amazon.com Inc and brick-and-mortar rivals expected to pick up later this year.
"The key message from Target's first-quarter results was the company's ability to drive transaction growth, but not without investment spending and margin pressures," Morningstar analysts wrote in a research note. Target's operating income margin weakened to 6.2 percent in the first quarter from 7.1 percent a year ago.
The retailer said margins should improve as seasonal merchandise sales rebound after a delayed spring, pricing investments made last year deliver results, customers react positively to new private-label brands and it focuses on cost-cutting.
Morningstar expects online sales, higher costs associated with delivery and price competition will continue to weigh, however, and did not anticipate a sizeable change to its 5.9 percent average operating margin projection over the next decade. The retailer has poured billions of dollars into aggressively promoting its products, remodeling stores and keeping grocery prices low to compete with Walmart and supermarket chain Kroger Co.