Target says low demand for Apple products hurts electronics sales

August 17, 2016 6:45 AM EDT

Employees work at a Target store at St. Albert, Alberta, January 15, 2015. REUTERS/Dan Riedlhuber/Files

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By Nandita Bose and Siddharth Cavale

(Reuters) - Target Corp reported a drop in demand for Apple Inc's products that hurt the retail chain's electronics sales in the second quarter, but said it is working with the iPhone maker to capitalize on new product launches during the second half.

Earlier on Wednesday, Target cut its fiscal-year profit outlook after quarterly sales fell more than expected due to lower demand for electronics and a weak start to a revamp of its grocery business.

The company's shares closed down 6.4 percent at $70.63 after falling as much as 7.4 percent.

Chief Executive Brian Cornell said customer visits declined across product categories during the quarter but electronics sales fell by a double-digit percentage rate and accounted for about two-thirds of the overall decline in sales at stores open at least a year.

About a third of the decrease in electronics sales stemmed from reduced demand for Apple products, which were down more than 20 percent. In April, Apple reported its first-ever decline in iPhone sales and its first revenue drop in 13 years due to a saturated market for smartphones.

Cornell said one of the first tasks for newly appointed Chief Merchandising Officer Mark Tritton is to spend time with Apple to make sure "we're putting the right plans together for the back half of the year, that we're ready to capitalize on their new innovation that they will be bringing to the market."

Apple's long-awaited iPhone 7 is expected to be launched next month and retailers hope it will create enthusiasm among consumers and boost phone sales. For the past several quarters Best Buy Inc, the largest electronics retailer in the United States, has complained about the lack of innovative new products to excite consumers.

Apple did not immediately respond to a request for comment.


Target's sales declined from the previous quarter as well as from a year earlier, indicating a "significant slowdown in trade," said Neil Saunders, chief executive officer of research firm Conlumino.

Sales at stores open at least one year fell 1.1 percent in the second quarter ended on July 30, which Saunders said was the first decline in two years.

Target said it expected same-store sales to be flat to down 2 percent in the second half of the year.

The company's sales have suffered as shoppers increasingly use online retailers such as Inc and focus their spending on big-ticket items like cars and home renovations rather than small discretionary purchases.

The company lowered its full-year profit forecast to between $4.80 and $5.20 per share from a prior range of $5.20 to $5.40.

Target, which has been reorganizing its grocery business by adding more organic and fresh food, said those early efforts were disappointing. The business had a "small" decline in comparable sales and was pressured by price deflation for meat, milk and other food items.

The company gained market share in the apparel and home improvement categories, Cornell said.

Net income attributable to the company fell nearly 10 percent to $680 million in the second quarter. Earnings before special items exceeded analysts' estimates.

Net sales fell 7.2 percent to $16.17 billion, lagging Wall Street expectations of $16.18 billion.

Digital sales increased 16 percent, a deceleration from previous quarters, and accounted for 3.3 percent of the company's total.

(Reporting by Siddharth Cavale in Bengaluru and Nandita Bose in Chicago; Editing by Lisa Von Ahn and Matthew Lewis)

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