Target Shares Fall After June Sales Warning

CHICAGO – Shares of Target Corp. (TGT) fell 6 percent Tuesday after the retailer warned that June sales would be much weaker than it expected.

The gloomy outlook echoed comments from rival Wal-Mart Stores Inc. (WMT), which lowered its sales forecast Monday because of poor Father's Day demand and uncooperative weather.

Analysts said they would give retailers a few more weeks to prove that weather was truly the culprit behind disappointing June sales, but the weak results cast some doubts on second-quarter earnings prospects.

On a recorded message updated Monday afternoon, No. 2 U.S. discount retailer Target said sales at both its namesake Target stores and the slower-growing department stores would be "well below plan" for June.

"The fact that sales were on-plan during the first two weeks and only decelerated during the last two, when the weather became unseasonably cool and wet, leads us to believe that most of the shortfall is weather-related," Wayne Hood, retail analyst with Prudential, wrote in a note to clients.

Minneapolis-based Target had forecast a 5 percent to 7 percent increase in June sales at its Target stores open at least a year. For the total corporation, including the Marshall Field's (search) and Mervyn's (search) chains, the retailer expected the same-store sales increase to be slightly below that of the discount stores.

Prudential's Hood said he now expects just a 2 percent same-store sales increase for the Target stores, down from his earlier forecast for 5 percent growth. For the total company, including the department stores, he now expects a 1.5 percent increase, down from his earlier outlook of 4.2 percent.

As a result, he lowered his second-quarter earnings forecast by 1 cent to 46 cents per share. Hood said on Monday that he would keep his earnings forecast unchanged for Wal-Mart, but profits there could be at risk as well if sales don't improve in July.

Wal-Mart cut its June same-store sales forecast to a range of 2 percent to 4 percent, from 4 percent to 6 percent.

At Target's discount stores, the strongest categories included pharmacy items and consumables such as food. The weakest areas were electronics, shoes and children's clothes.

Target, Wal-Mart and other major retailers are expected to release their June sales reports on July 8.

Shares of Target were down $2.64, or 6 percent, at $41.40 in early New York Stock Exchange (search) trading. Wal-Mart's stock dipped 26 cents, or 0.5 percent, to $52.50.