Updated from 9:05 a.m. EDT with details from Target's earnings call, comments from the chief financial officer and stock price.
The discount retailer reported Wednesday that amid a sluggish consumer spending backdrop second-quarter same-store sales fell 1.1%, a sharp reversal from a 2.4% increase a year ago. It marked the first time Target delivered a same-store sales decline since a 0.3% drop in the first quarter of 2015, according to Bloomberg data.
Target shares are currently down over 7% to $70.
The primary driver of the sales pressure came from fewer people visiting Target stores -- the number of transactions declined 2.2%, Target said. "Clearly traffic was our single biggest issue, and our number one challenge," Target Chief Financial Officer Cathy Smith told TheStreet in a phone interview (video below).
Digital sales increased 16% from the prior year, but slowed from a 30% growth rate a year earlier. The company called out strength in women's and kid's apparel.
"Sales were well below the results we would expect over time," Target CEO Brian Cornell told analysts on a conference call. Cornell assigned three things in particular to Target's stumbles. First, sales of Apple (AAPL - Get Report) products plunged 20%. It's a broader story across the product suite," said Cornell when asked about the problems selling Apple gear. Tepid sales of Apple products drove a double-digit percentage sales decline in the company's electronics business.
Cornell said Target is working closely with Apple to improve performance, but didn't disclose specifics. Two spokespeople at Apple didn't immediately return a request for comment.
Second, sales of grocery items fell, which has caused Target to "re-balance" its marketing and promotional efforts for later this year. Cornell suggested on the call that Target has to emphasize the "pay less" portion of its long-time "expect more, pay less" marketing message. Added Smith, "We have not just emphasize style, but also reach those consumers that are intensely focused on value."
And finally, traffic to Target's new CVS pharmacies inside of its stores was disappointing as consumers were slow to sign up to new programs. "It takes time [to transition customers]," Cornell said of the initiative with CVS Healthcare (CVS - Get Report) .
According to Cornell, CVS is increasing its marketing and media plans this year to drive awareness of the new pharmacies at Target.
Target did manage to post better-than-expected second-quarter earnings of $1.23 a share against forecasts for $1.13 a share as it continued to keep a tight lid on costs. Three months ago Target guided to second-quarter earnings in a range of $1 to $1.20 a share.
But that was one of the lone positives in the report. Target said same-store sales in the third and fourth quarters will be unchanged to a decline of as much as 2%. It slashed its full-year profit forecast to $4.80 a share to $5.20 a share from $5.20 to $5.40 a share.