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Target CEO says too many empty shelves in stores is hurting performance

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Target CEO Brian Cornell said its stores too often have items out of stock, as he revealed a more downbeat financial outlook for the retailer despite positive 2nd Quarter results.

According to Reuters, Cornell told reporters the Minneapolis-based company needs to "urgently" adjust inventory levels so its shelves are sufficiently stocked.

The Star Tribune reports part of the problem is being caused by its efforts to fulfill online orders from its stores and warehouses.

Bloomberg News says the stocking problems – which have also plagued its main rival Wal-Mart – is marring an otherwise decent turnaround from the company following a turbulent period that included a major data breach and its exit from Canada.

"In-stocks in our stores have been at unacceptable levels this year, and our guests deserve better," Cornell said on a conference call.

Bloomberg notes that he has appointed chief financial officer John Mulligan to the role of chief operating officer, and next month he will take on the job and make improving Target's supply chain his main focus.

Earnings up, but further improvements unlikely

Its net earnings for the three-month period ending Aug. 1 of $753 million was more than three times higher than the $234 million last year, while its earnings per share rose to $1.21 from $1.01 last year.

But the retailer told reporters that might be it for the year in terms of significant improvement.

It is predicting a 1-2 percent rise in sales in stores over the next three months, and a 30 percent rise in digital sales, estimates which analysts have described as "conservative," according to Reuters.

After starting the day 4 percent up in early trading, Target shares fell into negative territory.

Target's 'signature' products sell well

One key element of Target's ongoing transformation, which has led to major changes at the company including thousands of layoffs in the Twin Cities, was its focus on "signature" categories such as style, baby, kids and wellness.

And it seems to be paying off, with its news release revealing that performance in these categories "grew three times faster than the company average," which led to a 4-5 percent growth in both its Home and Apparel departments.

Cornell said this would be an area of continued focus for Target.

"Looking ahead, we are focused on making further progress against our strategic priorities and are committed to improving operations as we move through the important back-to-school, back-to-college and holiday seasons," he said.

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