Target’s sales growth highest in more than a decade
Comparable sales increased 6.5% from a year earlier, helped by stronger traffic at stores
Target Corp. said same-store sales rose at the fastest rate in more than a decade, buoyed by efforts to improve its stores and e-commerce capabilities as well as a booming economy that has helped lift sales across the retail industry.
Comparable sales at the company grew 6.5% in the quarter ended Aug. 4 from a year earlier, representing Target’s strongest quarterly performance since 2005. Total revenue climbed 6.9% to $17.78 billion.
Chief Executive Brian Cornell said the results reflect more than just a favorable retail environment, pointing to marketshare gains across a range of categories from electronics and homewares to toys and apparel. “Our progress so far has been well ahead of our original expectations,” he said on a conference call Wednesday.
Target shares rose 5.2% to $87.58 in morning trading after the company raised its full-year earnings outlook as well.
A robust U.S. economy is spurring more people to open their wallets, giving a boost to retailers from Home Depot Inc. to Nordstrom Inc. Earlier this month, Walmart Inc. said its quarterly sales rose at the fastest rate in over a decade. Some retailers have also been picking up market share from competitors like J.C. Penney Co. and Toys “R” Us Inc. that have closed locations.
The company has said it expects margins to improve in the second half of the year. Margins slipped in the latest quarter in part because of higher digital fulfillment costs, though Target said some of that pressure was moderated by efforts to cut costs and retool its pricing and promotions.
Proof of Target’s long-term viability will come when the company is no longer receiving a boost from a favorable economy, according to Sucharita Kodali, a retail analyst at Forrester Research. “The cost of doing business as a retailer is all the costs you had in the past and then some,” she said. “The biggest challenge is to continue growing in a retail environment that is fundamentally stable.”
Mr. Cornell also highlighted Target’s concerns about tariffs and the U.S.’s worsening relationships with global trade partners, which “could damage economic growth and vitality in the United States,” he said.
Target said its menu of exclusive brands and new store designs helped the company attract more shoppers to its stores, pushing up store-only comparable sales 5% in the second quarter.
Comparable digital sales rose 41% in the same period, boosted by a one-day sale in July that was meant to help Target test its systems before the holiday period. Target said customers have also been taking advantage of new fulfillment services, including in-store pickup and same-day delivery.
Two years ago, the Minneapolis-based chain was struggling to keep up with competitors like Amazon.com Inc., which has been benefiting from the movement of shopping online, and Walmart, which had remodeled stores and lowered prices. In early 2017, Mr. Cornell announced a multibillion-dollar spending plan to help the company catch up.
Target has since sharpened its pricing strategy, redesigned stores, introduced exclusive products, and updated its supply chain and technology. It has also acquired grocery-delivery startup Shipt Inc. and opened smaller stores in urban areas and college towns.
Target said that its investments in improving the freshness and presentation of the food category helped it gain more market share, and that the retailer would make a big push during the holiday to pick up share from the recent closures at Toys “R” Us and Babies “R” Us.
This was Target’s fifth straight quarter of increasing same-store sales. The retailer said it expects same-store sales in the third quarter and rest of 2018 to be “in line with” comparable sales growth so far this year, which Target said has been 4.8%. The company said it expects earnings from continuing operations to be between $1 a share and $1.20 a share in the third quarter.
For the year, Target expects earnings from continuing operations to be between $5.30 and $5.50 a share. Target had guided earnings between $5.15 a share and $5.45 a share.
For the quarter that recently ended, profit rose 19% to $799 million, or $1.49 a share, up from $671 million, or $1.22 a share, for the comparable quarter a year earlier. On an adjusted basis, earnings were $1.47 a share, up from $1.22 a share. Analysts were expecting adjusted earnings of $1.40 a share.