Target in holiday mood after solid Q3
Retailer tops Street on strength of a healthy back-to-school season
NEW YORK — With help from a solid backto-school season, Target breezed past Wall Street expectations for the third quarter and raised a key sales outlook for the critical holiday season.
The cheap-chic retailer still saw declines in store traffic and in its central sales measure, but they were less than expected and better than the previous quarter, and Target raised its annual profit outlook. Its shares rose more than 7 percent.
Target has been trying to get back on track with the second part of its “Expect More, Pay Less” slogan and address the issues that dragged down its business this summer. It’s still working on the grocery and electronics departments, which are key areas to attract shoppers.
For the holiday shopping season, Target is hoping to lure shoppers with a Broadway-style marketing campaign and more exclusive toys. But it’s also focusing on value. About 60 percent of Target’s marketing messages this holiday season will be about value, up about 20 percent from the last year.
“I’m really excited about our holiday merchandising and marketing plans, and I’m confident that our outstanding team will bring those plans to life,” CEO Brian Cornell told investors during a conference call Wednesday.
As it tries to reinvigorate itself, Target is focusing on categories like fashion, home furnishings and wellness products, launching its own brands like the Cat & Jack children’s clothing collection. Cornell has been also been reshaping management, and several executives have departed recently.
For the third quarter, Target posted a 0.2 percent decline in a revenue at stores opened at least a year, a key metric for gauging a retailer’s health. But that was much better than the company’s earlier forecast for a drop of up to 2 percent. Traffic dropped 1.2 percent but it was better than the previous quarter.
Target said that the key sales measure in categories like home and fashion was three percentage points higher than the overall figure. And online sales increased 26 percent for the quarter. The company said 1,000 of its 1,800 stores now ship items directly to online customers. And they’re shipping three times the number of products as a year ago.
Despite weakness in electronics, Target said it plans for a strong holiday demand for new Apple new products, with pre-orders three times higher than last year. And it’s expecting a lot of customer interest in virtual reality products for the holidays.
Food sales were still down for the quarter. Target is making changes like more than doubling its assortment of craft beers and expanding to nearly 1,500 option in total from 700 across the country. This holiday season, 20 percent of its food and beverage items will be exclusive to Target.
For the quarter that ended Oct. 29, Target earned $608 million, or $1.06 a share. That compares with earnings of $549 million, or 76 cents a share, a year earlier.
Excluding certain items, earnings came to $1.04 a share, well above the 83 cents a share that analysts polled by Zacks Investment Research expected.
Revenue for the Minneapolis-based company fell to $16.44 billion from $17.61 billion, hampered partly by disruptions caused by the sale last year of its pharmacy business to CVS. Still, it topped the $16.32 billion that analysts surveyed by Zacks predicted.
Target now anticipates full-year adjusted earnings in a range of $5.10 to $5.30 a share. Previously it predicted $4.36 to $4.76 a share. Analysts had expected earnings of $4.95 a share, according to a FactSet survey.
For the important fourth quarter that includes the holiday season, the company predicts an adjusted profit of $1.75 a share. Analysts polled by FactSet expected a profit of $1.60 a share. From a prior outlook for same-store sales to be flat or fall up to 2 percent, Target now expects them in a range between a 1 percent drop and a 1 percent gain.
Asked whether political divisions in the country were affecting shoppers’ behavior, Cornell cited an improving economy and said he remains optimistic.
“We expect the consumer to be in that holiday mode,” he said.