Target Benefits From Strong Holiday Season -- Update
By Khadeeja Safdar
Strong consumer spending during the holiday season boosted Target Corp.'s quarterly sales, and the retailer signaled it would continue to invest this year to remodel stores and expand its delivery services.
The company said fourth-quarter same-store sales rose by 3.6%, its third consecutive quarter of growth. After a dismal holiday performance in 2016, the Minneapolis-based company embarked on a multibillion-dollar spending plan to improve its stores and digital capabilities.
"What a difference a year makes," CEO Brian Cornell said on Tuesday at an investor presentation. "You don't have to get too far into the numbers to see our strategy is working."
Still, Target's spending plan has taken a toll on profits, which compressed more than Wall Street was expecting, sending shares of the retailer down 4% in midday trading. The stock has gained about 27% in a year.
"Despite the good numbers, the sustainability of performance is open to question," Neil Saunders, managing director of GlobalData Retail, wrote in a research note. "After all, Target's results were delivered over a period of robust trading for the retail sector."
Target is one of several brick-and-mortar chains that benefited from rising wages and strong consumer confidence over the holiday period. Best Buy Co., Macy's Inc. and Kohl's Corp. posted sales gains as well, though Walmart Inc. stumbled after misjudging its online inventory for the season.
Like other big box chains, Target has been struggling to compete with Amazon.com Inc., which is benefiting from the movement of consumer shopping online. Mr. Cornell has been investing in the company's supply chain, lower prices, exclusive brands, store renovations and new stores in urban areas. Target recently agreed to acquire grocery-delivery startup Shipt Inc., moving to match services that have been rolled out by rivals Amazon and Walmart.
At the investor meeting on Tuesday, the company played a video, showing negative news clips following its 2016 holiday season, side by side with the changes the company has implemented in the past year. "Coming out of soft holiday sales, the headlines were all about store closures, a catastrophic border tax and a looming retail apocalypse," he said.
Target plans to remodel 325 more stores in 2018 and add more locations in urban areas. The company said it also would launch new brands, expand its ship-from-store capabilities and offer more delivery and pickup options, including same-day delivery and curbside pickup. The goal is to make Target "America's easiest place to shop," said Mr. Cornell.
Target, which raised its minimum wage to $11 an hour last fall, said workers will receive $12 an hour this year. The company also said it is training store employees to make them more versed in specific merchandising categories and arming them with mobile devices to check out products and place online orders from the sales floor.
Mr. Cornell said Target has reduced its spending on technology and moved more of the work in-house. The company's engineers have been working on projects, such as applications to help store employees choose the smallest box size for online orders and automatically identify out-of-stock items on the sales floor. "Our teams are exploring retail applications for just about every buzzword you can imagine," said Mr. Cornell.
For the current year and its first quarter, Target said it expects comparable sales to rise in the low single digits. For the quarter, the company is expecting adjusted earnings to be between $1.25 and $1.45 a share. Analysts are expecting adjusted earnings of $1.40 a share.
Target reported a profit of $1.1 billion, or $2.02 a share, up 35% from $817 million, or $1.45 a share in the same period a year ago. Adjusted earnings from continuing operations were $1.37 a share, down from $1.45 a year ago. Analysts polled by Thomson Reuters were expecting adjusted earnings of $1.38 a share.
--Allison Prang contributed to this article.
Write to Khadeeja Safdar at email@example.com
(END) Dow Jones Newswires
March 06, 2018 14:55 ET (19:55 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.