Target firing on all cylinders amid record store traffic, surging online sales
There was no stopping Target Corp. in its second quarter — online or off — as it reported skyrocketing digital sales and “unprecedented” store traffic growth.
The discounter’s stellar quarter came as the chain has focused on revamping its business to better compete in an omnichannel environment. Target’s hefty investments (totaling some $7 billion) in expanding its digital operations, remodeling its existing stores, rolling out new smaller-format locations, and enhancing its merchandising mix with an array of new house brands appear to be paying off.
Target’s net income totaled $799 million, or $1.49 per share, compared with $671 million, or $1.21 a share, a year ago. Excluding one-time items, Target earned $1.47 a share, which was 7 cents ahead of analysts' expectations.
Total revenue rose 6.9% to $17.8 billion, ahead of analysts’ expectations of $17.28 billion. Apparel and electronics ranked among the strongest categories.
Same-store sales increased 6.5%, which was Target’s highest comp growth in 13 years. The increase was fueled by store traffic growth of 6.4% — the strongest since Target began reporting the metric in 2008.
“We are seeing a great consumer response ... unprecedented traffic,” Target CEO Brian Cornell told CNBC's Becky Quick on Wednesday. “As we go back and look, we've never seen traffic like this."
Analyst Neil Saunders, managing director of GlobalData Retail, commented that Target’s investment in its exclusive brands and stores is one of the underpinnings of its success.
“The elevated experience at both newer and refurbished shops is driving both customer traffic and conversions, which is one of the reasons why shops contributed 4.9 percentage points to comparable sales growth,” he said. “For non-food in particular, the shopping experience is more pleasant and engaging with many more points of inspiration and interest.” (For more analysis, click here.)
Target was also on fire online. Comparable digital sales jumped 41% and contributed 1.5 percentage points of comparable sales growth. Digital sales represented 5.6% of total sales.
The retailer has said it plans capital expenditure of $3 billion this year on its supply chain, online delivery, its in-house brands and the ongoing merging online and in-store shopping.
"We laid out a clear strategy at the beginning of 2017, and throughout this year we've been accelerating the pace of execution,” said Cornell in a statement. “We're on track to deliver a strong back half and we've updated our full year guidance to reflect the strength of our business and the consumer economy.”
“As we look ahead to 2019, we expect to achieve scale across the full slate of our initiatives — creating efficiencies and cost-savings, further strengthening our guest experience and positioning Target to continue gaining market share," Cornell said.
For full-year 2018, Target said it now expects adjusted EPS of $5.30 to $5.50, compared with the prior range of $5.15 to $5.45.