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.
Walmart soars with fastest sales growth in a decade, big online jump
Walmart showed its might in the second quarter, with earnings and sales that topped the Street amid surging digital sales and a jump in store sales.
The discount giant’s revenue rose 3.8% to $128.03 billion in the quarter ended July 31, beating analysts’ estimates for $125.97 billion. Same-store U.S. sales increased 4.5%, led by grocery, apparel and seasonal; foot traffic was up 2.2%. Grocery sales rose the most in nine years, helped by improved fresh-food offerings. Same-store sales at Walmart’s Sam’s Club rose 5%, the biggest increase in five years.
Walmart has been making significant investments online — from its improved e-commerce site to expanded grocery delivery options — and the results appear to be paying off. Online U.S. sales jumped 40% during the second quarter, and the retailer reiterated it is on track to increase U.S. e-commerce sales by 40% for the full year.
In comments, analyst Neil Saunders, managing director, GlobalData Retail, called out the chain’s new website, noting it is easier to shop, has a much wider assortment, and is now more connected than ever to services like in-store pickup.
“From our data, the addition of more premium brands, including the Lord & Taylor initiative, is starting to have an impact as there has been a notable increase in the number of higher income customers visiting the site over the past couple of months,” Saunders said. “This is exactly the kind of result Walmart needs to achieve if it is to compete more effectively with Amazon.”
Walmart reported a net loss for the quarter of $861 million, or 29 cents a share, compared with net income of $2.9 billion, or 96 cents a share, a year ago. Excluding one-time items including a loss related to the sale of a majority stake in Walmart Brazil, Walmart earned $1.29 per share, which was 7 cents ahead of analysts’ expectations.
It was not all good news for the chain, however. Walmart’s margins continue to be under pressure amid investments in cutting prices, digital, store refurbishments, and increased labor and transportation costs.
“As painful as they are, the erosion of profitability and margins are necessary evils,” Saunders said. “Maintaining a price leadership position as well as ensuring the company is an omnichannel leader are clear priorities that require investment. These investments are being made and they are delivering growth, which we believe in a sign that Walmart is succeeding in securing its future as one of the world’s leading retailers.
For the full year, Walmart now expects to earn between $4.90 and $5.05 per share, which is up from a prior range of $4.75 to $5 and excluding any impact from its pending acquisition of Flipkart. It expects U.S. same-store sales to increase rise about 3%, up from a prior target of at least 2%.
“We’re pleased with how customers are responding to the way we’re leveraging stores and e-commerce to make shopping faster and more convenient,” Walmart CEO Doug McMillion said in a statement. “We’re continuing to aggressively roll out grocery pickup and delivery in the U.S., and we recently announced expanded omnichannel initiatives in China and Mexico.”
Best Buy to acquire connected health services provider in mega-deal
Best Buy is making a big acquisition that will give it even stronger footing in the healthcare segment.
On Wednesday, the consumer electronics giant announced that it is acquiring GreatCall Inc. for $800 million in cash. GreatCall is a provider of emergency response devices for the aging. The company has more than 900,000 paying subscribers who use GreatCall’s mobile products, as well as a range of services, including a one-touch service that connects users to trained, U.S.-based agents, caregivers, and emergency personnel, among other options.
GreatCall will maintain its San Diego headquarters, as well as its Care Centers in Carlsbad, California, and Reno, Nevada. David Inns, who has been with GreatCall since its formation in 2006, will remain as CEO, according to Best Buy.
“We know technology can improve the quality of life of the aging population and those who care for them,” said Hubert Joly, chairman and CEO of Best Buy. “Now, we have a great opportunity to serve the needs of these customers by combining GreatCall’s expertise with Best Buy’s unique merchandising, marketing, sales and services capabilities.”
While the transaction is subject to regulatory approvals and other closing conditions, it is expected to close by the end of Best Buy’s fiscal 2019 third quarter.
“We are excited to partner with Best Buy to serve the active aging population on a bigger scale. GreatCall is already a growing, profitable business with annual revenue in excess of $300 million,” Inns reported. “By joining forces, we can do even more for this population, combining our products, services and expertise with Best Buy’s customer focus and scale to meaningfully expand our reach.”
This is Best Buy’s latest move to deepen its presence in the healthcare segment. The retailer currently sells health- and wellness-related products, and the company has recently been investing in health-related initiatives focused on the aging population.
For example, in September, Best Buy revealed that it is piloting a new service, Assured Living, that uses technology to help adult children remotely check in on the health and safety of their aging parents. Now available in 21 major metro markets, this pilot aims to “create peace of mind for the children while allowing the parents to live and thrive independently,” the company stated.
The acquisition of GreatCall will augment Best Buy’s existing efforts in the health space, help bring compelling solutions to more customers, and fuel Best Buy’s growth in the consumer and commercial markets, the company reported.
“We look forward to working closely with David and his management team and are excited by the opportunities we have in the health space and the strengths we can bring to bear in this area, especially our experience with technology and serving customers in their home,” Joly said.
The acquisition also coincides with the company’s “Best Buy 2020” strategy, which is focused on enriching lives through technology that addresses key human needs, according to Best Buy.