Target Corp. on Tuesday reported stronger earnings than expected for the 2019 fourth quarter with market share gains in beauty and apparel, and wide acceptance of its same-day suite of fulfillment options, but sales weren’t able to rebound from a disappointing holiday period marked by weak demand in critical categories such as toys and electronics, and the retailer said it didn’t buy deeply enough, which left inventories too light.
Earnings per share for the fourth quarter ended Feb. 1 of $1.69 a share exceeded analyst expectations of $1.65. However, revenue of $23.4 billion fell short of Wall Street’s $23.5 billion projection. Same-store sales increased 1.5 percent, in line with expectations.
Fourth-quarter comps reflected a 20 percent increase in comparable digital sales, while full-year comparable sales advanced 3.4 percent, reflecting comparable digital sales growth of 29 percent.
Sales in the fourth quarter increased 1.8 percent to $23.1 billion, from $22.7 billion in last year’s fourth quarter. Full-year sales increased 3.6 percent to $77.1 billion from $74.4 billion last year, reflecting a 3.4 percent increase in comparable sales combined with sales from non-mature stores. Full-year revenue of $78.1 billion grew 3.7 percent compared with last year, reflecting sales growth of 3.6 percent and a 6.3 percent increase in other revenue.
Brian Cornell, Target’s chairman and chief executive officer, on a conference call with retail analysts, said the deadly coronavirus has been responsible for a recent traffic surge at Target stores with consumers stocking up on staples, food and beverage items and disinfectants.
“We’ve seen aggressive shopping at our stores and we’re working to make sure we’re elevating inventory for what we believe will be continued demand for stock-up items,” Cornell said. “We haven’t seen a large impact on our business or outlook from the coronavirus. We have a highly sophisticated supply chain and are tracking by category and factory level. We feel confident that we can manage the situation. From a merchandising standpoint, we know we’ll see some delays, but we’re getting out in front of that.”
Beauty, an area in which Target continues to invest, “was driving acceleration in our performance. It’s gone from being strong to even stronger,” Cornell said, adding, “we had unusually strong growth in apparel in 2019. Cornell said the company was “disappointed with performance in the fourth quarter in several spaces — toys electronics and parts of our home business. We’re learning from this year, and we’ll make sure that we rebalance the inventory.
“We were disappointed by our comp only growing 1.5 percent,” Cornell said. “Next year, we’ll focus on fewer items in a bigger way, making sure we’re on trend with items that will drive demand. We’ll say, ‘Here are the items we’re going to stand for and make sure we’re bold and deep as we make those buys and make sure they deliver on our brand promise.”
Redesigned electronics departments will be part of the 2020 store remodel program, and will appear in about 200 units. The updated space will focus on key brands such as Apple and Samsung and provide information and expertise on how to install the products at home. “Guests are looking for a much more inspiring environment in electronics.”
Target in the last three years spent $4 billion on remodeling stores while reducing stockkeeping-unit counts and improving presentation, which resulted in sales increases of 2 to 4 percent at renovated units.
The retailer continues to expand its small-format store fleet, with 36 units on tap for 2020. “We’re going to keep expanding in New York and Los Angeles,” said John Mulligan, chief operating officer, adding that store size is shrinking further. “Our smallest is 12,000 square feet, and we’re now exploring 6,000 square feet. It could open up hundreds of site options. These stores are well past $1 billion threshold. They’re more productive than average stores. We’re also opening stores near America’s most iconic tourist destinations such as Times Square, Disney World and Las Vegas.”
Target in 2019 introduced new national brands such as Levi’s and Disney, while launching home-grown labels such as All in Motion. Cornell said the retailer will spend a lot more time on brand management, bringing newness and refreshed assortments every quarter. “We’ll learn how to pivot,” he said. “Over time, some brands we introduced might go away and be replaced. With others, we have additional opportunities to build relationships with guests and ensure they’re strong for years to come.”
The retailer issued guidance for the first quarter of 2020, calling for a low-single-digit increase in same-store sales and a mid-single digit increase in operating income, and EPS of $1.55 to $1.75.
For full-year, Target expects a low-single-digit increase in comp-store sales and a mid-single digit gain in operating income, with EPS seen falling between $6.70 and $7.