Target Corp. shares spiked today after the retailer reported unprecedented foot traffic gains of 6.4 percent — the best it’s seen since it started reporting the metric in 2008 — along with the biggest total comparable store sales increase in 13 years of 6.5 percent. Foot traffic and comps, along with second-quarter profit and revenue all topped analysts’ expectations.
Digital sales shot ahead more than 40 percent in the quarter ended Aug. 4. Building on that momentum, it raised its earnings outlook for the full year.
Earnings per share increased 23 percent to $1.50 in the second quarter, from $1.22 in last year’s period on sales of $17.55 billion, a 7 percent gain from $16.4 billion in the 2017 period. Net income rose 19.1 percent to $799 million from $671 million in last year’s second quarter.
“We’re benefiting from perhaps the strongest consumer spending environment I’ve seen in my career,” said Brian Cornell, chairman and chief executive officer of Target. Anticipating analyst questions about the retailer’s level of investment, the ceo summed up the current retail landscape where casualties such as Toys ‘R’ Us and Babies ‘R’ Us are creating opportunities for grabbing market share.
“There are strong retailers that generate cash and can afford to invest in their [businesses],” Cornell said. “There are certainly going to be winners and losers. We think we’re migrating to winners side. We’re taking market share in all of our merchandising categories. There are going to be billions of dollars of market share up for grabs and we’re going to position ourselves to take more than our share. This gives us confidence that we’ll be able to lap these numbers in 2019 and beyond.”
Cornell ticked off some of the retailer’s multiyear investments. “We’re continuing to perform wall-to-wall remodels of 1,000 stores over three years, transforming the supply chain to deliver convenient fulfillment options, opening smaller format stores, investing in price, delivering a constant drumbeat of new and exclusive merchandise, introducing new and convenient digital capabilities, and most important, making investments in hours, raises and training.
“The question we continue to hear is whether we can measure the benefits from each of these investments,” Cornell said. “It’s the collective benefit that’s enticing guests to visit our stores and site more often. Each one of our key initiatives is ahead of the schedule we set 18 months ago. Our new store format continues to impress and is driving productivity beyond our expectations. The reaction from guests to our new brands is spectacular in apparel, home and now electronics.”
Target in the last 18 months launched 12 new brands for men, women and home, including Goodfellow & Co., A New Day and Hearth & Hand With Magnolia, respectively. In the second quarter, the retailer introduced three brands for Gen Z and Millennials: Wild Fable, fashion for teens and young women; Original Use, streetwear-inspired clothing for young men, and Heyday, its first-owned electronics brand.
Consumers are also responding to Shipt, an online same-day delivery platform the retailer in 2017 acquired for $550 million, “in each and every market, including New York, San Francisco and Washington, D.C., to be able to shop at a small format store and have your order delivered a few hours later to your doorstep for $7 is very powerful,” Cornell said.
Based on the momentum, the retailer expects comp-store sales in the third quarter and second half of 4.8 percent, in line with the first half of 2018 and third-quarter EPS in the range of $1.00 to $1.20, compared with 87 cents in third quarter of 2017. For the full-year, Target raised its outlook on EPS to $5.30 to $5.50, compared with the prior range of $5.15 to $5.45.
Gross margin rate was 30.3 percent in the second quarter compared to 30.4 percent in the 2017 quarter. SG&A rate in the 2018 second quarter of 21.7 percent compared to 21.6 percent in the earlier period. Earnings before interest, taxes, depreciation and amortization rose 2.8 percent to $1.74 billion from $1.69 billion.
Cornell discussed the impact of a worsening tariffs situation saying, “We’re aware that situation can further escalate with tariffs. We’re concerned. A prolonged deterioration of could damage economic growth. Our concern is centered on the impact on tariffs, consumers and the economy and we’ve been making our position known. We’re developing and implementing contingency plans.”