Trade war concerns and recession fears certainly aren’t hampering Target Corp.’s growth.
The retailer has been working hard to beef up its in-store experience and digital arm in the Amazon era, as well as to improve its pick-up and delivery offerings and capitalize on the bankruptcy of Toys “R” Us and the fruits of its labor are starting to show, exciting investors.
Its stock surged more than 20 percent to a record high of $103 Wednesday, boosting its market cap by close to $9 billion, after it smashed all Wall Street estimates for the second quarter and raised its full-year outlook.
Investors were especially buoyed by comparable sales, which excludes new store openings. That closely watched measure edged up 3.4 percent in the quarter ended Aug. 3, driven by a 34 percent jump in digital sales as consumers snapped up baby and beauty products.
“We are really pleased with our second-quarter performance, which demonstrates the strength of our strategy and the durable financial model we’ve built over the last several years,” said Brian Cornell, chairman and ceo of Target.
“Traffic and sales continue to grow while our EPS reached an all-time high, driven by the strength of our team’s execution and their focus on delivering for our guests,” added Cornell. “Because of our outstanding performance in the first half of the year and our confidence moving forward, we are increasing our guidance for full-year earnings per share.”
He’s not being complacent, stating during an analysts’ call that while Target’s second-quarter performance puts it in a strong position, it’s mindful of the volatility and uncertainty in the marketplace, including the timing and extent of additional China tariffs.
The administration recently announced that some planned 10 percent tariffs would be delayed until mid-December, although others will still happen as originally planned on Sept 1.
“As you know, the list of products, in line for new tariffs, includes a broad set of consumer categories, including apparel, electronics, toys and home. As a result, we’ve been following developments carefully. And we’re encouraged that many items, originally slated for tariff increases in September, have now been delayed until later in the year,” he said.
“But as long as the trade situation remains fluid, it will present an additional layer of uncertainty and complexity, as we plan our business.”
Cornell also addressed the system outages that plagued the retailer during mid-June.
“System outages, which affected our cash registers and payment systems during a busy weekend in June,” he said. “These outages disappointed our guests, and once again, I want to apologize for the inconvenience they caused. While our business still delivered an outstanding quarter, these outages are a stark reminder of the need for us to continue to focus on execution across every aspect of our business every day.”
At $18.4 billion, Target’s total revenue increased 3.6 percent from $17.8 billion last year, surpassing analysts’ average forecast for $18.2 billion, according to FactSet data.
As a result, net earnings came in at $938 million, or $1.82, a record high, compared to $1.47 in second quarter 2018. Wall Street had penciled in $1.62.
This enabled Target to push up its adjusted EPS target for the whole to between $5.90 to $6.20, compared with the prior range of $5.75 to $6.05.
Last week, Walmart Inc. posted solid second-quarter financial results. While not all of Walmart’s results were positive — profits in the three months ended July 31, 2019, declined $861 million to $3.6 billion — the bottom line still topped Wall Street analyst expectations and the retail behemoth raised its outlook for the year for its U.S. business.
In contrast to Target and Walmart, department stores have disappointed investors so far in the second quarter. Macy’s Inc. suffered a profit miss and issued a warning for the second half, while J.C. Penney posted a 9 percent sales decline.
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