Shares of Target Corp. rose more than 4 percent Wednesday as the retailer’s comparable-store sales performance and growth in digital gave Wall Street confidence that its turnaround plan is working.
The retailer’s shares rose to $76.95 on the New York Stock Exchange even though its earnings missed Wall Street estimates. Target reported EPS of $1.52 for the fourth quarter ended Jan. 20, a 2 percent increase over the $1.49 a share earned in the 2015 fourth quarter but below Wall Street’s consensus estimate of $1.54 a share.
Net income from continuing operations in the quarter was $1.4 billion, up 38 percent over the $960 million earned in the 2015 period, on sales of $21.6 billion, compared with $21.75 billion a year earlier. Net income for the year was $3.3 billion on sales of $73.8 billion, a 1.6 percent increase over $7.26 billion in 2015.
Analysts and investors were anxiously watching Target’s results after Wal-Mart’s numbers fell short last week, trying to divine signs about the retail sector’s long-term performance as some large brick-and-mortar players struggle to find relevance in an increasingly digital world.
Comparable-store sales increased 1.9 percent, driven by traffic growth of 1.3 percent. Digital channel sales rose 34 percent, contributing 1.3 percentage points to same-store sales growth. Digital earnings before income taxes were $1.55 billion, a decline of 2.2 percent from $1.59 billion in the 2014 quarter.
Fourth quarter comps grew three times faster than the company’s storewide average in signature categories of style, baby, kids and wellness. Target has been investing more heavily in these areas.
In a conference call with retail analysts, Target chairman and eco Brian Cornell said the company’s performance “validates the changes we’re making. Style saw the fastest growth, led by double-digit increases in women’s apparel. Overall apparel growth was in the low single-digit range, while toys saw a 10 percent gain and home grew 4 percent in the fourth quarter, which helped offset sales declines in electronics.”
Target chairman and chief executive officer Brian Cornell said the retailer had a “great holiday season, driving consistent growth throughout the fourth quarter and delivering on the sales and profit goals we laid out at the beginning of the year. While we have made a great deal of progress in 2015, we’re excited about the opportunity in front of us to provide a more seamless experience and accelerate profitable growth.”
Digital channel sales grew 34 percent and contributed 1.3 percentage points to comparable sales growth. Segment earnings before interest and taxes were $1.55 billion in the fourth quarter, a decrease of 2.2 percent from $1.59 billion a year earlier.
Target’s initiatives to reduce out-of-stocks and improve the shopping experience in stores are starting to pay off. “For the fourth quarter out-of-stock metrics were 20 percent better, and 40 percent better than a year ago, said John Mulligan, executive vice president and chief operating officer, noting that the retailer is entering 2016’s first quarter with very little clearance inventory.
To bolster its emphasis on store environment, Target hired 1,400 visual merchandisers within the last six months and rebranded the area at the front of stores, which was devoted to dollar store-type deals, to Bullseye’s Playground.
Target paid $345 million in dividends and repurchased 17.3 million shares of common stock in the fourth quarter.
Target expects 2016 comps in the 1.5 percent to 2.5 percent range, and at the lower end of that range in the first quarter. Sales are projected to decline 4.5 percent to 5 percent in 2016, and EPS of $1.15 to $1.25 in the first quarter, and $5.20 to $5.40 for the year.