Target CEO sees Q4 comp up as much as 2%
Product exclusives, digital strength and investments in labor could help Target produce its strongest sales growth in years during the fourth quarter, according to guidance shared by Target Chairman and CEO Brian Cornell.
Target reported third quarter results Cornell described as “very pleasing,” with same store sale up 0.9% and an overall sales increase driven by a doubling of the company’s small format store base. The comp growth was almost entirely driven by digital channel sales that increased 24% and accounted for 0.8% of the total comp growth. Total sales during the period ended Oct. 28, increased 1.4% to $16.7 billion and benefitted from the addition of smaller stores as Target ended the quarter with 44 stores measuring less than 50,000 square feet compared to 22 at the end of the third quarter the prior year. Target ended the quarter with 1,834 total stores.
Despite some modest topline growth, an expected increase in expenses, much of which was caused by digital fulfillment and increased wages, resulted in a net income decline of 21% to $480 million. Earnings per share fell 17.1% to 87 cents (91 cents on an adjusted basis to exclude non-recurring expense related to early debt retirement) near the upper end of the company’s forecast range of 75 cents to 95 cents.
“We’re very pleased with Target’s third quarter performance, including traffic and sales growth that demonstrate we’re building on the progress we saw in the first half of the year,” said Brian Cornell, Target Chairman and CEO. “The investments we’re making in our business will help Target drive long-term success and ensure we’re well positioned to deliver for guests in the all-important holiday season.”
Cornell said Target’s offering now includes thousands of new items from eight exclusive brands launched throughout 2017, including Hearth and Hand with Magnolia, a new home goods partnership with Chip and Joanna Gaines. He also said Target customers will experience elevated in-store service reflecting an investments in wages, training and additional hours for employees. Target is providing customers more value than ever through a combination of being priced right daily and impressive promotions, according to Cornell.
“While we expect the fourth-quarter environment to be highly competitive, we are very confident in our holiday season plans,” he said.
Confidence does have its limits however as revealed by Target’s guidance for fourth quarter same store sales which envisions a range of possibilities from flat to 2% growth. Flat would be a huge disappointment and even a 2% gain seems less impressive considering same store sales declined 1.5% during the fourth quarter of 2016. The same is true with profits. Guidance for earnings per share in the range of $1.05 to $1.25 is well below last year’s fourth quarter EPS of $1.46 as the company continues to invest in labor and price while absorbing greater costs related to fulfillment during what is expected to be the most digital Christmas ever.