Target's $7 billion gamble pays off

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Target's $7 billion gamble pays off

By Gina Acosta - 01/09/2018

Target's investments in e-commerce and brick-and-mortar paid off for the retailer during the holiday season.

Comparable sales across all of the company's core merchandise categories – Home, Apparel, Food & Beverage, Hardlines and Essentials – were up 3.4% and accelerated from the third quarter, reflecting strong traffic growth, positive store comps and continued strength in digital sales.

Target now expects 2017 will be the fourth consecutive year in which its digital sales grow more than 25 percent.

The retailer also raised its fourth-quarter and full-year earnings outlook.

"We are very pleased with our holiday season performance, which reflects the progress we've made against our strategy throughout the year," said Brian Cornell, chairman and chief executive officer of Target Corp. "We've positioned our stores at the center of a continually expanding suite of convenient fulfillment options and made significant investments in our team, which enabled our stores to fulfill 70 percent of all digital orders in the November/December period. As we look ahead to 2018, we will build on the foundation we established this year by launching additional exclusive brands, enhancing our digital capabilities, opening approximately 30 small-format stores and tripling the size of our remodel program to more than 325 stores. We will also remain focused on rapidly scaling up new fulfillment options including Same Day Delivery, which will be enabled by our acquisition of Shipt, and our recently launched Drive Up service."

Cornell shared the factors that made the quarter and 2017 successful for the retailer and talked about what the future may hold in a Q&A on Target's blog here.

Target now expects fourth-quarter adjusted earnings per share to fall within a range of $1.30 to $1.40, compared with a prior range of $1.05 to $1.25. For fiscal 2017, Target is calling for adjusted earnings per share of $4.64 to $4.74, compared with previous estimates of $4.40 to $4.60.

The company cited recently-enacted federal tax changes when raising quarterly and 2017 profit expectations, sending shares up more than 3 percent in trading Tuesday.

"Target's announcement this morning of holiday performance is consistent with our expectations as we continue to believe that its short-term investments in stores and online capability will generate longer-term benefits, which is borne out by these results," said Moody's Lead Retail Analyst Charlie O'Shea. "The continued leveraging of the store base to facilitate online shopping is a key component of this strategy, and the level of store fulfillment of online orders for holiday is impressive. Going into holiday, we believed Target would be a strong performer due to these factors, as well as its growing stable of exclusive product, and these results confirm that view."

Kohl's, Macy's and J.C. Penney all reported strong holiday sales in the past week.

Target is investing more than $7 billion to modernize its business, from digital initiatives to remodeling stores.  The company recently acquired startup Shipt, which will bring same-day delivery services to customers from about half of its stores in the early part of the year.

Target operates 1,834 stores and Target.com.