Target’s big bets pay off
Target hit the trifecta in the fourth quarter with increased customer traffic, e-commerce fueled same store sales growth and better than expected profits. Now the company is doubling down.
Ahead of a meeting for financial analysts held March 6 Target said its fourth quarter results were even better than expected across a range of metrics that had already been upwardly revised in early January.
Same stores sales increased 3.6%, driven by 29% growth in e-commerce sales that accounted for roughly half the gain. Both figures exceeded guidance the company provided in early January when comps were forecast to be 3.4% and e-commerce was expected to grow 25%. The upside surprise came after an exceptionally strong January in which comps grew 4% and sales strength was broad-based, according to the company.
Another favorable metric involved traffic to stores that the company said increased 3.2%. Traffic benefited from the growth in online sales and Target’s omnichannel fulfillment model with stores fulfilling 70% of online orders.
“Our fourth quarter results demonstrate the power of the significant investments we’ve made in our team and our business throughout 2017. Our team’s outstanding execution of Target’s strategic initiatives during the year delivered strong fourth quarter traffic growth in our stores and digital channels, which drove healthy comparable sales in every one of our five core merchandise categories,” said Brian Cornell, Target Chairman and CEO.
Better than expected top line growth coupled with expense control enabled the company to produce quarterly profits above the midpoint of the guidance that had been substantially elevated in January. Earnings per share adjusted to exclude the effects of the recent Tax Act totaled $1.37, within the range of $1.30 to $1.40 that was upwardly revised from a range of $1.05 to $1.25 in early January.
The release of positive financial results and favorable 2018 outlook came ahead of a meeting Target hosted for the financial community. Among the key announcements at the meeting, Target said it would:
- Expand various fulfillment options that leverage Target’s nearly 1,900 stores. The company extended free two-day shipping to hundreds of thousands of items on Target.com and said it would roll out the Target Restock program to 30 new cities after launching in 2017. Target Restock offers next day delivery of essential products stocked in stores. It will also expand a service called Drive Up that is available through the Target app where employees bring purchases to customers’ cars. That service is available in 50 locations currently but will expand to 1,000 stores nationwide by year end.
- Roll out of a same day delivery service currently available in four New York City stores. The service allows in store purchases to be delivered same day for a flat fee and will be extended to all five New York boroughs and select urban stores in Boston, Chicago, San Francisco and Washington, D.C.
- Leverage the recently acquired Shipt home delivery service, available at 440 stores across the Southeast and the Twin Cities to all stores by the 2018 holiday season.
- Accelerate store remodeling and expansion efforts. Target will triple the size of its remodeling program to include 300 stores with markets such as Chicago, New York, Minneapolis-St. Paul and Los Angeles receiving special attention. The company plans to open 30 new stores as well, mainly small-format stores in urban and dense suburban neighborhoods and near college campuses.
- Increase its minimum hourly. Target increased its minimum wage to $11 in 2017 and will raise the amount to $12 in 2018 as it moves toward a $15 starting wage rate by 2020.
The initiatives are part of Cornell’s vision to make Target America’s easiest place to shop.
“That means blending the best of our physical and digital assets to create new experiences for our guests and reimagining our network of stores into hubs for commerce and community - inspiring showrooms, service centers and neighborhood-based fulfillment centers," Cornell said. “Target has been on a multiyear journey to modernize every dimension of our enterprise, and in 2018, you will see us accelerate our pace. You can expect us to continue to invest in our team as our greatest differentiator, and introduce and scale new experiences, services and brands, all in service to our guests."
According to Cornell, Target has a lot left to accomplish, but progress made in 2017, "gives us confidence that we are making the right long-term investments to best position Target for profitable growth in a rapidly changing consumer and retail environment."