Target's long-term strategy paying off
Digital investments hurt profitability at Target in the first quarter but paid off in the form of traffic and sales increases.
The company’s operating income continues to reflect near-term challenges driven by last year’s investments to transform the business, Chief Executive Brian Cornell said on an conference call to discuss earnings.
The retailer said on Wednesday it is rolling out a new drive-up service at its stores, where shoppers can pick up their orders in an hour.
For the first quarter, same store sales grew 3 percent at Target, and traffic grew 3.7 percent. The company says it saw broad market share gains across its core merchandise categories.
“We’re very pleased that our business continued to generate strong traffic and sales growth in the first quarter, as we made significant progress in support of our long-term strategic initiatives,” said Cornell. “Our first quarter performance reflects the benefit of our unique multi-category portfolio. Strong sales growth in our home, essentials and food & beverage categories offset the impact of delayed sales in temperature-sensitive categories, which accelerated rapidly in recent weeks as weather improved across the country. Additionally, our team is delivering excellent execution and guest service every day, and momentum in our traffic has accelerated in the second quarter. As a result, we expect Target’s second quarter comparable sales growth will move into the low to mid single-digit range, and the midpoint of our second quarter EPS guidance represents approximately 15 percent growth over last year.”
The retailer affirmed its full-year forecast of a low to single digit increase in same store sales and adjusted earnings of $5.15 to $5.45 per share.
The company’s operating income margin decreased to 6.2 percent from 7.1 percent the same period a year ago.
Online sales rose 28 percent in the first quarter, up from a 21 percent rise during the same period a year ago but short of the 29 percent rise during the fourth quarter.
Excluding items, Minneapolis-based Target earned a profit of $1.32 per share in the quarter ended May 5.
The company’s first quarter 2018 net interest expense was $121 million, down 13.4 percent from $140 million last year, reflecting debt retirement and refinancing activity conducted in 2017. First quarter 2018 effective income tax rate from continuing operations was 22.6 percent, compared with 34.5 percent last year, primarily due to the impact of recently-enacted federal tax reform legislation.
In the first quarter the company completed 56 remodels, opened seven new stores, introduced three new brands and a successful limited-time collaboration with Hunter, launched its new Drive-Up service in more than 250 stores, expanded Target Restock nationwide and rolled out same-day delivery from more than 700 stores, enabled by its recent acquisition of Shipt.