Earnings

Digital Posts Double Digits in Target’s 3Q, But Holiday Forecast Hits Shares

Target’s results showed same store sales growth, top and bottom lines that edged analyst estimates and growth in digital sales that showed strong momentum.  But fourth quarter guidance seemed conservative amid competition, and investors fled the stock

Target posted 3Q earnings on Wednesday (Nov. 15) that showed gains in same-store retail sales, while digital transactions showed double-digit growth. All in, the company’s results revealed momentum that topped Wall Street expectations on a number of metrics.

And yet, stocks were pummeled on the heels of guidance for the current quarter — marked by the all-important holiday shopping season — that disappointed investors.

Here are the headline numbers: Target earnings on an adjusted basis were $0.91 a share, a nickel better than Wall Street expected. Revenue of $16.7 billion was better than the $16.6 billion estimated, up 1.4 percent year over year.

Same-store sales gained 0.9 percent in 3Q, which was better than analyst expectations of a 40-basis point gain and far outpaced the 20-basis point decline seen last year during the same quarter.

At quarter’s end, Target had roughly 1,800 stores. Of those, there were 44 stores smaller than 50,000 square feet. The company is still remodeling, with 37 refashioned stores completed in the quarter and a goal of having 110 locations remodeled by the end of 2017. CEO Brain Cornell said in a statement that same-store sales at those refreshed locations should be up 4 percent.

Turning to eCommerce, the company said digital sales were up 24 percent year over year, with a contribution of 80 basis points to overall same-store sales growth.  Cornell noted on the conference call with analysts that the 24 percent growth in digital seen in the latest quarter came on top of the 26 percent growth of a year ago.  Later in the call he stated that the growth in digital is “outpacing the industry” by a factor of two.

Online sales now command a larger slice of the total revenue pie, at 4.3 percent versus 3.5 percent last year. About 1,400 Target stores are also able to complete (or fulfill) online orders, a marked jump from the 140 stores with that capability last year.

In other remarks delivered on the call, and with further discussion of fulfillment capabilities, Chief Operating Officer John J. Mulligan stated that its next-day delivery service is available to 90 million shoppers in 11 retail markets.

Mulligan also noted that in terms of digital transactions, “stores are already fulfilling more than half of our total digital volume through the pickup and ship-from-store capabilities, and that will peak at well above 80 percent in the days leading up to Christmas. In fact, our stores are planning to ship over 30 million units related to digital orders in the peak four weeks of the holiday season, up from about 18 million units last year.”

Cornell stated that “across every store and on Target.com, guests this holiday season will be able to shop eight new exclusive brands that we launched in 2017.”

It was a conservative outlook for the holiday shopping season, sending stocks down as much as 8 percent intraday. The company said adjusted earnings will be $1.05 to $1.25, which compares to $1.24 expected on Wall Street. CEO Brian Cornell said that the quarter should be a competitive one, even while same-stores sales may get a boost of as much as 2 percent in the period, as measured year over year.

As has been reported, the firm is in the midst of a $7 billion turnaround plan that, in addition to investments in digital and brick-and-mortar operations, involves stronger efforts across private label brands and food offerings. The company has also been cutting prices, a move announced this past September.

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