Earnings

eCommerce Powers Target’s Big Q3 Beat

Target

It was a big day for Target on the public markets as the big-box retailer rolled out its Q3 earnings reports with better than expected results and revised its expectations for the remainder of 2019 upwards. CEO Brian Cornell, at the outset of his remarks to investors, noted the stronger than forecast results were “well ahead of our expectations going into 2019” and demonstrate the power of “the durable, operational and financial model we’ve been developing over the last several years,” particularly in regard to its “unmatched” suite of fulfillment options.

And while Walmart or Amazon might argue with Target’s characterization of its fulfillment options in terms of convenience and ease as “unmatched,” the numbers on the page today are much, much harder to argue with.

Net income came in at $714 million, or $1.39 per share — quite well ahead compared with $622 million, or $1.17 per share, Target posted a year ago and the $1.19 a share forecast pre-release. Revenue grew 4.7 percent to $18.67 billion — again beating forecasts for $18.49 billion. Same-store sales, the most watched metric in physical retail, grew by 4.5 percent, well ahead of the 3.6 percent growth forecast. General store traffic was up 3.1 percent, Target noted, and basket size was also on the rise by 1.4 percent

The headline-making figure of the day, however, was Target’s posted eCommerce growth, which surged 31 percent during the third quarter of 2019. Most of that growth, 80 percent, came care of its expansion into same-day delivery as an option as well as buy online, pick up in store and curbside pickup. Moreover, Cornell told investors, what is disguised in the quarter-by-quarter results is the compounding nature of Target’s digital sales growth over the last few years.

“When you’re talking about growth rates of this magnitude, the power of compounding really matters,” he said. “Specifically, when you do the math, you’ll see that our third quarter digital comp sales have actually grown more than 95 percent over the last two years.”

Also getting a significant shout-out during the earnings reports was the performance of Target’s newly launched loyalty and rewards program, Target Circle. In the 18 months or so the program has been available to consumers, according to Cornell, guests enrolled in Target Circle shopped more frequently and spent 2 percent to 5 percent more than guests who weren’t in the program. Given that, Target announced plans to bring more of its customers onto the rewards platform with some as yet unspecified “exclusive benefits” unique to the season.

It is part and parcel of a holiday season that Target is forecasting to be merry, bright and lucrative. For the fourth quarter, Target said it expects same-store sales to be up 3 percent to 4 percent — and to dial in more intensely on both its rewards and eCommerce offerings. Apart from the merchandise and sales opportunities Cornell cited on the call with investors, he also noted Target is ready to further streamline the season by making it easy for customers to drive up and grab their goods — at all of its stores.

“As we enter this holiday season, I’m pleased that Target is the first retailer to offer Drive Up service in all 50 U.S. states encompassing more than 1,750 of our locations,” he said. Cornell further noted in a post-earnings conversation with CNBC that the enhancements to Target’s order fulfillment, and ability to use its stores as distribution centers, has extreme margin benefit for Target on top of creating a better shopping experience for customers. When delivered by stores as opposed to a distribution center, the cost of an order falls by 40 percent on average, he said. When customers come to the store to pick up orders on top of that, he said, 90 percent of the eCommerce-related costs go away.

Last year was Target’s “most successful holiday in more than a decade,” Cornell told investors on the latest earnings call — and the retailer intends to top it this year.

And into next year. Post-earnings call, Target’s share price jumped a full 12 percent in day trading on the solid results — and its increased predictions for early 2020. Target now expects full-year adjusted earnings per share to fall within a range of $6.25 to $6.45, compared with a prior estimate of $5.90 to $6.20. Analysts had been calling for earnings per share of $6.18. Target’s stock price has risen 67 percent in 2019 thus far.

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