Earnings

Target Touts Omnicommerce As The Secret To Its Big Earnings Beat

Target investors liked what they saw when the retailer announced its latest round of quarterly results on Wednesday (Aug. 21) — with earnings and revenue both in ahead of analyst expectations and Target revising its estimates for the rest of the year upward.

Target credited its recent upgrade of buy online, pickup in store and its Shipt same-day grocery delivery business as among its leading drivers of growth, adding 1.5 percentage points to its overall same-store sales growth.

By the numbers, Target logged earnings per share of $1.82, well ahead of the $1.62 expected by analysts pre-release. All in, profit was up 17 percent year on year to $938 million, compared to $799 million, or $1.49 per share at this time in 2018. Revenue increase came in at $18.42 billion, ahead of the $18.34 billion in sales forecast. At this time last year, Target reported $17.78 billion in revenue. Comparable sales were up 3.4 percent, again markedly ahead of the 2.9 percent expected. Digital sales continue to show strong growth, increasing by 34 percent during Q2. That is, however, a drop from the surge seen in Q1 2019, when Target’s digital sales were up 42 percent. 

On the whole, however, Target was clearly pleased with its Q2 performance in specific — and with the increasingly visible results of its now two-year-old turnaround project. In 2017, facing falling sales and dwindling foot traffic, Target outlined a revamp plan built on remodeling and redesigning its physical stores and building a smoother and more seamless merged consumer journey between its physical and digital channels. 

Target CEO Brian Cornell told analysts on a call Wednesday that the results Target has logged in this quarter and recent quarters are a strong indication that Target’s recent investments in upgrading are paying off in its now demonstrable ability to attract consumers. 

“These options offer speed, convenience and reliability,” he said. “And as a result, they’re quickly becoming the fulfillment choices for our guests. And most importantly, because these options leverage our existing in-store infrastructure, technology and teams, same-day fulfillment delivers outstanding financial performance as well.”

And while CEO enthusiasm for their firm’s earnings results are not an unusual feature of calls with analysts, the markets and the experts seemed to agree with that assessment. 

“This is as good a quarter as Target possibly could have had,” Moody’s analyst Charles O’Shea told CNBC’s “Squawk Box.”

Target also affirmed that while it will continue to advance and develop its physical stores and the consumer’s experience within them, those experiences will be increasingly integrated digitally. Brick-and-mortar shopping isn’t going away, Target Chief Operating Officer John Mulligan said Wednesday on the earnings call, but “inferior brick-and-mortar experiences” are certainly an endangered species in the modern retail environment. 

“That’s why we’re investing heavily both in our store assets and in the experience our team provides,” he said.

As a result of the stronger than expected showing this quarter, and during the previous one, Target has raised its estimates for its full 2019 performance upward. The retailer is now calling for adjusted earnings per share to fall within a range of $5.90 to $6.20, up from a prior range of $5.75 to $6.05. Those figures, according to Cornell, take into account the probable effects of the new tariffs on Chinese goods set to go into effect in mid-December. 

Investors certainly like the sound of that — and Target’s shares have soared 19 percent since the earnings announcement went out earlier today.

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