Target climbs to record high on sales beat, raised forecast

Bloomberg

Target Corp reached a record high after raising its full-year outlook again on strong sales and profitability, providing a safe haven after several retailers unnerved investors.
Third-quarter comparable sales, a key retail metric, rose 4.5%, a full percentage point above what analysts polled by Consensus Metrix had projected. Profit this year excluding some items will be between $6.25 and $6.45 a share, Target said.
The blowout performance distanced the US cheap-chic retailer from struggling rivals like Kohl’s Corp, which cut its full-year profit forecast for the second time this year on sales that trailed projections. Even Walmart Inc stumbled this quarter due to weakness at its Sam’s Club warehouse division. In contrast, Target has been able to set itself apart by opening smaller locations in urban areas, introducing a steady stream of new store brands and expanding the number of ways customers can get their orders.
“From top to bottom, this is a strong report,” Brian Yarbrough, an analyst at Edward Jones & Co, said. “They are really back at the top of their game and taking market share from a lot of the weaker players.” Weak apparel sales had hurt Kohl’s and Walmart in the quarter, but Target didn’t suffer the same fate, with apparel and accessories delivering growth of more than 10%, the company said.
Target’s investments in e-commerce, such as the rollout of curbside pickup and same-day deliveries, have boosted sales, kept Amazon.com Inc at bay and also attracted new customers who didn’t previously shop there. Online sales rose 31% in the quarter, but more important, e-commerce didn’t weigh on profitability as it had in previous periods. Gross margin compared with a year earlier expanded for the second straight quarter, which is something analysts had their eye on.
Besides better-than-expected apparel, jewellery and shoe sales, margins improved as 80% of the digital sales growth came from more economical fulfillment options, like in-store pickup, executives said.

Holiday Bet
The company has made a big bet on toys this holiday season by opening more than two dozen mini-Disney stores inside some of its locations and fulfilling sales made on the relaunched Toys ‘R’ Us website. Target has a high bar to clear, though: Last year’s holiday sales rose 5.7%, so it has brought in 10,000 new and exclusive toys to entice shoppers, and has boosted its holiday payroll by $50 million.