MINNEAPOLIS — Target is busting into the critical holiday season with strong third-quarter earnings as the company pushes faster delivery and invests heavily on stores and new fashion brands.
The Minnesota-based retailer raised its expectations for the year and shares rose more than 12% Wednesday, hitting an all-time high.
It was one of the largest one-day stock swings in the company’s history.
Among the big highlights? Target’s quarterly sales of clothing rose 10% year over year, helped by its intense focus on creating new store brands and making its clothing displays more visually appealing with mannequins. The recent fashion lineup includes a men’s clothing brand called Goodfellow & Co. and a lingerie brand called Auden.
Its success comes at a time when department stores are struggling with fashion assortments. Kohl's Corp. on Tuesday cut its full-year profit outlook after posting disappointing third-quarter results despite efforts to try to turn around its fashion assortment. Women’s clothing was its worst performing area. J.C. Penney’s latest report showed its continued malaise in clothing. In fact, JCP's new CEO Jill Soltau last week said that the chain was bringing back visual merchandise displays after moving away from them under previous management. Macy’s and Nordstrom are expected to report third-quarter results on Thursday.
“Everyone is chasing the same stuff, and it’s not working,” said Stacey Widlitz, chief international store hunger at SW Retail Advisors. “Target is taking the best of retail and putting it into the store. Or the worst of retail and making it better.”
During a call with reporters Wednesday Target CEO Brian Cornell said the chain is picking up market share from both department stores and mall-based specialty chains. He also noted that store remodels have helped — shoppers who previously just bought household essentials are now picking up clothing and home goods.
Overall comparable sales, which also include online sales, rose 4.5%. That reflects 2.8% growth in stores open at least a year. Third-quarter online sales rose 31%. Customer traffic to its stores and website rose 3.1%.
Target is demonstrating how an intense focus on both low prices and customer convenience can put traditional retailers on a competitive footing with Amazon.com, which has upended the retail sector. Walmart last week raised its annual profit expectations after reporting strong third-quarter results helped by its grocery business.
Still, the holiday season is expected to be brutally competitive. Faced with the shortest holiday shopping season since 2013, retailers are to get into the minds of potential customers early.
Target is spending $50 million more on its payroll this quarter than it did during the same period last year to ensure customers can find help whenever they need it.
The Minneapolis retailer is also introducing some new incentives this holiday season such as a new loyalty program called Target Circle. So far more than 35 million people have signed up. It found in an early test of the program that customers shopped more frequently and spent 2% to 5% more.
Target Circle is also offering a variety of options to buy, from picking up online orders curbside or in the store. Through Shipt, which it purchased in December 2017, shoppers for a fee can get deliveries to their doorstep in a few hours because there is likely a Target store nearby. The company said Wednesday that same-day services accounted for 80% of its third quarter digital growth.
“Target continues to operate in rarified air, with (third-quarter) results outstanding across the board,” said Charlie O’Shea, lead retail analyst at Moody’s Investors Service.
Target appears to be in a good place to avoid price cuts and other promotions that can eat into profits because inventory levels are down vastly from a year ago, O’Shea believes.
“With inventory levels down around $1 billion year-over-year, Target is well-positioned for holiday,” O’Shea said.
Third-quarter profit was $714 million, or $1.39 per share, including discontinued operations worth 2 cents. Earnings, adjusted to account for discontinued operations and non-recurring gains, came to $1.36 per share, easily beating Wall Street per-share expectations for $1.19.
Revenue was $18.67 billion, also topping projections.
Target Corp. now expects adjusted earnings per-share of $6.25 to $6.45 in 2019, compared with earlier projections of between $5.90 and $6.20.
Shares rose $13.64 to $124.51 in afternoon reporting.
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