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Company earningsFinanceNewsTruckload

Target’s sales boosted by digital channel and enhanced fulfillment options

Mega-retailer Target (NYSE:TGT) reported a 3.4 percent increase in comparable sales as traffic growth was 2.4 percent higher. Target’s number of transactions increased 2.4 percent while the average amount of those transactions increased by 0.9 percent.

Target’s digital channel sales grew 34 percent in the period. Digital sales accounted for 7.3 percent of the company’s total sales, up 170 basis points compared to the fiscal second quarter of 2018. Same-day fulfillment services which includes order pickup, drive up and Shipt provided 1.5 percentage points of total sales growth.

In June, the company announced a same-day delivery option for 65,000 items through its Shipt delivery unit, which it acquired in 2017. Target charges an annual fee of $99 for the service, which is available in 1,500 stores in 47 states.

The Minneapolis-based company reported fiscal second quarter 2019 adjusted earnings of $1.82 per share for the three-month period ending August 3, 2019. This was well ahead of the $1.62 consensus estimate and the company’s guidance of $1.52 to $1.72.

“We are really pleased with our second quarter performance, which demonstrates the strength of our strategy and the durable financial model we’ve built over the last several years. By appealing to shoppers through a compelling assortment, a suite of convenience-driven fulfillment options, competitive prices and an enjoyable shopping experience, we’re increasing Target’s relevancy and deepening the relationship between our guests and our brand,” said Target’s Chairman and Chief Executive Officer Brian Cornell.

Second quarter operating income increased 16.9 percent year-over-year to $1.32 billion. Gross margin improved 30 basis points to 30.6 percent as margin growth was tempered by “higher digital fulfillment and supply chain costs.”

Cornell continued, “Traffic and sales continue to grow while our earnings per share [EPS] reached an all-time high, driven by the strength of our team’s execution and their focus on delivering for our guests. Because of our outstanding performance in the first half of the year and our confidence moving forward, we are increasing our guidance for full-year earnings per share.”

Target raised its full-year 2019 adjusted EPS guidance to $5.90 to $6.20, a 2.5 percent increase at both ends of the range compared to the current consensus estimate of $5.94. The company issued fiscal third quarter 2019 EPS guidance of $1.04 to $1.24 compared to the current consensus estimate of $1.17. Management said that its outlook excludes the cost headwinds from supply chain pressure experienced in 2018.

In June, the company increased its quarterly cash dividend 3.1 percent to $0.66 per share. In the second quarter Target repurchased 4.3 million shares of common stock ($341 million) and has approximately $1.0 billion remaining under its $5 billion share repurchase program.

Target’s strong second quarter results follow similar trends seen by competitor Walmart (NYSE: WMT). Walmart reported a 2.9 percent increase in U.S. sales, its strongest growth rate in more than 10 years.

Target Corporation operates more than 1,800 stores as well as its website, which are supported through its 39 distribution centers.

Shares of TGT are trading nearly 20 percent higher on the news.

TGT Stock Chart – SONAR

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Todd Maiden

Based in Richmond, VA, Todd is the finance editor at FreightWaves. Prior to joining FreightWaves, he covered the TLs, LTLs, railroads and brokers for RBC Capital Markets and BB&T Capital Markets. Todd began his career in banking and finance before moving over to transportation equity research where he provided stock recommendations for publicly traded transportation companies.

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