Target on Tuesday reported a healthy holiday and early start to the year with overall sales increasing 10% to $22.8 billion, up from $20.7 billion last year. Comparable sales rose 3.6%, slightly beating analyst expectations polled by Consensus Metrix for a 3.4% rise, according to Marketwatch.
Traffic grew 3.2% while e-commerce rose 29% in the quarter, contributing 1.8 percentage points of comparable sales growth, according to a company press release. Target's profit in the year soared 35% to reach $1.1 billion, up from $817 million in the year-ago period, Marketwatch cites.
In the first quarter of 2018 and for the year, Target expects a low-single digital increase in comparable sales and an adjusted earnings per share of $5.15 to $5.45.
At this time last year, Target's comparable sales were down 1.5% for the quarter, the third consistent quarterly loss for the mass merchant. And a plan for recovery was on short order as competition with Walmart heated up. But over the course of the year, the mass merchant managed to pull a 180, earning the title of Retail Dive's Turnaround of the Year. Much of that is thanks to a critical $7 billion investment in the company's stores and digital strategy announced by CEO Brian Cornell last March.
Still, the retailer was dinged on Wall Street (shares fell 3.7% Tuesday morning) for climbing expenses like increased employee wages and store improvements. But Cornell's plan is coming to fruition as a slew of new small format and remodeled stores, as well as the launch of a dozen new private label brands, charmed customers over the holidays and the early part of the year.
Also during the quarter, the company has taken major competitive steps through the acquisition of Shipt, which will allow it to roll out same-day delivery nationwide, as well as smaller efforts to experiment with subscription boxes, forge trendy partnerships and build ties with new startups through accelerator programs.
For the year ahead, Target is doubling down on that plan. On Monday, before the company's earnings announcement, Target unveiled a $250 million plan to invest in remodeling 28 stores in the Twin Cities near its headquarters, roughly half of the store base there. The company also reaffirmed an acceleration of store remodels first announced in October, with a plan to refresh 325 stores this year and construct 30 small-format stores in urban, suburban and college cities.
Overall, Target's quarterly report signaled that investments are paying off, although the holiday promotional environment had a bearing on margins, Moody’s Lead Retail Analyst Charlie O’Shea said in a statement emailed to Retail Dive on Tuesday.
"Online sales growth of almost 30% for the quarter comfortably exceeds overall industry levels, with Target continuing to demonstrate the effectiveness of its store base in its multi-channel transition, and the Shipt acquisition will further enhance its online capability," O’Shea said. "Other notable results include increased leveraging of working capital, with accounts payable exceeding inventory, helping fuel a $1.5 billion improvement in operating cash flow. And Target reduced shareholder returns to help fund its myriad strategic investments, which we view favorably."