The American retailing company Target Corporation (TGT, Financial) posted stronger-than-expected earnings and revenues that beat analysts’ expectations. Revenue growth was impressive due to improved customer traffic. The company looks in good shape post the second quarter earnings with both brick-and-mortar and online sales increasing rapidly.
Brian Cornell, company’s CEO commented, "We are pleased that second-quarter traffic increased more than 2 percent, reflecting growth in both our store and digital channels." He further added, "We continue to focus on our long-term strategy... While our recent results are encouraging, we will continue to plan prudently as we invest in building our brands, our digital channel, the value we provide our guests and elevating service levels in our stores."
Snapshot of the second quarter
The adjusted earnings per share of the company stood at $1.23 whereas the Wall Street estimated $1.19 per share. Same store sales for the quarter climbed 1.3%. Comparable digital channel sales surged an impressive 32% as compared with the same quarter in 2016. Grocery, which makes up 20% of the company’s total sales, remained flat.
Revenue during the period surged 1.6% to $16.43 billion year-over-year thereby beating estimation of $16.30 billion. By contrast, net income decreased to $672 million or $1.22 per share versus $680 million or $1.16 per share reported in the year-ago quarter. Gross profit during the quarter spiked a meagre 0.3% to $5,010 million. However, operating income dropped 10.3% to $1,114 million year-over-year.
At the end of the second quarter, Target had cash and cash equivalents of $2,291 million. Long-term debt and other borrowing amounted to $10,892 million whereas shareholders’ investment stood at $11,098 million.
Target’s turnaround efforts
The company is currently working on restructuring and transforming more than 600 stores so as to give customers a mesmerizing store experience. Till date, the company has remodelled 63 stores with an aim to remodel more than 100 stores this year.
The retail company is also investing in merchandise categories such as style, baby and kids. The company would also introduce Target Restock program that would focus on launching new brands while following competitive pricing policy.
Various strategies and developmental efforts that the company employed including the Omni-channel marketing, diversification and localisation of assortments along with focus on smaller store format have started yielding results. The company looks forward to opening smaller-format outlets while putting in more money in its e-commerce business so as to compete with Wal-Mart (NYSE:WMT) and Amazon (NASDAQ:AMZN).
While Wal-Mart seems to be on an acquisition spree with several big and small deals ranging from Jet.com, Moosejaw, Bonobos to apparel e-retailer Modcloth, Target is working to drive its online segment as well. The company has expressed its intention of purchasing Grand Junction, a San Francisco-based transportation technology company which would help the retailer to make faster and efficient deliveries. This partnership with Grand Junction will help the company drive growth.
The retail giant would roll out 12 original brands in the coming two years considering the solid performance of its Cat & Jack children’s line. This would undoubtedly lure more customers to the stores.
Future outlook
Target anticipates comps to lie within the range of what it had witnessed in the first as well as second quarter of the year. While the company projects third quarter earnings to be in between 75-95 cents, earnings for 2017 are estimated to come in around $4.34 to $4.54 per share, up from the earlier estimation of $3.80 to $4.20 per share. It would be interesting to see how the company’s turnaround efforts work in favor to support future growth.
Disclosure: I do not hold any position in the stocks mentioned in this article.
