The department store retailer Target Corp. (TGT, Financial) came out with its third-quarter financial results on Tuesday before market opened. While the company’s revenue surpassed expectations, its earnings fell shy of estimates as the company spiked wages and spent more on same-day delivery service.
The numbers of the quarter
The Minneapolis-based company reported adjusted earnings per share of $1.09 in the third quarter, which fell short by 3 cents as estimated by Wall Street. The company’s revenue for the quarter came in at $17.82 million, up 5.6% year on year. Wall Street estimated quarterly revenue to be $17.80 million.
Comparable store sales inched up 5.1%, which fell short of the 5.2% expected growth. The company attributed this gain to a rise in the number of transactions at its stores (up 5.3%). Digital sales climbed a mammoth 49%.
The company’s gross margin rate dropped to 28.7% as a result of higher supply chain cost due to execution of online orders. The company’s newly launched shipping service hampered its profit margin too due to robust digital traffic.
Additional efforts
To boost sales, the company invested into store overhaul and at the same time, continued to open smaller-format stores in urban cities and college towns. Also, the company would be adding more in-house apparel brands and home goods that provide higher margins.
Heading into the holiday season, the company introduced free two-day shipping (without any minimum purchase threshold) along with same-day delivery to compete against stalwarts, namely Walmart (WMT, Financial) and Amazon (AMZN, Financial).
Parting thoughts
Target expects sales to grow in the upcoming quarter. Customer spending is projected to be high due to robust economy, low unemployment and rising wages.
The company is keen on raising its brick-and-mortar sales, besides the digital sales, which is why the company has now started providing in-store pickup options and membership in delivery service Shipt.
What sets Target apart from most of the retailers is its ability to snatch market share from its competitors. For instance, Target did various renovations during the quarter including modernizing its makeup department as well as beauty-store lightning. The company also expanded its toy section during the same period. These major steps helped the company to lure customers who once used to visit its competitors’ stores.
The company managed to bring in 120,000 seasonal workers for the holiday season despite some remaining concerns about whether the retailers would be able to meet their hiring requirements for the holiday season. Target indeed looks ready for the holiday season and is on track to report fabulous numbers.
Disclosure: I do not hold any position in the stocks mentioned.
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