Target Excites Wall Street With Third Quarter Financial Results

Shares of big-box retailer Target where seeing big gains on Wednesday after the company reported earnings that thrilled Wall Street.

The stock saw a gain of 14% in the trading session and even hit an all-time intra-day high.

Target reported third quarter financial results that revealed the company’s digital sales surged 31%. The retailer says its same-day delivery services accounted for 80% of that growth.

Brian Cornell, Target’s CEO and chairman, said in an interview with CNBC on Wednesday that when Target is able to strike a “balance between inspiration, ease and value,” its customers “reward” it “by shopping more in-store and also online.”

For the quarter, Target reported that net income rose 15.5% to $706 million during the period ended Nov. 2, up from $616 million a year earlier.

Looking forward, Target has also raised its full-year profit outlook. The company expects full-year adjusted earnings per share to fall within a range of $6.25 to $6.45. The previous estimate was $5.90 to $6.20. Analysts had been calling for earnings per share of $6.18.

Cornell said on the earnings call, “Third quarter profitability was also stronger than expected, driven by a much larger-than-expected increase in our gross margin rate. With this upside, operating margin dollars increased more than 22%, compared with a year ago, resulting in a nearly 25% increase in adjusted EPS. In light of this performance and our updated expectations for the fourth quarter, we raised the midpoint of our full-year adjusted EPS expectations by $0.30. This reflects really strong performance, well ahead of our expectations going into 2019. And it demonstrates the power of a durable operational and financial model we’ve been developing over the last several years.”

He continued, “None of these results would be possible without the amazing efforts of our team, who have designed and implemented meaningful changes across multiple parts of our business from our store service and operating model to our unmatched digital fulfillment capabilities and our inventory replenishment routines. And while there is much more to do, it’s incredibly gratifying to see how these efforts are already driving outstanding operational and financial performance.

“When we analyze the components of our comp sales, we’re pleased that traffic continues to be the primary driver of our growth. Overall, our traffic grew 3.1% in the third quarter as our guests chose to shop with us more often both in stores and through our digital options. Among our sales channels, store comps were up 2.8% in the quarter, more than 1-percentage point faster than the second quarter, while digital comps grew 31% and drove 1.7 percentage points of the Company’s comp growth,” said the CEO.

He further added, “Notably, this year’s digital growth was on top of a 49% comp increase last year. And while these numbers add up to 80%, when you’re talking about growth rates of this magnitude, the power of compounding really matters. Specifically, when you do the math, you’ll see that our third quarter digital comp sales have actually grown more than 95% over the last two years. Within our digital sales, 80% of our third quarter growth was driven by same day fulfillment options, in-store pick up, Drive-Up and Shipt. Given that these same-day options rely on our store assets, team and inventory, they are much more profitable than traditional e-commerce fulfillment.”
Shares of Target have seen gains of over 90% this year.

Disclaimer: We have no position in Target Corporation (NYSE: TGT) and have not been compensated for this article.