Shares of Target Corp. jumped 7.4 percent on Wednesday, after the retailer surprised Wall Street — and itself — by logging a more profitable third quarter than either had expected.
The market rewarded the stock with a steep increase, sending it up $4.99 to close at $72.50.
Despite the retailer’s earnings beat and its first comparable-store sales increase in seven quarters, the company remains cautious about the months ahead. Target expects a 2 percent comp increase in the fourth quarter and is forecasting earnings of $1.13 to $1.23 a share and, for the full year, between $3.15 and $3.25.
Brian Cornell, who joined the company in August as chief executive officer and who, since then, has been making significant changes, emphasized that the retailer is focusing on several key categories that have historically been strong for the company, such as apparel, home, baby, and wellness and beauty, noting that beauty has been a standout. He stressed that Target isn’t walking away or de-emphasizing food but, rather, taking a step back to learn what its customers want in terms of food. “We want to put our mark on food with products that are uniquely Target,” Cornell said.
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The discounter relaunched in the third quarter its mobile and tablet apps, streamlining checkout with ApplePay and other enhancements. “A new engine in the beta rollout phase will provide digital experiences specific to each guest,” Cornell said, adding that Target wants to personalize shoppers’ experiences across all its platforms. “As we continue to make changes on initial learnings, we expect conversion rates to expand.”
Cornell said 2015 capital expenditures will be in the $2.5 billion range, as the retailer continues to invest in digital capabilities and smaller stores in urban markets.
Target is taking an aggressive posture toward the holidays, as evidenced by one of its deals for the season: 40 percent off almost all apparel. Previously, the company said it will offer free shipping on nearly all products during Christmas.
It already has offered early access to deals on Nov. 10 and will launch a Black Friday presale on Nov. 26.
When Target opens its doors at 6 p.m. on Thanksgiving Day, each shopper will receive a package with a Christmas cracker and a coupon or gift card wrapped up inside, said Kathryn Tesija, executive vice president and chief merchandising and supply-chain officer. There will be category-wide sales, including “steep” discounts on apparel, toys and housewares during Cyber Week, she added.
Even before Tuesday’s third-quarter results were released, Target’s stock had been on an upward trajectory. Retail experts said the positive momentum may be a sign that Target’s data-breach problems are behind it as the one-year anniversary of the massive attack approaches; but they also said it could signal optimism about Cornell.
Target’s earnings for the third quarter ended Nov. 1 rose 3.1 percent to $352 million, or 55 cents a share, up from $341 million, or 54 cents a share, in last year’s third quarter.
Sales in the third quarter were $17.73 billion, a 2.8 percent increase over the $17.56 billion from the same period last year.
The retailer had forecast EPS of between 40 cents and 50 cents in the third quarter, and analysts were looking for 48 cents per share.
Target’s U.S. comp-store sales rose 1.2 percent. Despite the positive number, operating income declined 5 percent.
Wal-Mart on Thursday reported its first same-store sales increase since 2012.
Selling, general and administrative expenses rose 1.1 percent to $3.89 billion in the third quarter from $3.85 billion last year.
Earnings before interest expense and income taxes were $927 million in the third quarter, a 5.2 percent decline from $977 million in 2013.
Gross margin rate declined 29.5 percent in the third quarter from 30 percent last year, due to an increase in promotional activity. The third-quarter gross margin rate was 19.5 percent, compared with 14.8 percent in last year’s period, reflecting the continued impact of inventory clearance.
Digital sales surged 30 percent in the third quarter. The company said it expects digital sales to increase 40 percent in the fourth quarter.
Target saw improvement in its money-losing Canadian division, with sales rising 43.8 percent in the quarter on a same-store sales increase of 1.6 percent. “We’ll need a major step-change in performance,” Cornell said, referring to Canada. “We’ll need to see improved financial performance in every store in Canada over time. We’ll be watching to see how the [stores] connect with guests during the holiday season.”
Still, the company isn’t celebrating just yet. John Mulligan, executive vice president and chief financial officer, said, “We see encouraging signs like lower gas prices, but consumer spending patterns remain quite volatile. We’re continuing to plan cautiously.”
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