Shares of Target surged Wednesday after the retailer reported unprecedented growth in foot traffic at its stores, along with second-quarter profit, revenue and comparable store sales that surpassed analysts’ expectations.
The big-box retailer also said digital sales skyrocketed more than 40 percent during the quarter. Building on that momentum, it raised its earnings outlook for the full year.
“We are seeing a great consumer response … unprecedented traffic. As we go back and look, we’ve never seen traffic like this,” CEO Brian Cornell told CNBC’s Becky Quick Wednesday.
Its shares were up almost 6 percent in premarket trading on the news.
Target has been focused on reinvesting in its business ever since it laid out a strategy at the start of last year to pour $7 billion into expanding its e-commerce platform, bulking up its line-up of in-house brands, opening new small-format stores and remodeling existing locations. Cornell said those investments appear to be paying off. Target reported its strongest same-store sales growth in 13 years.
A healthy U.S. economy, rebounding consumer confidence and record low unemployment is also benefiting retailers like Target and Walmart. The latter reported earnings last week that also topped analysts’ expectations, driving Walmart shares up more than 9 percent in one day.
“I’ve been doing this for a long time, and I think this is the healthiest environment I’ve ever seen,” Cornell said on Squawk Box, referring to consumer spending.
Here’s what Target reported for the three months ended Aug. 4 compared with what analysts were expecting, according to a survey by Thomson Reuters:
Net income was $799 million, or $1.49 per share, compared with $671 million, or $1.21 a share, a year ago. Excluding one-time items, Target earned $1.47 a share, 7 cents ahead of analysts’ expectations.
Revenue climbed nearly 7 percent to $17.8 billion from $16.63 billion a year ago, again ahead of an expected $17.28 billion in sales.
Sales at stores open for at least 12 months were up 6.5 percent, better than an anticipated increase of 4 percent and the strongest same-store sales growth at Target in 13 years. That included online sales, which grew 41 percent from the same period last year, compared with an increase of 32 percent a year ago, Target said.
Target now expects adjusted earnings-per-share of between $5.30 and $5.50 for 2018, compared with a prior range of between $5.15 and $5.45 a share in fiscal 2018.
“As we look ahead to 2019, we expect to achieve scale across the full slate of our initiatives â€” creating efficiencies and cost-savings, further strengthening our guest experience and positioning Target to continue gaining market share,” Cornell said in a statement.
Ahead of the holiday season, and in the wake of Toys R Us closing all of its toy and Babies R Us stores, Target is predicted by industry analysts to take a large share of the market left behind.
“We are investing in categories like toy and baby where we know we have this big opportunity ahead of us,” Cornell said on CNBC’s Squawk Box. “We are going to make sure we are taking more than our fair share of that market share.”
Like other retailers, Target is grappling with higher transportation costs amid rising fuel prices and a shortage of truck drivers in the U.S. There’s also some uncertainty around the prospect of additional tariffs from President Donald Trump that could drive prices of goods higher prices for consumers.
Cornell told CNBC the tariffs are “still very manageable.”
Target has “a lot of levers to pull to make sure we are still price competitive,” Cornell said. “We’ve got alternatives, flexibility and agility in our system.”
To compete with the likes of Walmart and Amazon, Target has been improving its supply chain operations. It acquired Shipt to help speed same-day deliveries, rivaling companies like Kroger that are looking to do more of the same. Particularly within grocery, however, Target is believed by analysts to have a weaker fresh food offering than its peers. Its revamped and smaller-format stores are starting to include a broader grocery assortment.
The retailer said Wednesday that same-day delivery is now available at more than 1,100 stores in 160 markets, and should reach 65 percent of all U.S. households by the holiday season.
A service that brings online orders to shoppers’ cars, known as “Drive Up,” is now at more than 800 stores in 25 states, Target said. And a service called “Restock” that allows shoppers to build boxes full of everyday items like paper towels and dish soap, paying a flat shipping rate, now reaches 75 percent of the U.S. population.
Target shares are up about 27 percent so far this year, bringing the retailer’s market cap to roughly $44.1 billion. That compares with Walmart, which has a market cap of about $282 billion, while its stock has fallen nearly 3 percent over the same time period.