For the third quarter ended October 29, Target Corp. exceeded financial expectations based in part on a lift from home products despite a drop in sales.
The retailer posted net earnings of $608 million, or $1.06 per diluted share, versus $549 million, or 87 cents per diluted share, in the year-prior period, while adjusted earning per share from continuing operations came in at $1.04 versus 86 cents in the quarter a year earlier. Target beat a MarketBeat-published analyst average estimate of 83 cents per diluted share.
Comparable sales fell 0.2% in the quarter year over year, with store comps down 1%. The number of transactions declined slightly, which a small gain in average transaction amount partially offset. Comparable sales in signature categories, Target’s core categories including home, came in more than three percentage points higher than the overall figure, and comps in digital channels advanced 26%. In the quarter, digital represented 3.5% of sales versus 2.7% in the year-earlier period.
Third quarter 2016 sales declined 6.7% to $16.44 billion, reflecting a 0.2% decrease in comparable sales combined with the absence of pharmacy and clinic sales in this year’s quarter. Target sold its pharmacy and clinic operations to CVS.
In a conference call, Target chairman and CEO Brian Cornell said strength in signature categories revenue, back to school/college activity and returns from its new kids brands, Pillowfort in home and Cat & Jack in apparel, had helped drive third quarter sales. During the quarter, Target ran a 10% off everything in the store promotion that, while successful in its own right, allowed the company to stress test its digital systems, Cornell said. The online operation was able to successfully handle a strong traffic spike related to the promotion, providing evidence that the company’s digital systems can handle holiday traffic intensity, he asserted, something that Target has had trouble managing in the past. Cornell also pointed to the third quarter opening of five new flexible format stores, including the “fantastic” location in New York’s Tribeca neighborhood, as indicative of the company’s ability to penetrate untapped urban markets.
Cornell added, “We are very pleased with our third quarter financial results, which reflect meaningful improvement in our traffic and sales trends and much stronger-than-expected profitability. Favorable gross margin mix and efficient execution by our team drove third quarter earnings per share performance well beyond our guidance. We also continued to gain market share in key signature categories and saw unexpectedly strong sales in the back-to-school and back-to-college season. As we move into the biggest quarter of the year, we are pleased with our inventory position and confident that our team will deliver a great guest experience as they bring our merchandising and marketing plans to life throughout the holiday.”
Target operates 1,802 stores.
