Target reports Q4 2018 earnings

Target delivered better-than-expected earnings during the critical holiday sales period as the retailer’s in-house brands and easy delivery options drew its strongest traffic and same-store sales growth in more than a decade.

The company’s adjusted earnings per share hit a new record and its digital sales surged more than 25 percent for the fifth year in a row, even as its net income slid 26.5 percent.

“We have been driving an ambitious agenda to transform our company, evolve with our guests and drive strong growth,” CEO Brian Cornell said in statement announcing the company’s earnings Tuesday. “On every count we’ve been successful, and as we enter 2019, we will continue to lead the industry by adapting, innovating and delivering more for our guests and shareholders.”

Here’s what Target reported for the fiscal fourth quarter ended Feb. 2 compared with what analysts were expecting, based on average estimates compiled by Refinitiv:

*Earnings per share, adjusted: $1.53 vs. $1.52 expected
*Revenue: $22.98 billion vs. $22.96 billion expected
*Same-store sales: up 5.3 percent vs. growth of 5.1 percent expected

On an unadjusted basis, net income fell 26.5 percent to $799 million, or $1.52 a share, during its fiscal fourth quarter ended Feb. 2 from $1.1 billion, or $1.99 a share, during approximately the same time the year before, which included one less week. Revenue was about flat at $23 billion.

Sales at Target stores open for at least 12 months were up 5.3 percent, with bricks-and-mortar store sales growing 2.9 percent, while online sales were up 31 percent. That was better than expected growth of 5.1 percent. The company said its e-commerce business contributed 2.4 percentage points to overall same-store sales growth during the quarter.

For the year, total same-store sales increased 5 percent, the strongest growth since 2005. Target’s e-commerce sales climbed 36 percent in 2018.

The number of overall transactions at Target rose 5.3 percent during the fourth quarter, compared with growth of 3.6 percent a year ago. And the average transaction amount grew 0.8 percent, better than growth of 0.4 percent last year. Traffic was up 4.5 percent.

“On every count we’ve been successful,” Cornell said.

Looking to fiscal 2019, Target says it anticipates a low-to-mid single digit increase in same-store sales, and a mid-single digit increase in net income. It’s calling for adjusted earnings of between $5.75 and $6.05 per share. Analysts had been expecting earnings per share of $5.61.

Target’s holiday-quarter results are a sign that its investments in store remodels and delivery services are paying off. Department store chains continue to struggle and other mall-based retailers like Gap and Charlotte Russe shut stores across the country.

Big-box retailers Target and Walmart, for the most part, have been immune to the same sales slumps that other companies are facing. Walmart grew its e-commerce sales a whopping 43 percent during the fourth quarter.

Target’s recent digital initiatives, store makeovers and private brand development, coupled with “a continued healthy consumer backdrop” and favorable weather this spring, bode well for continued same-store sales growth, Gordon Haskett analyst Chuck Grom said ahead of Tuesday’s report.

To stay competitive, Target’s been investing in rolling out more in-house brands. It will soon launch three new lingerie and sleepwear brands to rival Victoria’s Secret. It continues to ink deals with popular fashion lines to collaborate on exclusive merchandise to be sold in Target stores; its latest is with Vineyard Vines.

Target also is getting more competitive with Amazon. It’s starting to invite select specialty brands and national retailers to sell on its website via a third-party marketplace, called “Target +.” The company says it hopes this approach will help it relieve pressure on profit margins, as it will be able to pass on shipping costs and some other expenses to incoming third-party sellers.

Target is expected to provide more details about its full-year fiscal 2019 outlook at a meeting with analysts in New York later on Tuesday morning.

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