Retail giant, Target (TGT 87.26, +3.99, +4.79%), is trading higher today after
reporting Q2 (Jul) earnings/guidance this morning.
Non-GAAP EPS came in at $1.47, which was up 20% from a year ago, was at the high end of prior guidance of $1.30-1.50. That $1.47 result was also above market expectations. Revenue rose 6.9% year/year to $17.78 bln, which was above market expectations. In terms of guidance, TGT expects Q3 (Oct) non-GAAP EPS to come in around $1.00-1.20, which is in-line with market expectations. For the full year, TGT increased it non-GAAP EPS guidance to $5.30-5.50 from prior guidance of $5.15-5.45.
Turning to the key metrics, JulQ same store comps increased +6.5%, which was its best comp in 13 years. This was at the high end of prior guidance for low to mid-single digit comps. Breaking that down a bit, store comps increased nearly 5% while digital comps grew more than 40%. For the second consecutive quarter, traffic growth is better than TGT has seen in well over 10 years. Specifically, traffic growth of 6.4% is by far the strongest since the company began reporting traffic in 2008. TGT says it laid out a clear strategy at the beginning of 2017, and throughout this year the company has been accelerating the pace of execution. Looking ahead, TGT says it's on track to deliver a strong back half of the year.
On the call this morning, TGT said the strong comps were the result of customers responding to a growing menu of convenience, of women options, newness with its merchandising categories, freshly remodeled stores and the higher level of service across the chain. With very strong traffic both in store and online, TGT saw accelerating comp trends in all five of its core merchandising categories. Comp growth in its home category was particularly strong up nearly 10%. Hardlines also saw high single digit comp growth driven by strength in both Toys and Electronics.
Target is undergoing wall-to-wall remodels of approximately 1,000 stores over a three year period. It also has been working to completely transform Target's supply chain, placing its stores at the center of a modern network designed to deliver an unmatched combination of convenient fulfillment options.
While the data is limited, TGT is seeing some early indications that remodeled stores continue to help comps beyond the first year after the remodel. It's also seeing encouraging performance from its new small format stores. These locations deliver high sales productivity along with gross margin rates above the company average.
In sum, time will tell if Target's transformation will allow it to better compete in a changing retail environment as more shoppers shop online. It's too early to tell at this point as the process will take 2-3 more years. In the meantime, the remodels seem to be a big reason why customer comps/traffic has been rebounding. TGT has now reported very impressive back-to-back quarters in terms of comps/traffic.
After some initial doubts from investors that there was much TGT could do to thwart online retailers like Amazon (AMZN), these last couple of quarters show that progress can happen. This is evident not only in the comps/traffic, but digital sales have been quite strong as well. Last week, Wal-Mart (WMT) jumped on strong results, especially for their digital sales and it seems Target is succeeding as well in terms of clawing back business from AMZN.
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