Retail giant, Target (TGT 75.35, +2.68, +3.68%), is trading higher today after
reporting Q4 (Jan) earnings/guidance this morning. This was a positive result
considering that the stock sold off in mid-November when it reported
disappointing OctQ results/guidance.
Non-GAAP EPS came in at $1.53, which was up 13% from a year ago, was slightly better than market expectations. Revenue was roughly flat yr/yr to $22.98 bln, which was slightly below market expectations. Gross margin declined slightly to 25.7% from 26.1% last year. This decline reflected higher digital fulfillment and supply chain costs, partially offset by the benefit of merchandising strategies. Operating margin was flat at 4.9%. In terms of guidance, TGT expects Q1 (Apr) non-GAAP EPS of $1.32-1.52 and full year non-GAAP EPS of $5.75-6.05.
Turning to the key metrics, JanQ same store comps increased +5.3% which was a bit better than prior guidance of approximately +5%. Comps were up slightly from +5.1% comps in OctQ but down a bit from +6.5% comps in JulQ. Breaking down that +5.3% comp figure, the in-store comp was +2.9% while comp digital sales grew +31%. Of note, stores fulfilled nearly three quarters of Target's Q4 digital sales. For both Q4 and full year, TGT saw healthy comp growth and market-share gains across all five of its core merchandise categories.
Full-year comps grew +5.0%, this was Target's strongest full-year performance since 2005. In 2018, in-store comps grew +3.2% while digital comp sales grew +36%. 2018 marks the fifth consecutive year in which Target's digital comps grew more than 25%. Looking ahead, TGT is guiding to AprQ and full year comp growth in the low-to-mid single digit range.
Comps are being driven by strong traffic and sales growth. A big part of the recent improvement in comps has been from Target's store remodeling program. If you have been to a Target recently, you have probably noticed the fresher look and Target has increased its ability to allow stores to fulfill online orders. Offerings include Restock (similar to Amazon Prime Pantry), Drive-Up and Shipt (same day delivery). Target is undergoing wall-to-wall remodels of approximately 1,000 stores over a three year period. Target has also been increasing its portfolio of exclusive brands.
In sum, this quarter was a pleasant surprise. Target exceeded the expectations set by the poor performance and guidance last quarter. This helped ease concerns about the JanQ results and AprQ guidance.
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