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Target to Raise Wages, Extend Free Shipping on Positive Q4

Despite strong sales and foot traffic, the market balked at lower-than-expected earnings during Target’s fourth quarter, as well as the news that the retailer is pushing ahead with both online and in-store investments.

In a Nutshell: Target announced plans to increase starting wages to $12 starting with current employees this spring. By the end of 2020, the retailer is committed to increasing that starting amount to $15.

The Bull’s Eye is also accelerating the pace of store redesigns. In 2017, Target updated 110 locations. In 2018, it’s planning to do the same with 325 more. By 2020, 1,000 stores will have been updated.

Target is focused on fulfillment, too. The company said it is expanding same day delivery, increasing locations with drive-up pickup to 1,000 doors and offering free two-day shipping on hundreds of thousands of items.

For its Q1 guidance, Target projected a low-single digit increase in comp sales and adjusted earnings per share of $1.25 to $1.45. The full-year 2018 outlook pegs comp sales at a low to single digit increase with adjusted EPS between $5.15 and $5.45.

Sales: Target reported fourth quarter sales of $22.8 billion, a 10 percent increase over the $20.7 billion achieved during the prior-year period. Results included an additional week during the period. Same store sales grew by 3.6% for the quarter while comp digital sales leapt by 29 percent.

Sales for the full year were $71.9 billion, a 3.4% increase over the $69.5 billion attained for the previous year.

Earnings: Net earnings reached $1.1 billion for the quarter, or adjusted earnings per share of $1.37, up 34.7% from $817 billion, or adjusted EPS of $1.45, posted during the same period last year. Net earnings for the year were up 7.2% to $2.9 billion from $2.7 billion for FY16.

CEO’s Take: “2017 was about getting the wheels turning in the right direction. 2018 is about acceleration, leveraging our greatest assets and leaning into our competitive strengths all in service of making Target America’s easiest place to shop,” CEO Brian Cornell said. “Newness and innovation are essential elements of our strategy…. When we talk about elevating the shopping experience the work is all about connecting physical and digital and empowering our people to bring in all the life. One thing remains true: our guests love to shop.”