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Target Q1 Earnings, Sales Beat Expectations

Target reported its first quarter 2017 results today with comparable store sales down by 1.3% in the period, ended April 29. The company attributes the decline, which was less than anticipated, to both traffic and a small decrease in average tickets. The chain noted during its earnings call that it continues to focus on boosting traffic. Target is encouraged by the results at its small-format stores, which yield double-digit comps on average and are twice as productive as the larger locations.

Net earnings increased 7.7% for the quarter to $681 million from $632 million in the prior year period. Earnings per share were $1.23 compared with $1.05 during the same period of 2016.

“We are in the early stage of a multi-year effort to position Target for profitable, consistent long-term growth, and while we are confident in our plans, we are facing multiple headwinds in the current landscape. As a result, we will continue to plan our business prudently while preparing our team to chase business when we have an opportunity,” Brian Cornell, chairman and CEO of Target, said in statement.

Sales decreased by 1.1% to $16 billion from $16.2 billion.

E-commerce sales increased by 22 percent. The company is focused on offering consumers a better online experience by replicating the discoverability shoppers have in stores. To that end, it is rolling out digital showrooms that offer a 360-degree view of living room set ups featuring 120 products with four design aesthetics. Forty percent of online transactions touch stores through buy online, pickup in store services and ship from store offerings, the latter of which was up 27 percent for the quarter.

The company’s gross margin rate was 30.5%, compared to 30.9% during the same quarter last year, due to increased e-commerce fulfillment costs.

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Despite a small decline in apparel comps, the company continues to see strong performance in women’s ready to wear and children’s. Going forward, it expects these categories remain strong, and it sees men’s, intimates and activewear picking up. Target expects swim, which is No. 1 in the market by unit share, to experience further gains as other players drop the category and the store launches the new Shade & Shore house brand.

The retailer is also capitalizing on competitors’ decline in the children’s market and the momentum it has built thanks to the new Cat & Jack collection with the roll out of its new Cloud Island store label in kids’ décor and layette. Cat & Jack brought about a 50 percent increase throughout the children’s apparel department, which the company says demonstrates its agility in developing new collections as well as its ability to recognize opportunities in the market.

Target is continuing to push its everyday low price position to grow the food and beverage categories, and it has rolled out the Target Run and Done marketing campaign to encourage store visits.

The company expects a low single digit comp sales decline for Q2 and it predicts earnings per share of 95 cents to $1.15. Target affirms its full year guidance of low single digit declines in comp sales and expects earnings per share to come in above the midpoint of its previously reported expectations.