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Target Traffic Marks a Milestone, Earnings Disappoint

Traffic, sale and earnings were all up at Target, though the latter fell short due in part to ongoing investments in various aspects of the business.

In a nutshell: Traffic, sales and earnings were all up at Target, though the latter failed to meet expectations owed to ongoing investments for different parts of the business.

Target’s top performing categories during the quarter proved to be home, household essentials and food and beverage. Though apparel and hardlines had positive comps, the company said they fell short of expectations. The silver lining in clothing was Target’s new brands and its men’s wear offering. The retailer pointed to baby in particular as a “standout.”

To continue the momentum in home and apparel, Target launched three new collections in the quarter with four more slated to bow in Q2, with a particular focus on millennial and Gen Z shoppers.

Additionally, the retailer is focused on scooping up share from chains that are going out of business or closing stores.

Target is predicting comp sales will accelerate into the low to mid single-digit range in the second quarter. The company’s outlook for adjusted earnings per share lands between $1.30 and $1.50. The full-year outlook pegs comps in the low-single digit range and adjusted EPS between $5.15 and $5.45.

Sales: Driven by the company’s strongest traffic performance in a decade, Target reported a sales increase of 3.5% to $16.6 billion. Target attributed the 3.7% boost in traffic to its slate of 56 remodels, an increase focused on merchandising, better inventory allocation and a steady stream of newness.

The company also saw comps rise by 3 percent.

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Though online sales were up 28 percent on top of the 21 percent during the same period last year, it came at a price. Target attributed its lower than expected gross margin in part to expenses related to online fulfillment. The retailer is looking to ship-from-store to help ease that burden. It also said larger orders in two-day shipping transactions offset the costs “dramatically.”

Earnings: The company posted earnings for the quarter of $178 million, or $1.33 per share. That performance exceeded the prior-year period by 5.9% when the company reported earnings of $678 million, or $1.22 per share.

CEO’s Take: “For several years now, I’ve talked about the importance of traffic as a true indicator of the health of our business and the guest reaction to our key strategic initiatives. So, they’re all coming together well,” said CEO and chairman Brian Cornell. “I think the guest is reacting to our new remodels, to the new brands, to our new fulfillment options, to what we’re doing from a digital standpoint. All of these elements have come together, and the guest is rewarding us with increased traffic.”