Target has big quarter amid intense retail environment

Target topped expectations in just about any measurable way during the second quarter as it pushed faster delivery for customers and invested heavily in new private label brands.

Comparable store sales rose 3.4 % as customer traffic jumped 2.4%. The measure includes sales at stores open at least a year and online sales. Sales at established stores rose 1.5 %. Online sales soared 34%.

The Minneapolis-based company raised profit expectations for the year, and shares jumped more than 18 percent Wednesday.

Target is underscoring the successes of big box giants in checking the advance of Amazon.com. Walmart raised its outlook for the year last week after a very strong quarter.

Both have expanded their online presence, populated shelves with new merchandise, and modernized stores.

Being squeezed between big-box stores and Amazon are mall-based clothing chains and department stores. J.C. Penney’s, Macy’s and Kohl’s and other retailers are all getting hammered.

Still, it is a precarious time for even surging retailers like Target.

The Trump administration imposed a 25% tariff on $250 billion in Chinese imports earlier this year. A pending 10% tariff on another $300 billion in goods would hit everything from toys to clothing and shoes that China ships to the United States.

The prospect of raising prices, or absorbing higher costs, would be perilous for U.S. companies if the economy dips into recession sometime in the next two-plus years, as some recent indicators have suggested it might.

Home Depot on Tuesday cut its sales expectations for the year in part because of the potential impact of tariffs on customers.

Macy’s said last week that its shoppers don’t have an appetite for higher prices in a ballooning U.S. trade war with China. The department store was forced to raise prices on some luggage, housewares and furniture to offset the costs of a 25% tariff implemented in May. Macy’s vowed not to increase prices as a result of the 10% tariff, but CEO Jeff Gennette said the company will be speaking with vendors about ways to offset rising costs if the trade war escalates.

Target remains focused on what it can control. It’s spending more than $7 billion through 2020 to update its stores, open smaller stores in urban areas, and expand further online.

Target’s stores are still the company’s strongest asset even though the battle for customers has moved online.

The company lets shoppers pick up online orders curbside or in the store. Through Shipt, which it purchased in December 2017, shoppers can get deliveries to their doorstep in a few hours because there is likely a Target store nearby. Items bought in a store can be delivered to homes in a number of cities, again because of Target’s massive footprint.

The company said that sales fulfilled via Shipt as well as curbside or in-store pickup more than doubled over the last year and drove nearly three quarters of its 34% online sales increase.

At the same time, Target is improving merchandise in its stores. It’s making its largest foray into a private label groceries next month as it attempts to energize grocery sales.

On Sept. 15, 650 products will appear on store shelves under the brand “Good & Gather.” That will expand to 2,000 products by late next year. The company expects that Good & Gather to be a multi-billion dollar business by the end of next year.

“By appealing to shoppers through a compelling assortment, a suite of convenience-driven fulfillment options, competitive prices and an enjoyable shopping experience, we’re increasing Target’s relevancy and deepening the relationship between our guests and our brand,” said Brian Cornell, chairman and CEO of Target in a statement.

Target Corp. profit jumped 17.4%, to $938 million, or $1.82 per share. That’s 21 cents better than Wall Street was looking for, according to a survey by Zacks Investment Research.

The Minneapolis retailer’s revenue was $18.42 billion, also breezing past expectations.

The company said it did not experience a significant impact from a cash register and credit card glitch that prevented sales for several hours on Father’s Day weekend.

The company now expects full-year earnings between $5.90 and $6.20 per share, up from the May guidance of between $5.75 and $6.05.

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