In a holiday season that has brutally shown what shoppers are — and aren’t — looking for in a retailer, Target seems to be sliding into the winner’s circle.
Target jumped after raising revenue and profit forecasts, boosted by a 3.4 percent increase in holiday-period sales and a rise in store traffic. The cheap-chic retailer has lowered prices, raised employee wages and overhauled its supply chain to put some distance between itself and chains like Urban Outfitters that have disappointed investors with their year-end results.
“Companies that can compete are getting higher valuations, but there are others that people are concerned about,” said Brian Yarbrough, an analyst at Edward Jones. “The mall-based retailers seem to be under more pressure as mall traffic is hard to come by, and I don’t know what changes that.”
The just-ended holiday period could be the best for U.S. retailers in a decade, buoyed by low unemployment, robust consumer confidence and demand for hot items like L.O.L. Surprise toys and voice-enabled home assistants. But the rising tide hasn’t helped the weaker boats: While Target and Kohl’s enjoyed sales increases, Urban Outfitters, Express and American Eagle Outfitters were among those whose shares fell Tuesday after lackluster results.
Target’s holiday sales are a balm for Chief Executive Officer Brian Cornell, who’s nearly a year into a $7 billion turnaround plan that includes smaller urban locations, more store brands and lower prices on everyday items. Target made several moves last year to upgrade its web operations to keep pace with Wal-Mart and Amazon.com Inc., most recently the $550 million acquisition of startup Shipt, which will speed the rollout of same-day delivery.
Online sales should grow more than 25 percent this year, the company said, about half the pace of Wal-Mart’s e-commerce expansion of late. E-commerce transactions should comprise more than 11 percent of total holiday shopping, the largest portion ever, according to EMarketer.
Target shares rose as much as 4 percent to $69.88 in New York. The stock has gained about 7 percent in January, erasing much of last year’s 9.7 percent decline.
Target said it now sees full-year profit of $4.64 to $4.74 a share. The chain also raised sales and profit guidance for the fourth quarter, and said the new federal tax legislation will boost earnings between six and eight cents a share in the period. A lower corporate tax rate next year will also increase cash flow, the company said, which will be used for capital investments, dividends and share buybacks.
Target said the tax benefit would push up 2018 earnings to a range of $5.15 to $5.45 a share. That’s well above the $4.57 average of analysts’ estimates, and came as a “real surprise” to analyst Chuck Grom of Gordon Haskett Advisors.
The retailer’s performance could have been better as new store brands suffered from “poor merchandising and display,” according to analyst Neil Saunders of GlobalData Retail.
Still, shoppers snatched up items like Threshold home decor, Keurig coffee makers and Nintendo Switch game consoles, Target said. Total gift spending on average increased 18 percent over the holidays versus the same period last year, the International Council of Shopping Centers said in a separate statement Tuesday, and two out of three shoppers visited discounters like Target.
“Give ’em credit, it was a strong holiday,” Edward Jones’s Yarbrough said. “But is this the start of a trend, or a head fake? They need three or four good quarters in a row to get more people interested.”
