Target reinvention paying off as fashion demand helps Q1 numbers fly

After its bruising exit from Canada, at last some good news for Target. The US value retail giant, which is busy revamping and reinventing its operations, came out with some impressive figures Wednesday, outpacing its bigger rival Wal-Mart to boot.

A near-52% leap in Q1 profit reflected demand for the retailer’s revamped product selection, with strong fashion sales led by a Lilly Pulitzer frenzy, as well as robust online sales growth – two areas it had targeted for investment.

The results beat analysts’ expectations across the board and Target boosted the bottom end of its profit outlook for the year.

“We are really seeing the benefit of being able to focus on our US business,” CFO John Mulligan pointedly said, referring to its exit from Canada earlier this year

Target is beefing up a handful of areas such as fashion, children’s products and home furnishings and Mulligan said sales of those higher-margin “signature categories” were double the company average.

So how did all that upbeat news reflect in its trading statement?

Target said it earned $635m/98 cents per share for the quarter ended May 2, up from $418m/66 cents a year ago.

Including restructuring costs, Target said Q1 net earnings from continuing operations rose 14% to $651m/$1.10 per share

Revenue rose 2.8% to $17.12bn as comp sales rose 2.3%, like Wal-Mart, marking the third consecutive quarter of gains. A third of the comps growth came from online sales, which jumped 38.7%.

Those results raced past analysts’ expectations of $1.03 and $17.08bn respectively.

The company said that it now expects EPS for the year to range of $4.50-$4.65 up from $4.45-$4.65 per share. Analysts were expecting $4.56.

But Mulligan also gave a cautionary note saying consumer sentiment remained “choppy” and that it was hard to say whether Target was taking market share from Wal-Mart Stores, which posted disappointing results on Tuesday.

Under the new leadership of CEO Brian Cornell, Target in March announced plans to cut $2bn in costs. The restructuring included eliminating some jobs, a revamp of grocery operations and investments in technology and the supply chain.

“We’re pleased with our first quarter traffic and sales, particularly in our signature categories, which drove better-than-expected profitability through improved gross margin and continued expense management,” said Cornell. “We’re encouraged to see early progress on our strategic priorities, including strong sales growth in Apparel, Home and Beauty, nearly 40 percent growth in digital sales, and positive traffic in both our stores and digital channels.

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