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Target’s investments paid off with a strong holiday season, analysts say

Target Corp. is poised to “be one of the top performers for holiday 2018,” Charlie O’Shea, Moody’s lead retail analyst, said after the retailer reported same-store sales growth of 5.7% for the November and December period.


TGT, +1.93%

said store pickup and the Drive Up service grew more than 60% year-over-year, and accounted for 25% of digital sales for the quarter. Digital sales were up 29% over the two-month period, with the company on track to exceed 25% digital growth for the year.

Target continues to expect fourth-quarter same-store sales growth of 5%, adjusted earnings per share of $5.30 to $5.50, and EPS of $5.41 to $5.61.

With this outlook, Target Chief Executive Brian Cornell says it would be the “strongest” full-year same-store sale growth since 2005.

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“This performance also continues to demonstrate the positive impact of the company’s significant investments enhancing its stores and improving its online capability, with the successful leveraging of its stores to support its online business clearly bearing fruit this holiday,” O’Shea said.

Still, Target shares were down nearly 5% in Thursday trading after Macy’s Inc.

M, -2.64%

cut its profit and sales outlook and Kohl’s Corp.

KSS, +1.10%

announced its same-store sales growth decelerated during the holiday period.

“Over the past couple of years, Target’s store execution on festive products has been patchy,” wrote Neil Saunders, managing director of GlobalData Retail. “However, this year Target won Christmas with a very compelling and well-executed assortment of decorations, décor, gifting and food.”

And where margins were a worry due to the drag from the e-commerce business, Target has managed to seemingly avoid that as well.

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“While we did have some concerns about the impact this push may have on profits, most of the digital uplift appears to have come from store-based collections,” wrote Saunders. “As these are higher margin, it has eased our worries considerably.”

Cowen analysts led by Oliver Chen said Target has momentum in both its stores and online and expect it to accelerate.

“We believe a combination of improved value and messaging and compelling private brand innovation are resonating with shoppers and driving physical store traffic,” the note said.

Cowen rates Target stock as outperform with a $100 price target.

Target shares have fallen 6% over the last 12 months while the SPDR S&P Retail ETF

XRT, +0.53%

has fallen 7.2% and the S&P 500 index

SPX, -0.01%

is down 6.2%.

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