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Improved stores, merchandise and digital services helped lure shoppers

By Khadeeja Safdar and Allison Prang 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 23, 2019).

Target Corp. said sales and profit rose at the start of the year, as improvements to its stores, merchandise and digital capabilities continued to attract more shoppers.

The retailer on Wednesday reported a 4.8% rise in comparable sales for the quarter ended May 4. Chief Executive Brian Cornell said Target's sales and traffic are growing more than the broader market, resulting in share gains.

Digital sales rose 42% from a year earlier, accounting for nearly half of overall growth in comparable sales, a measure that excludes the impact from newly opened or closed stores.

Mr. Cornell credited a strong economy as well as Target's efforts to improve its supply chain, remodel stores and create new brands. "We're continuing to see the bifurcation of winners and losers in retail," he said on a media call Wednesday.

Gross margin declined slightly in the period, which Target attributed to higher supply-chain and digital-fulfillment expenses. The Minneapolis-based company has been rolling out web delivery and pickup services for many of its stores.

Shares of Target, which have gained roughly 9% since the start of the year, rose 7.8% to $77.54 on Wednesday as the growth in sales was higher than Wall Street analysts were expecting.

Results from retailers have been mixed so far this year. Walmart Inc. was among several chains posting stronger-than-expected sales in the recent quarter, while results from Kohl's Corp. and J.C. Penney Co. clouded the outlook for the sector. Many retailers are also bracing for an increase in tariffs on goods imported from China.

Target, which is a significant importer from China, has expressed concerns over tariffs. But Mr. Cornell told investors Wednesday that the company is well-positioned to manage the higher costs.

"When there are external impacts to one business area or category, we're able to balance the impact across our business in ways not available to a single-category retailer," he said.

Earlier this month, the Trump administration imposed a 25% tariff on $200 billion in Chinese goods, up from a 10% duty put in place in October. The U.S-China trade fight hasn't hit American shoppers very hard as major consumer categories, including apparel and toys, have eluded tariffs so far.

Like other retailers, Target has been spending heavily to adjust to changes in shopping habits that have made Amazon.com Inc. a powerful competitor. Walmart also fortified its position as the country's largest retailer by recently adding to more than four years of sales increases.

Mr. Cornell has made investments to steer a turnaround at Target that has included comparable sales gains for the past two years. The retailer has also been benefiting from store closures by Toys "R" Us and others.

Some analysts have expressed concerns over Target's spending, suggesting the retailer could experience more gross-margin pressure in the long term. In a research note this week, Morgan Stanley said Target's store-based supply chain "could limit margin improvement and beget another round of investment in the future."

Target, which has long sought to distinguish itself from Walmart with fashion, said it launched new brands for intimates, sleepwear and household essentials and plans to add another label for beach and pool products. Last weekend, it attracted crowds to many stores with a limited collection of apparel and home accessories from preppy brand Vineyard Vines.

"The Vineyard Vines launch is already one of the most successful in our history," said Mark Tritton, the company's chief merchandising officer.

Target's first-quarter profit rose 11% from a year earlier to $795 million, or $1.53 a share. Total sales climbed 5.1% to $17.4 billion.

Target said it expects a low-to-mid-single-digit percentage increase for comparable sales in the current quarter, and affirmed its comparable-sales expectations and forecast for earnings for the full fiscal year.

Write to Khadeeja Safdar at khadeeja.safdar@wsj.com and Allison Prang at allison.prang@wsj.com

(END) Dow Jones Newswires

May 23, 2019 02:47 ET (06:47 GMT)

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