M Macys Inc

By Khadeeja Safda and Allison Prang 

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

The company said Wednesday that comparable sales rose 4.8% in the quarter ended May 4. Chief Executive Brian Cornell said Target is growing sales and traffic more quickly than the broader market, resulting in share gains. Digital sales rose 42% from a year ago, accounting for nearly half of the overall comparable-sales growth.

Mr. Cornell attributed the results to a strong economy and Target's efforts to improve its supply chain, new brands it has created and remodeling of its stores. "We're continuing to see the bifurcation of winners and losers in retail," he said on a media call Wednesday.

The gross-margin rate declined slightly, which Target attributed to higher supply-chain and digital-fulfillment expenses. Target has been rolling out web delivery and pickup services from many of its stores.

Shares of Target, which are up 8.9% since the start of the year, rose 8.6% to $78.18 early Wednesday as the sales growth was higher than Wall Street analysts were expecting.

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

Target has expressed concerns over tariffs because it is among several big-box chains that import a significant portion of products from China. Mr. Cornell reassured investors Wednesday about the company's ability 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 has left American shoppers largely unscathed, as major consumer categories, including apparel and toys, have eluded tariffs so far.

Like other bricks-and-mortar retailers, Target has been spending heavily to adjust to changes in shopping habits. It faces competition from both Amazon.com Inc. online, as well as the country's largest retailer, Walmart, which recently added to over four years of sales increases.

Mr. Cornell has navigated a turnaround at Target by making investments. Comparable sales at the company have increased for the past two years.

Target has also been benefiting from store closures by Toys "R" Us and other retailers.

Some analysts have expressed concerns over Target's spending, suggesting that 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 quarterly profit rose 11% to $795 million, or $1.53 a share, compared with $718 million, or $1.33 a share, for the same quarter a year ago. Total sales climbed 5.1% to $17.4 billion.

Target said it expects a low-to-mid-single-digit increase in comparable sales in the second quarter. It reaffirmed its comparable-sales expectations and forecast for earnings for the fiscal year.

Write to Allison Prang at allison.prang@wsj.com

(END) Dow Jones Newswires

May 22, 2019 10:37 ET (14:37 GMT)

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