Target Has Found the Secret to Getting the Most Out of Its Stores

After revamping its business strategy to focus on creating better cohesion between its brick-and-mortar and digital businesses, Target Corp. is reaping the rewards.

The retailer announced today that its comparable sales during the holiday season — the combined November/December period — grew 3.4 percent, besting the expected range of 0 to 2 percent. Comparable sales across all of the company’s core merchandise categories — Home, Apparel, Food & Beverage, Hardlines and Essentials — were also positive and accelerated from the third quarter, reflecting strong traffic growth, positive store comps and continued growth in digital sales, the company said.

Target has been among the retailers — such as Walmart and department stores Macy’s Inc. and J.C. Penney Co. Inc. — to put aggressive efforts behind redesigning its stores to better support accelerating digital demand ahead the holiday rush. (Macy’s and JCPenney last week also reported growth in their same-store sales, resulting in no small part from a more effective omnichannel strategy.)

“We’ve positioned our stores at the center of a continually expanding suite of convenient fulfillment options and made significant investments in our team, which enabled our stores to fulfill 70 percent of all digital orders in the November/December period,” said Target chairman and CEO Brian Cornell. “As we look ahead to 2018, we will build on the foundation we established this year by launching additional exclusive brands, enhancing our digital capabilities, opening approximately 30 small-format stores and tripling the size of our remodel program to more than 325 stores.”

He added, “We will also remain focused on rapidly scaling up new fulfillment options including Same Day Delivery, which will be enabled by our acquisition of Shipt and our recently launched Drive Up service.”

(Small-format stores have also become a new tactic for retailers looking to tap into digital opportunities while holding onto a physical presence. Nordstrom Inc. has launched a similar concept, Nordstrom Local.)

With its digital business booming, Target now expects 2017 will be the fourth consecutive year in which its digital sales grow more than 25 percent.

The retailer also raised its fourth-quarter and full-year guidance — reflecting the benefits of its new strategy as well as perks from federal tax reform — and released a first look at its 2018 expectations.

Target now expects Q4 comparable sales growth in a range around 3.4 percent, consistent with results in the November/December period. This would translate into full-year 2017 comparable sales growth of just over 1 percent. Total sales are expected to grow more than 9 percent in the fourth quarter. Adjusted EPS is forecasted in the range of $1.30 to $1.40, compared with the prior range of $1.05 to $1.25, reflecting expectation reflects a 6- to 8-cent benefit resulting from recently enacted federal tax reform legislation. For full-year 2017, the company expects adjusted EPS of $4.64 to $4.74, compared with prior guidance of $4.40 to $4.60.

For fiscal 2018, the company is planning for a low-single-digit increase in its comparable sales and flat EPS, excluding the benefit of federal tax reform. On an adjusted basis (including the expected benefit from federal tax reform), Target expects adjusted EPS of $5.15 to $5.45.

Target shares were popping in response to the upbeat holiday announcement and upward-adjusted forecasts. As of 11 a.m. ET, the shares were up 2.8 percent to $69.01.

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