Unlike few major retailers, Target CorporationTGT came out with strong comparable sales (comps) numbers for the November/December period, which constitutes the significant holiday season. Target's holiday comps not only increased year over year, but the rate of growth also showed an improvement from the year-ago period. Clearly, the company's efficient store and digital strategies are yielding.
Despite such splendid results, management did not perk up its guidance, and instead kept it intact. Well, it looks like this was a let down for investors, as Target's shares fell close to 3% yesterday. Per some industry experts, the bearish stance could also be a ripple effect stemming from not so impressive numbers presented by bellwethers like Macy's M and Kohl's KSS .
Target Delivers Robust Holiday Performance
Coming back to Target, the Minneapolis-based retailer reported a 5.7% rise in comps for the combined November/December period, following a 3.4% increase recorded in the year-ago period. Markedly, comps grew across all five key merchandise categories, with Toys, Baby and Seasonal Gift products witnessing exceptional growth.
Target's 2018 holiday sales were fueled by robust traffic, favorable store comps and a 29% surge in comparable digital sales. Notably, Store Pickup plus Drive Up soared more than 60% year over year, and formed nearly 25% of Target's digital sales during the reported period. In fact, management anticipates 2018 to be the company's fifth straight year to showcase digital sales growth of more than 25%.
Without a doubt, Target has been gaining from its strategic initiatives to enhance omni-channel capacities, come up with new brands, remodel or refurbish stores, and expand same-day delivery options. Target has also adopted cost reduction strategy, rationalization of supply chain with same-day delivery of in-store purchases, and technology and process improvements.
Further, Target continues to lay emphasis on developing flexible format stores to penetrate deeper into urban areas. With the changing business scenario and rising competition, Target felt the need to have stores of various sizes and formats in order to better serve its target areas. This endeavor is certainly working in favor as management stated that Target's holiday season show benefited from efforts to position its stores efficiently, including in-store shopping and digital fulfillment.
While the holiday season proved to be a bliss for Target, the same was not the case with retailers like J.C. Penney JCP , which witnessed a 3.5% drop in holiday comps (on a shifted basis). Meanwhile, comps climbed just 0.7% (owned) and 1.1% (owned plus licensed) at Macy's, which was followed by a curtailed outlook. As for Kohl's, comps grew 1.2%, way lower than 6.9% growth witnessed in the same period last year.
Well, it looks like consumers' constant shift from stores to online along with intense competition has been pressurizing retailers. In fact, Target is also exposed to such headwinds and the company has lost 8.1% in a year's time frame, against the industry 's growth of 8.4%. Nevertheless, Target's constant efforts to keep pace with the changing consumer environment are on track, which also helped this Zacks Rank #3 (Hold) company stand out in the holiday season. Also, we believe that such efforts should help uplift the stock in the forthcoming periods.
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