Target rings up strong holiday sales growth of 5.7 percent

In a holiday season filled with high expectations for the nation's retailers, Target's bets on free shipping and a growing list of shopping options paid off.

Target Corp.'s comparable sales soared 5.7 percent in November and December compared with last year, the retailer said Thursday, a surge that outpaced many of its rivals and fueled what is likely to be the retailer's biggest improvement in full-year sales since 2005.

But Target and most other retail stocks took a beating on Wall Street, as investors wondered whether holiday deals might have eroded profits and whether consumers might become wary of the undulating stock market and growing partisan rancor.

Target shares closed at $68.29, down almost 3 percent.

Target's gains came as more people hit Target's stores and shopped online, executives said, as the average amount shoppers spent increased only slightly.

The Minneapolis-based retailer is expected to report its fourth-quarter and year-end results in early March. The company maintained its earlier guidance of fourth-quarter comparable-sales growth of 5 percent and full-year adjusted earnings per share between $5.30 and $5.50.

Charlie O'Shea, Moody's lead retail analyst, said in a report that the results demonstrate that the company's investments in stores and online shopping is "clearly bearing fruit this holiday."

Target also announced a series of management moves that involve a half dozen senior executives.

Among the announcements: Chief Financial Officer Cathy Smith will retire as soon as the company names a successor. Smith came to Target from Express Scripts in 2015, a year after Brian Cornell became CEO, and will serve as an adviser until May 2020.

Target also created a new position to oversee the company's food and beverage division, and named Stephanie Lundquist, the current head of human resources, to the post.

Many of the nation's major retailers are announcing holiday results this week in what has long been forecast as a bumper year of sales growth for retailers in position to handle the demands of online shoppers and high expectations of low-cost delivery.

In December, Mastercard SpendingPulse said that U.S. retail sales rose 5.1 percent between Nov. 1 and Dec. 24 from a year earlier. The figures include online and in-store spending across all forms of payment.

For Target, it's the second year of strong gains during the critical period. In 2017, Target's November-December sales were up 3.4 percent, giving it a healthy two-year upswing of 9 percent.

All major categories had sales increases, but the company highlighted gains in toys, baby products and low-priced seasonal gifts sold at its kiosks and end-caps.

But the "star of the show" was a 29 percent spike in digital sales from mobile shopping and Target's website, said Neil Saunders of GlobalData Retail in a research note.

"In our view, a lot of this comes down to the various deals Target offered on delivery as well as the strong marketing around online ordering," he said. "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. As these are higher margin, it has eased our worries considerably."

Target is on the final stretch of a three-year, $7 billion structural overhaul that includes updating its technology, reformatting stores and changing how it ships and delivers packages.

It also pledged same-day delivery in 46 states through its Shipt subscription service, and expanded drive-up services to nearly 1,000 stores a month before the holiday shopping rush got underway.

While Wall Street remains edgy about the hit to profit margins to compete with Amazon for speedy and low-cost delivery, Target officials said the payoff is becoming evident.

Shoppers saved the company shipping costs by picking up merchandise themselves on about a quarter of those digital sales. Target said its in-store pickup and drive-up services grew about 60 percent compared with last year.

With many of its stores now redesigned to accommodate more efficient boxing and packaging of online orders, Target said three out of four online orders were mailed from a store.

Digital sales remain a small but growing part of the retailers' overall mix — accounting for 6 percent of total sales through the third quarter.

The retailer predicts that this will be the fifth consecutive year that online sales have jumped more than 25 percent.