Same-day deliveries, store revamps drive Target's strong results

Target Corp beat first-quarter estimates for same-store sales and profit on Wednesday, as the retailer’s strategy to invest more in its delivery services and revamp stores drew in more shoppers, sending its shares up more than 9%.

With customers increasingly expecting faster deliveries, Target has been ramping up its services for the last couple of years in its effort to better compete with online giant Amazon.com Inc and brick-and-mortar rival Walmart Inc.

Target’s services such as Shipt, order pickup and drive-up allow shoppers to pull into a store and pick-up their orders in minutes or get them delivered to their homes within hours of placing them through the mobile app or website.

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These delivery options drove more than 25% of the better-than-expected 4.8% growth in same-store sales and over half of its 42% growth in comparable digital sales in the quarter.

“Target hit the bullseye in Q1, with every meaningful measure demonstrating the soundness of its revamped strategy and its successful execution,” Moody’s analyst Charlie O’Shea said.

The retailer has also been spending billions of dollars to remodel stores and use them as hubs to serve online orders, helping the company deliver products quickly.

Target is remodeling 300 stores a year and aims to cover 1,000 stores by the end of next year as it looks to grow its online sales by more than $1 billion in 2019.

“Our ability to offer the same-day services, which deliver high level of satisfaction, is a result of our strategy to put stores at the center of fulfillment,” Chief Operating Officer John Mulligan said on a post earnings call.

Store traffic grew 4.3% in the quarter, helping the company forecast second-quarter adjusted profit largely above expectations.

Target said it has factored in the recent hike in tariff on Chinese goods to 25% in its full-year forecast, which it kept unchanged.

“Our team continues to monitor trade negotiations and develop contingency plans to help mitigate the impact of tariffs on our business,” Chief Executive Officer Brian Cornell said.

The company’s net earnings rose 10.8% to $795 million, or $1.53 per share. Analysts on average were expecting it to earn $1.43 per share, according to IBES data from Refinitiv.

Total revenue rose 5% to $17.63 billion, beating expectations of $17.52 billion.