(Reuters) – Target Corp raised its profit outlook for the year on Wednesday as its investments in same-day delivery and pick-up services increased traffic to its website and stores in the second quarter, sending shares up 17% to a record high.
FILE PHOTO: An empty shopping cart stands outside a target store during a Black Friday sales event in Westbury, New York, U.S., November 23, 2018. REUTERS/Shannon Stapleton
The retailer has been spending billions of dollars to build out its same-day services with initiatives like Shipt, in-store pickup and Drive-up as customers increasingly get used to faster deliveries from rivals Amazon.com Inc and Walmart Inc.
Target said one out of five customers, who used its same-day service in the quarter, were new, with shoppers collecting their orders from stores within a couple of minutes of placing them through the mobile app or website.
“Q2 could not have gone better for Target,” Moody’s vice president Charlie O’Shea said.
Target’s same-day services also drove more than three-fourths of the 34% increase in comparable digital sales. The robust online sales accounted for more than half of its total same-store sales.
“Because these options leverage our store infrastructure, technology and teams, same-day fulfillment delivers outstanding financial performance as well,” Chief Executive Officer Brian Cornell said on a post earnings call.
The quicker deliveries, Target executives said, also powered profitability as margins expanded for the first in nearly three years, increasing 30 basis points to 30.6% in the quarter.
Margins also benefited from a better assortment of its products and competitive pricing and comes at a time when rival Walmart Inc’s margins dropped 46 basis points in the same period.
“While many department store peers struggle to sustain positive traffic and stable gross margins, Target is finding the right balance,” Evercore analyst Greg Melich said.
Target’s comparable sales rose by a better-than-expected 3.4% as demand for apparel, toys and beauty products rose. Late in the quarter, the retailer also benefited from back-to-school promotions.
Its strategy to add more private label brands, redesign about 300 stores each year and open smaller locations in college towns and urban areas helped store traffic grow 2.4%.
Earlier this week, the company said it was starting a new food and beverage brand, Good & Gather, that would hit stores in September.
Target expects full-year adjusted profit to be between $5.90 and $6.20 per share, up from the prior range of $5.75 to $6.05 per share. The outlook accounted for potential additional U.S. tariffs on Chinese imports.
“As long as the trade situation remains fluid, it will present an additional layer of uncertainty and complexity as we plan our business,” CEO Cornell said.
Excluding certain items, Target earned $1.82 per share, beating the average analyst estimate by 20 cents. Total revenue rose 3.6% to $18.42 billion, above expectations of $18.34 billion.
The company’s stock, which have risen 29% this year, rose to $100.58, driving gains in other retail players and adding to broad gains for Wall Street.
Reporting by Aishwarya Venugopal in Bengaluru; Editing by Shounak Dasgupta and Arun Koyyur