Big investments in stores and in tech pay off at Target

Updated: 11:06 a.m. | Posted: 5:06 a.m.

Target reported strong sales growth both at stores and online, helped by remodeled locations and new delivery services as well as a stronger economy. Like Nordstrom, Walmart and Home Depot, it also raised its outlook as retailers benefit from shoppers spending more freely.

The company also joins a slew of other retailers that are enjoying the results of their efforts to spruce up their stores while also expanding online services to meet shopper demands for convenience and speed. The focus ran counter to forecasts that store retailing is dying.

Target saw sales at stores open at least a year, a key measure of a retailer's health, rise 6.5 percent, the strongest growth in 13 years. Traffic in stores and online rose 6.4 percent, the strongest showing since 2008 when it first started releasing that information.

Online sales soared 41 percent, surging past the 28 percent jump in the previous quarter.

"There's no doubt, that like others, we're currently benefiting from a very strong consumer environment, perhaps the strongest I've seen in my career," Target CEO Brian Cornell said.

But he also told analysts that Target's performance was due to more than just the economic climate and was reflected in broad market share gains across several merchandise categories.

Target is spending more than $7 billion through 2020 to update stores and it's seeking to penetrate urban areas with smaller locations. It's also is trying to improve the experience in its stores by retraining employees and paying them better.

The chain has overhauled its lineup of store brands and created new ones such as Pillowfort and Cat & Jack that have been popular with shoppers. It also recently launched its own brand of stylish electronics accessories like headphones and phone cases called Heyday.

With last year's acquisition of delivery service Shipt for $550 million, Target also can offer same-day delivery of groceries and other merchandise at more than 1,100 stores in 160 markets. It has started offering curbside pickup service for online shoppers at more than 800 stores in 25 states and next-day delivery for some items nationwide.

Target and other financially healthy retailers are also benefiting from the liquidation of Toys R Us as well as the moves by J.C. Penney, Sears Holdings Corp. and others to close some of their stores. Many are expanding their toy aisles and other areas to woo those chains' customers.

Minneapolis-based Target reported a profit of $799 million, or $1.49 per share, for the quarter. Earnings, adjusted for pretax gains, were $1.47 per share, 7 cents better than Wall Street expected, according to a Zacks Investment Research survey.

Revenue came to $17.78 billion, also better than expected.

"Target hit the bulls-eye in (the second quarter), with improvement across virtually every meaningful measure," said Moody's lead retail analyst Charlie O'Shea.

The company now expects earnings for the current fiscal year to be $5.30 to $5.50 per share. Analysts had expected $5.28 per share.

Target shares rose nearly 5 percent, or $4.13 to $87.40 in Wednesday trading.