Target Q1 profit surges 52% as turnaround efforts take hold

MINNEAPOLIS —Target Corp. on Wednesday reported a larger-than-expected increase in first-quarter profit amid signs that its efforts to refocus and revamp its product lineup are taking hold. Target executives said they are “pleased” with its first quarter, particularly the performance of its signature categories, as the retailer also posted a lift in sales and double-digit gains in its digital channel.



“We’re pleased with our first quarter traffic and sales, particularly in our signature categories, which drove better-than-expected profitability through improved gross margin and continued expense management,” stated Brian Cornell, chairman and CEO of Target. “We’re encouraged to see early progress on our strategic priorities, including strong sales growth in apparel, home and beauty, nearly 40% growth in digital sales, and positive traffic in both our stores and digital channels. We continue to benefit from strong execution by our stores team, who overcame weather challenges and West Coast port delays to deliver outstanding guest service in the first quarter.”



During the first quarter, sales increased 2.8% to $17.1 billion from $16.7 billion last year, reflecting a 2.3% increase in comparable sales combined with sales from new stores. Digital channel sales grew 37.8% and contributed 0.8 percentage points to comparable sales growth.



During the quarter, adjusted earnings per share from continuing operations (adjusted EPS) were $1.10, up 19.6% from 92 cents in 2014. GAAP EPS from continuing operations were $1.01, compared with 89 cents in first quarter 2014.



In providing an update on its Canadian operations, as of April 12, Target Canada completed its inventory liquidation efforts and closed the last of its 133 Canadian retail stores. A court-approved real estate sales process is underway and expected to be complete by the end of June.



Consistent with expectations, after-tax losses from discontinued operations were $16 million in first quarter 2015, compared with $153 million last year. Certain assets and liabilities of Target’s discontinued operations are based on estimates.



Target also noted that it incurred breach-related expenses of $3 million in first quarter 2015, compared with $18 million of net pre-tax expense last year. Since fourth quarter 2013, Target has incurred net expense related to the data breach of $166 million, reflecting $256 million of gross expense, partially offset by the recognition of a $90 million insurance receivable.



Looking ahead to the second quarter 2015, Target expects adjusted EPS of $1.04 to $1.14, compared with $1.01 in second quarter 2014. The company now expects full-year 2015 adjusted EPS of $4.50 to $4.65, compared with prior guidance of $4.45 to $4.65.