Target surprises in Q3; lifts forecast

Improving traffic and sales, particularly in the digital channel, helped Target Corp. easily beat third-quarter profit expectations as the discounter raised its year-end outlook.



Target’s profit increased 10.7% to $608 million, or $1.07 cents a share, up from $549 million, or 88 cents a share, in the year-ago period. Adjusted for one-time expenses, it earned $1.04 cents a share, which was better than the 83 cents analysts had expected.



Sales in the quarter, ended October 29, fell 6.7% to a better-than-expected $16.4 billion from $17.6 billion last year. Overall same-store sales were down 0.2%. The declines were attributed to the fact that Target no longer includes pharmacy sales in its results since it sold its Rx business to CVS.



Target’s online sales jumped 26%, and contributed 0.7 percentage points to comparable sales growth.



“We are very pleased with our third quarter financial results, which reflect meaningful improvement in our traffic and sales trends and much stronger-than-expected profitability,” said Brian Cornell, chairman and CEO of Target. “Favorable gross margin mix and efficient execution by our team drove third quarter EPS performance well beyond our guidance.”



Cornell said the chain continued to gain market share in its key signature categories and saw unexpectedly strong sales in the back-to-school season.



“As we move into the biggest quarter of the year, we are pleased with our inventory position and confident that our team will deliver a great guest experience as they bring our merchandising and marketing plans to life throughout the holiday season,” he said.



Target raised its expectations for fourth quarter comparable sales and now expects growth in the range of (1.0)% to 1.0%, compared with prior guidance of (2.0)% to flat. In fourth quarter 2016, Target expects both GAAP EPS from continuing operations and Adjusted EPS of $1.55 to $1.75.



For full-year 2016, Target now expects GAAP EPS from continuing operations of $4.67 to $4.87, compared with prior guidance of $4.36 to 4.76. The company expects full-year 2016 Adjusted EPS of $5.10 to $5.30, compared with prior guidance of $4.80 to $5.20. The 43-cent difference between these ranges reflects early debt-retirement losses and a small benefit from the resolution of income tax matters.