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Target sees year-end boost as digital lifts comparable sales

CEO Brian Cornell: Traffic, comp growth strongest in over a decade

Target Corp. ended its 2018 fiscal year with robust comparable and digital sales gains, with earnings in line with Wall Street’s forecast.

For the fourth quarter closing on Feb. 2, total revenue was flat at $22.98 billion, Target reported Tuesday. Comparable sales rose 5.3% year over year, fueled by increases of 2.9% for comparable stores and 31% for digital, which contributed 2.4% growth to overall comp sales. Traffic climbed 4.5%, and the average transaction was up 0.8%. Stores fulfilled almost 75% of digital sales in the quarter, the company said.

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Operating income in the fourth quarter dipped 1% to nearly $1.12 billion from about $1.13 billion a year earlier. Target noted that year-over-year comparisons of operating income and revenue reflect the impact of an extra week in the fiscal 2017 fourth quarter.

Fiscal 2018 revenue came in at $75.36 billion, up 3.6% from $72.71 billion in 2017. Target said its full-year comparable sales growth of 5% marked the retailer’s strongest performance since 2005. Same-store sales for the year rose 3.2%, while digital comp sales surged 36%, contributing 1.8% to overall comparable sales. Traffic edged up 5%, with transaction size virtually flat at a 0.1% uptick.

Full-year operating income totaled $4.11 billion, down 2.7% from $4.22 billion in 2017, which had 53 weeks.

Target said 2018 represented the fifth straight year of higher than 25% comparable digital sales growth. The retailer noted that it also saw healthy comp sales and market share growth across all five of its core merchandise categories for the fourth quarter and full year.

Stores originated 89.6% of fourth-quarter sales versus 10.4% for digital, the Minneapolis-based discount store chain said. For the year, stores originated 92.9% of sales compared with 7.1% for digital.

Brian_Cornell_Target_2019_NRF_show.png"We're very pleased with our fourth-quarter performance, which capped off an outstanding year for Target,” Chairman and CEO Brian Cornell (left) said in a statement. “Thanks to the dedication of Target's team, we delivered our strongest traffic and comparable-sales growth in well over a decade, and our 2018 adjusted EPS set a new all-time record for the company.

“We have been driving an ambitious agenda to transform our company, evolve with our guests and drive strong growth. On every count we've been successful and, as we enter 2019, we will continue to lead the industry by adapting, innovating and delivering more for our guests and shareholders."

At the bottom line, reported net earnings for the 2018 fourth quarter were $799 million, or $1.52 per diluted share, compared with nearly $1.09 billion, or $1.99 per diluted share, a year ago. The decrease primarily stems from an income tax benefit of 63 cents per diluted share realized in the 2017 quarter from the federal Tax Cuts and Jobs Act.

Adjusted earnings for the 2018 quarter were $1.53 per diluted share (continuing operations) versus $1.36 a year earlier, Target said. On average, analysts projected adjusted earnings per share (EPS) of $1.52, with estimates ranging from a low of $1.43 to a high of $1.58, according to Refinitiv/Thomson Reuters.

Overall reported net income for fiscal 2018 was $2.94 billion (continuing operations), or $5.51 per diluted share, compared with $2.91 billion, or $5.29 per diluted share, in 2017. Excluding the impact of Tax Act and other income tax matters for both years and a loss on the early retirement of debt in 2017, adjusted EPS (diluted) was $5.39 for 2018 versus $4.69 for 2017, according to Target.

Wall Street’s consensus estimate was for 2018 adjusted EPS of $5.39, with projections running from a low of $5.30 to a high of $5.50, Refinitiv/Thomson Reuters reported.

Looking ahead to fiscal 2019, Target forecasts a low- to mid-single-digit rise in comparable sales and a mid-single-digit increase in operating income. Both reported and adjusted EPS from continuing operations are projected at $5.75 to $6.05.

Prior to Target’s earnings report, analysts’ average estimate was for adjusted EPS of $5.61 in fiscal 2019, with a range of $5.24 to $5.85.  

“An encouraging fiscal 2019 guidance, with a stabilizing EBIT percentage, along with a strong finish to fiscal 2018, leaves us optimistic about Target’s growth strategy and more confident in their ability to compete with other mass retailers,” Jefferies analyst Christopher Mandeville said in a research note Tuesday.

Target finished fiscal 2018 with 1,844 stores, up from 1,822 a year earlier. Retail square footage was essentially flat as Target ended 2018 with 71 stores of 49,999 square feet or less, compared with 48 stores of that size in 2017.

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