Target Corp. shares jumped more than 6% on Wednesday after the retailer reported a lower-than-expected drop in same-store sales and an improved outlook.
For the third quarter, comparable sales fell 0.2%, rebounding from a 1.1% slump in the previous quarter. The results came as some relief to investors, who were told in August that same-store sales could fall as much as 2%. Wall Street analysts had predicted a 1% decline.
Target now expects fourth-quarter comp sales, which include the key holiday season, to range from a drop of 1% to an increase of 1%, compared with earlier guidance of -2% to flat.
“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,” Target CEO Brian Cornell said in a news release.
Traffic fell 1.2% after a 2.2% drop in the previous quarter. “Still, Target’s sales goal for the season is still a far cry from the 2.5 percent goal executives set out at the beginning of this year,” the Minneapolis Star-Tribune noted.
The third-quarter results were boosted by an unexpectedly strong back-to-school season with sales growth in higher-margin areas such as home and apparel. Online sales climbed 26%, helped in part by a one-day promotion over the summer that gave shoppers 10% off most items online and in its stores.
Overall, Target earned $608 million, or $1.06 a share, up 11% from the same period a year ago. Adjusted for one-time expenses, it earned $1.04 cents a share, beating the 83 cents analysts had expected.
Brian Yarbrough, an analyst with Edward Jones, credited Target for managing expenses and inventory, which along with aggressive share buybacks, have helped grow earnings per share in a year even though sales have underperformed.
“But if you just step back from the quarter, the same concerns remain,” he told the Star-Tribune. “Traffic is still negative. Food is still a drag.”
In trading Wednesday, Target shares rose 6.4% to close at $76.03.