Target is apparently making some headway in its turnaround efforts, reporting its first increase in comparable-store sales after four straight negative quarters amid a surge in online traffic.
The retailer on Wednesday said comparable sales rose 1.3% in the second quarter, better than the expected 0.7% growth. It also earned an adjusted profit of $1.23 a share on revenue of $16.43 billion, beating analysts’ estimates of earnings of $1.19 a share on revenue of $16.30 billion.
As CNBC reports, the increase in comp sales followed “a year of declines and amid growing skepticism about the retailer’s turnaround efforts,” which have included doubling the number of small-format stores, investing heavily in e-commerce, and lowering grocery prices.
The online business helped fuel the second-quarter improvement, with comparable digital channel sales increasing 32% and contributing 1.1 percentage points to overalll comp sales growth. According to CEO Brian Cornell, comp sales were up in all categories except food and beverage, which was flat.
“It’s a clear sign that we’re pursuing the right strategy,” he said in a conference call.
Like other retailers, Target has been grappling with what Cornell has called a “seismic shift” in the industry as customers spend more on experiences and demand quicker, more convenient ways to shop. In the first quarter, its comp sales, a key retail metric, were down 1.3%.
Target shares have slid 25% since the start of the year, but on news of the earnings, they rose 4% to $56.52 in trading Wednesday.
“For a little while, [Target] seemed to have lost its way but now appears to be getting back into that ‘Tar-jay’ mode from both a merchandising and an operating perspective,” Moody’s analyst Charlie O’Shea told Reuters.
The lower pricing carries a risk — CFO Cathy Smith said Target’s gross margin rate fell by about 40 basis points and could face additional margin pressure for the rest of the year.
“While our recent results are encouraging, we will continue to plan prudently as we invest in building our brands, our digital channel, the value we provide our guests and elevating service levels in our stores,” Cornell said.