Online Sales Fuel 1.9% Growth at Target

The retailer posted a 34% increase in digital sales but holiday-season promotions aimed at driving that growth cut into profits.
Katie Kuehner-HebertFebruary 24, 2016

Target’s turnaround efforts continued to gain traction in the fourth quarter but the retailer’s aggressive promotions aimed at boosting online sales cut into profits.

Target on Wednesday posted comparable-sales growth of 1.9% in the three months ended Jan. 31, fueled in large part by a 34% increase in digital sales. Promotions and efforts to upgrade stores brought more traffic to stores for the fifth straight quarter.

The company aggressively courted online shoppers during the holiday season with free shipping on all orders during the holidays and steep site-wide discounts, like 15% off all Cyber Monday purchases.

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Target also swung to a profit, reporting $1.4 billion in net income, compared to a loss of $2.6 billion a year earlier when the company recorded losses from exiting its Canada business. But at $1.52 per share, adjusted earnings missed analysts forecasts by two cents.

“Target and other retailers are struggling to find a balance between pursuing rapid online sales growth, where customers are increasingly shopping, and protecting margins,” the Wall Street Journal said.

Target’s gross margins fell to 27.9% for the fourth quarter from 28.4% last year, reflecting the holiday promotions and other discounts for both in-store and web purchases.

“Digital does have a little more challenged economics,” Target CFO Cathy Smith said on a conference call with analysts.

Nevertheless, Target’s fourth-quarter performance topped rival Wal-Mart Stores, which last week reported that comparable sales rose 0.6% in the fourth quarter with 8% online growth. Another competitor, Amazon, posted a 24% increase in online sales in North America.

“Target has been regaining traction with customers over the past year as [CEO Brian] Cornell has helped reinvigorate certain core categories for the brand, including baby goods, home and apparel,” USA Today wrote.

Target’s stock was up more than 3%, at $76.30, in trading Wednesday, bringing its gains for the year to 5%.

“With traffic growing for five consecutive quarters and our signature categories of Style, Baby, Kids, and Wellness leading our growth, Target’s results demonstrate that we are focused on the right strategic priorities,” Cornell said in a news release.