Target, after solid 3Q, gets cheery about the holidays

Anne D'Innocenzio and Michelle Chapman
Associated Press

Target breezed past Wall Street expectations for the third quarter and with the crucial holiday season fast approaching, it upped its key sales outlook for the critical period as well.

Target also increased its annual profit outlook. Shares surged almost 8 percent Wednesday before the opening bell.

The news was encouraging after the retailer stumbled in the second quarter, as it saw traffic and a key sales measure fall after a string of quarterly gains. But for the third quarter, Target saw traffic improve and its key sales metric slipped just 0.2 percent, much higher than its guidance that called for that metric to be anywhere from flat to down as much as 2 percent.

The results, announced Wednesday, show that Target’s efforts to fix some of the issues that dragged down its business this past summer are working. One of the big problems: Target didn’t push the second part of its “Expect More, Pay Less” slogan and so it vowed it would heavily market items like groceries to bring shoppers back to the stores.

Under Brian Cornell, Target has been trying to reinvigorate itself to restore its cheap-chic status. It’s focusing on categories like fashion, home furnishings and wellness products, creating vignettes featuring home products and launching the children’s line Cat & Jack. For the holiday shopping season, it is hoping to lure shoppers with lots of different ways from a Broadway style marketing campaign to more exclusive toys.

But it’s also focusing on value. About 60 percent of Target’s marketing messages this holiday season will be about value, up about 20 percent from the last year. As part of that strategy, it unveiled Wondershop, which offers more than 2,000 season items that include ornaments under $3.

“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,” said Cornell in a statement.

Target earned $608 million, or $1.06 per share, for the three months ended Oct. 29. That compares with earnings of $549 million, or 76 cents per share, a year earlier.

Excluding certain items, earnings were $1.04 per share. That’s well above the 83 cents per share that analysts polled by Zacks Investment Research called for.

Selling, general and administrative expenses and depreciation and amortization expenses fell in the quarter.

Revenue for the Minneapolis-based company declined to $16.44 billion from $17.61 billion, hampered partly by the removal of pharmacy and clinic sales. Still, it topped the $16.32 billion that analysts surveyed by Zacks predicted.

Sales at stores open at least a year, a key gauge of a retailer’s health, edged down 0.2 percent. This figure includes excludes results from stores recently opened or closed.

Target now anticipates full-year adjusted earnings in a range of $5.10 to $5.30 per share. Previously it predicted earnings between $4.36 and $4.76 per share. Analysts are looking for earnings of $4.95 per share, according to a FactSet survey.

Target Corp. now foresees fourth-quarter same-store sales down 1 percent to up 1 percent. Its prior outlook was for the metric to be down 2 percent to flat. The chain predicts a fourth-quarter adjusted profit of $1.75 per share. Analysts polled by FactSet expect a profit of $1.60 per share.

Its shares rose $5.57, or 7.8 percent, to $77.01 in premarket trading about 90 minutes ahead of the market open.