Shares of Target (TGT +1.64%) are down roughly 20% so far this year as the big-box store works to update its selling model for the digital age. Shares have been showing renewed signs of life since the last quarterly report, however. Here are three things investors should look for during the next earnings report, due on Nov. 15.
Data by YCharts.
1. Keeping the traditional shopper engaged
Traditional retailing has been getting turned on its head as years of double-digit online sales growth start to edge out brick-and-mortar competition. Target hasn't escaped the trend, as same-store sales have declined, led by falling in-store traffic.
|
Metric |
2015 |
2016 |
Q1 2017 |
Q2 2017 |
|---|---|---|---|---|
|
% of sales in-store |
96.6% |
95.6% |
95.7% |
95.7% |
|
Total same-store sales growth (decline) |
2.1% |
(0.5%) |
(1.3%) |
1.3% |
Data source: Target.
The last quarter notched a surprise increase, though, as Target was able to lure shoppers back to stores along with an increase in online business (more on that below). How did the retailer do it?
Early in the year, CEO Brian Cornell outlined a multiyear effort to update Target for the 21st century. Over 100 stores are being remodeled this year, new small-format stores are being built, prices on merchandise are being cut, and more than a dozen exclusive Target style brands are launching through the end of next year. Look for more proof that these initiatives are working in the third-quarter report.
An in-store display of one of Target's new brands, Goodfellow and Co. Image source: Target.
2. Digital sales have been a bright spot
Very little of Target's sales are online, but the company has been trying to quickly change that. Thanks to a big surge during holiday shopping season, online sales crossed 4% of the total for the first time in 2016. Online sales have continued to grow by double digits, peaking above 30% last quarter.
|
Metric |
2016 |
Q1 2017 |
Q2 2017 |
|---|---|---|---|
|
% of sales online |
4.4% |
4.3% |
4.3% |
|
Digital comparable sales increase |
29% |
22% |
32% |
Data source: Target.
The digital metric has been a lone bright spot for the business over the past couple of years, as it has helped offset declining store traffic, and management has shown interest in making that positive a competitive edge. In addition to some of the aforementioned in-store initiatives, some specific digital strategies have also been started.
Among them are new next-day home delivery ordering through Restock, testing of same-day delivery in select markets, same-day in-store and curbside pick-up, and the acquisition of a transportation technology company earlier in the year. Maintaining strong double-digit growth will be key as Target plays catch-up as roughly 9% of retail sales are done online in the U.S.
3. Will sales and promotions eat up the bottom line?
All of these new initiatives have eaten into the bottom line, as expected when the business-model overhaul was announced. Guidance for the whole year was upgraded during the second quarter to $4.35 to $4.55 per share, a 3% to 7% decline from 2016. However, through the first six months of 2017, earnings per share are at $2.44, 11% higher than the same period last year.
It's too soon to tell if all the new activity will cause the forecast bottom-line drop to transpire, but thus far it looks as if management's new plan is paying off. If the company can muster another strong report card in the third quarter, shares could rebound in a big way.
