Target made meaningful progress in bringing traffic and comparable sales back into positive territory last quarter. Perhaps most important were the areas powering that improvement, as their increased importance during the holidays put Target in position to win.
Growth in the discounter's so-called signature categories — baby, style, kids and wellness — accelerated during the recently ended period, and outpaced the company average by more than 3 percentage points.
These products will help differentiate Target's merchandise during the holiday season, and should allow it to maintain pricing power in a highly promotional environment. Not only that, but because these private label items cut out the middle man, additional sales of these custom-made products should push Target's gross margin higher.
In a similar vein, after logging 2½ years of growth in its toy business, Target is beefing up its assortment of exclusive items by 15 percent. That decision comes at a critical time for the toy industry, which is expected to record another solid year of sales gains.
And with Target's online sales growth accelerating 10 percentage points during the quarter, improvements to its in-store pickup and ship-from-store capabilities put the company in position to capitalize on the expected uptick in online sales.
Target shares leaped 6.4 percent in afternoon trading Wednesday, as the discounter beat Wall Street's earnings per share and sales estimates, and raised its full-year guidance. That's even as it continued to feel pressure from fewer shoppers visiting its stores, and a second-straight quarterly decline in comparable store sales.
"All in all, Target seems well-positioned for a successful holiday season," Moody's analyst Charlie O'Shea told investors.