- Sales of nonseasonal products like food and beverages helped Target buffer the impact of a slow start to spring.
- Target has been focused on expanding its delivery options, including acquiring same-day delivery service Shipt.
- The number of shoppers heading to Target rose 3.7 percent during the first quarter — its strongest performance in more than a decade.
The retailers have said the slow start to spring delayed purchases of items such as patio furniture, grills and gardening gear. For Target, sales of nonseasonal products like food and beverages helped buffer the impact of the weather. It also told analysts the lost sales began come back once the weather improved.
"Strong sales growth in our home, essentials and food & beverage categories offset the impact of delayed sales in temperature-sensitive categories, which accelerated rapidly in recent weeks as weather improved across the country," CEO Brian Cornell said in a statement.
Still, the performance is likely to rattle investors who have been closely watching Target's efforts to reinvent its business. Target has focused on new, smaller format stores, a push into private-label brands and boosting its delivery capabilities. The discounter's investments weighed on its earnings in the latest period.
Target shares were down about 5 percent in premarket trading.
Target also offered a wide range of expectations for second-quarter adjusted earnings per share, saying it anticipates them to range between $1.30 and $1.50.
"We applaud Target for putting long-term success ahead of short-term gains. However, it does underline that continued effort is needed to drive top-line growth — especially as the company starts to lap tougher prior year comparatives," said Neil Saunders, managing director of GlobalData Retail.
The Minneapolis-based retailer reported net income of $718 million, or $1.34 a share, compared with $678 million, or $1.23 a share. On an adjusted basis, it earned $1.32 a share, below expectations of $1.39 a share, according to Thomson Reuters.
Its 9.9 percent decline in operating income, largely thanks to price cuts and investments, concerned some analysts.
Revenue of $16.56 billion was 3.5 percent more than the same quarter last year, but below expectations of $16.58 billion, according to Thomson Reuters.
Target has been forging ahead with a plan to reinvest more than $7 billion back into the company through 2020.
Target's remodeled stores are beginning to feature more fresh food, produce and prepared options for shoppers in a hurry. The number of shoppers heading to Target rose 3.7 percent during the quarter — its strongest performance in more than 10 years. Target executives on an earnings call said the trend continues.
"I've talked about the importance of traffic as a true indicator of the health of our business and the guest reaction to our key strategic initiatives," Cornell told analysts Wednesday. "So they're all coming together well. I think the guest is reacting to our new remodels to the new brands to our new fulfillment options to what we're doing from a digital standpoint."
This past quarter, Target said it completed 56 remodels and opened seven new stores. It also launched its temporary partnership with boot and apparel brand Hunter.
Target has also been focusing on fulfillment and boosting its delivery service. As part of these efforts, it acquired delivery service Shipt for $550 million. Target said it rolled out same-day delivery to more than 700 stores this quarter.
Digital sales for the quarter grew 28 percent, faster than its 21 percent growth in the same quarter the year prior.
Target reaffirmed its earlier 2018 estimates, which anticipate comparable sales growing at a low-single-digit rate and adjusted earnings per share between $5.15 to $5.45.
Target said Wednesday that new accounting rules will impact how it reports its revenue, leases and pensions.