What Really Drove Target’s Top-Line Beat?
Sales beat estimate
Target (TGT) has impressed many with its fiscal 2Q17 top-line performance. Its sales of $16.4 billion beat the Wall Street expectation and rose 1.6% YoY (year-over-year), thanks to improved store traffic and stellar digital sales.
Higher sales at new stores further drove top-line growth rate. Notably, Target has managed to improve its top line after reporting three consecutive quarters of declining sales amid the tough retail environment and increased competition from Amazon.com (AMZN) and Wal-Mart Stores (WMT).
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Sales in detail
Target’s comps (comparable same-store sales) increased 1.3% in fiscal 2Q17, reflecting 2.1% growth in store traffic. Specifically, the 32.0% growth in its digital business boosted comps growth by 1.1%.
From a product perspective, Target witnessed improved sales across all categories. Sales in hardlines increased between 3% and 4%, with double-digit growth in video games and electronics. Toys saw more than 3% growth in 2Q17, with board games driving most of this growth.
The apparel category’s top line benefitted from value pricing and differentiated offerings. Target has been witnessing increased sales in its Kids segment, driven by the strong performance of its Cat & Jack brand, and sales continue to grow in the swim category.
Target’s Home division benefitted from increased digital sales, with its Threshold brand driving much of the growth. Seasonal products, including greeting cards and outdoor furniture, also drove category growth.
Notably, Target’s food and beverage category showed signs of stabilization with flat comps. The category has been hit hard by increased competition from Walmart and other deep-discount stores like Aldi, and Amazon’s foray into the organic category with its Whole Foods (WFM) acquisition should also pose challenges.
Still, Target witnessed high-single-digit comps growth in fresh produce, with higher sales in organics. Meanwhile, adult beverages saw double-digit comps growth in fiscal 2Q17.