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What Headwinds and Tailwinds Impacted Target’s Revenue?

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Nov. 22 2019, Updated 7:11 a.m. ET

Target’s results in fiscal 2016

Target (TGT) posted three relatively strong quarters in fiscal 2016. Putting the Canada exit behind it, the company took a $4.1 billion loss from discontinued operations in fiscal 2015. As a result, it made the US market the focus of its growth agenda. Helped by tailwinds from an expanding US economy and low gas prices, Target’s revenue grew 2.5% to $52.2 billion in the first nine months of fiscal 2016. Excluding the $1.3 billion sales clocked in Canada in the same period in fiscal 2015, Target’s revenue grew 5.3% year-to-date in fiscal 2016.

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Category growth

All of Target’s merchandising categories posted positive sales growth in the first nine months of fiscal 2016—the exception of hardlines, a category that includes electronics. The electronics category registered a double-digit comps decline in 3Q16. The company attributed the decline to tougher YoY (year-over-year) comparisons due to heightened promotional activity in fiscal 3Q15 and slow tablet sales[1. Based on comments by Target’s CEO Brian Cornell.]

Rising web sales

Target also saw its e-commerce sales grow by ~29% YoY in the first nine months of fiscal 2016. They accounted for 2.8% of total sales or ~$1.5 billion. In contrast, digital sales accounted for 2.2% of the total sales in the same period of fiscal 2015.

Target made an estimated $1.8 billion in web sales last fiscal year, according to the NRF (National Retail Federation). In contrast, web sales made up about 2.5% of Walmart’s (WMT) sales or $12.2 billion in fiscal 2015. Department store chains Macy’s (M) and Nordstrom (JWN) made 19.2% and 18% of their respective total sales from the web in their last fiscal years, according to the NRF. This works out to e-commerce sales of $2.4 billion for Nordstrom and $5.4 billion for Macy’s.

Together, Target and Walmart account for ~4.1% of the portfolio holdings in the ProShares S&P 500 Dividend Aristocrats (NOBL). Target, Macy’s, and Nordstrom account for 2.9% of the portfolio holdings in the Consumer Discretionary Select Sector SPDR Fund (XLY).

Target’s also expecting robust e-commerce sales in the fourth quarter.

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