On May 22, Target Corporation (TGT) posted stronger-than-expected earnings results for the first quarter of fiscal 2019, which ended on May 4. Stellar traffic growth drove the company’s sales and earnings, which handily surpassed analysts’ expectations.
Target’s top line continued to improve led by a 4.8% increase in comparable sales. Its comparable sales growth was driven by a 4.3% increase in traffic, which is commendable given the company’s heightened activity. Target’s digital sales soared 42% during the reported quarter and contributed 2.1% to its comparable sales growth.
Target has stepped up its delivery mechanism, which is driving its digital sales and, in turn, its comps. Its management stated that its extension of the same-day fulfillment option had primarily driven its digital sales during the quarter.
Strong comps and cost-saving efforts supported the company’s margins. Target’s operating income margin expanded by 20 basis points, reflecting a lower SG&A (selling, general, and administrative) expense rate. However, its gross margin contracted 20 basis points, reflecting higher digital fulfillment costs.
Strength in the company’s base business, its operating margin expansion, its lower effective tax rate, and its share repurchases drove double-digit growth in its bottom line, which came in far ahead of analysts’ forecast.
Target posted net sales of $17.6 billion, a rise of 5.0% on a YoY (year-over-year) basis and ahead of analysts’ expectation of $17.5 billion. Its comparable sales rose 4.8% driven by 4.3% growth in traffic and a 0.5% increase in ticket size.
Its gross profit margin contracted 20 basis points to 29.6%. Meanwhile, its operating margin expanded 20 basis points to 6.4%, reflecting a 30-basis-point decline in its SG&A expense rate.
Target posted adjusted EPS of $1.53, up 15.9% on a YoY basis, handily surpassing Wall Street’s estimate of $1.43.