A boost in customers and strong sales of exclusive brands aided Target during the second quarter as it plans to accelerate the remodeling of its stores and the testing of new online order services to maintain its momentum.
Sales at Target stores open at least a year increased 1.3% in the fiscal second quarter, beating S&P Global Market Intelligence expectations of 0.6%.
The encouraging results gave a slight lift to Target shares in morning trading which were up less than 1% to $54.78.
“The strength we saw in the business in the second quarter was broad based,” Target CEO Brian Cornell said in a call with reporters Wednesday. “I think the increase in traffic and share are a very encouraging sign . .. They’re rewarding us with their footsteps and their clicks.”.
Target, like many of its peers, has been investing in improving its digital experience and in the second quarter, the big-box retailer saw a 32% uptick in online sales compared to the same period a year ago. But it’s also been revamping and reshaping its stores.
It has been shifting into new store formats, opening smaller locations on college campuses and in urban neighborhoods whose products are tailored to the tastes of that particular market.
In July, it opened nine of the smaller stores, including stores near the University of California-Irvine, the University of Cincinnati and the University of North Carolina at Chapel Hill. The college-focused stores are a play to cultivate younger customers whose shopping patterns and brand favorites are just starting to take shape.
The chain is also speeding up the pace of store upgrades overall, planning to remodel 300 locations in 2018, up from a previous plan of 250. The company is renovating more than 100 stores in 2017.
“Despite the rapid growth that we’re seeing online … The majority of shopping in America still takes place in a physical store,” Cornell said. “We think it’s critically important to be investing in both the in-store and digital experience.”.
Target had delivered positive news in July when it previewed its quarterly earnings by bolstering profit and sales projections, based in part on an uptick in shoppers and the popularity of new brands such as Cat & Jack and baby products lineup Cloud Island.
A 2.1% increase in foot traffic during the period was “what’s most impressive” while the company’s exclusive brands “should ideally help differentiate the company” from Walmart and Amazon, Cowen retail analyst Oliver Chen said in a note to investors.
Target said Wednesday that its second-quarter sales rose 1.6% to $16.4 billion, edging S&P expectations of $16.3 billion.
Net earnings declined 1.2% to $672 million, though earnings per share based on continuing operations increased 4.7% to $1.22 and beat S&P expectations of $1.18 a share.
The solid performance could ease immediate concerns over the impact of fierce online rival Amazon’s recently announced acquisition of premium grocery chain Whole Foods, which poses a competitive threat to Target.
The company is experimenting with a drive-up order pickup service along with ramped-up delivery services.
And Target, which for a time was deemed “Tarjae” by fashionistas who clamored for its cheap but chic clothing, has also had success in recent months with the introduction of its own exclusive brands.
It’s kid-focused line, Cat & Jack, passed $2 billion in sales after passing its one-year mark.Target said it would introduce more than a dozen new brands within the next 18 months.
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