Spurred by a significant uptick in online sales and in-store traffic, Target on Wednesday announced top-line quarterly growth as the retailer continues to move aggressively to try to challenge e-commerce giant Amazon.
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The Minneapolis-based company reported a 3.5 percent increase in net sales to $16.55 billion for the quarter that ended on May 5. Net earnings rose 5.9 percent to $718 million, or $1.33 per share. Target grew both in-store traffic by 3.7 percent, which the company said is the strongest in over 10 years, and online traffic sales by 28 percent in the period.
“We feel really good about the traffic that was generated in the first quarter and the acceleration of the traffic,” chief executive officer Brian Cornell told investors. “The guest is reacting to our new remodels, to the new brands, to our new fulfillment options, to what we are doing from a digital standpoint. All of these elements have come together and the guests are rewarding us with increased traffic.”
Despite the growth, investors were concerned about the outlook for the retailer as it spends significantly to bolster its online presence. Target’s stock was down 5.54 percent from the prior day’s close to $71.29.
“They’ve got all the tools to be successful,” Steve Sarracino, chief executive officer of Activant Capital, said. “Unless they are taking that [higher] traffic and increasing basket size they are in big trouble.”
The retailer continues to expand its delivery options and further link its online and in-store services to compete with Amazon. Target recently began offering free two-day shipping, which Cornell said is possible because the company leverages its physical stores as shipping points. The company also rolled out same-day delivery in Minneapolis earlier this year and expects it to go nationwide by the end of 2018.
It began offering a courier service in major metropolitan areas, where customers can purchase their goods in-store and have them delivered to their home later in the day. Target also currently offers drive-through pickup in 250 stores.
While Target executives did not mention Amazon directly, Chief Operating Officer John Mulligan noted the company does not ask customers to pay an upfront fee to utilize the faster shipping options. The Seattle-based e-commerce behemoth recently increased the price of its popular Amazon Prime service, which offers subscribers free, expedited shipping, to $119 annually.
The company has also invested heavily in renovating its stores. Mulligan said Target completed 56 remodels in the most recent earnings period, and the retailer expects to complete another 100 in the upcoming quarter. Cornell acknowledged the renovations would close some stores and have a slight ding on sales but said that was expected.
“The remodels are performing exactly the way we have planned,” he said. “Our team is getting better and better at minimizing the disruption, accelerating the remodel time frame.”
