For Target Corp., Christmas came twice: First, with traffic growth that boosted sales more than expected during the lucrative holiday shopping season, and then, with a U.S. tax cut that let the big-box store chain keep more of the proceeds.
Its effective rate, a measure of taxes from all jurisdictions, for the three months through Feb. 3 was negative 8.3 percent, compared with 32 percent a year earlier, the Minneapolis-based company said in a statement on Tuesday. That includes a $36 million benefit from a lower U.S. rate in January and a credit of $352 million due to a recalculation in liabilities from previous years, the retailer said.
Target joins an array of stores and banks that have benefited significantly from the December tax-code changes in the U.S., which reduced the top corporate levy to 21 percent from 35 percent in an effort to keep President Trump’s campaign promise to buoy the economy. Companies in both industries qualify for fewer tax breaks than manufacturers and are more likely to pay the top rate.
For brick-and-mortar retailers, the tax break comes at a particularly opportune time as they grapple with heightened competition from e-commerce rivals like Amazon and eBay. Target has responded with a $7 billion investment plan that includes redesigning stores, focusing on heightened customer service and emphasizing its digital channels.
It’s accelerating delivery of online orders through its December acquisition of same-day deliver firm Shipt for $550 million and deploying stockrooms as hyper-local distribution centers, taking advantage of a store footprint that’s, on average, 10 miles or less from most homes in the U.S.
“We’ve made a ton of progress against our priorities,” Target CEO Brian Cornell told investors and analysts Tuesday. “Our teams are more focused than ever, and our guests are responding in kind.”
Target’s total sales climbed 3.4 percent to $71.9 billion in 2017, while earnings grew 7.2 percent to $2.93 billion, or $5.33 a share, the company said.
Quarterly profit of $1.37, excluding one-time benefits from the tax overhaul, were in line with the average estimate from analysts surveyed by Bloomberg.
“While we’re obviously pleased with the results, there’s no time for a victory lap,” Cornell said. “2018 is about acceleration, leveraging our greatest assets and leaning in to our competitive strengths.”
Target fell 4.5 percent to $71.79 on Tuesday, paring its gains so far this year to 10 percent. That’s still far ahead of the 2 percent growth on the broader S&P 500.
