Image: Target’s mascot Bullseye sporting new shades at a local job fair.
We have a difficult time dismissing Target’s (TGT) short-sightedness in abandoning its efforts in Canada, as in time, its ability to continue to drive traffic and store count in the US higher will plateau. In no way will this occur anytime soon, or within the next few years or so, but it will, and Target will have wished it wouldn’t have given up in Canada. But that’s not the story today
Skeptics are looking wrong in a big way, as Target showcased a pace of e-commerce expansion better than that of Wal-Mart (WMT) and even Amazon (AMZN) and eBay (EBAY) in its most recently-reported fourth quarter. Digital sales at Target in the quarter advanced an impressive 34% (which laps 36% growth in the fourth quarter of last year), contributing 1.3 percentage points to the firm’s 1.9% fourth-quarter comparable-sales increase during the period. Simple appears to have worked. Target offered 15% off everything on its website during the Black Friday and Cyber Monday weeks.
Traffic in its stores, however, wasn’t that bad either, with its signature categories of Style, Baby, Kids, and Wellness propelling sales. We can’t help but state the obvious, as many may be overlooking – lower gas prices must have helped, and we’ll continue to monitor whether Target and others are simply experiencing a one-time step change in demand in light of greater consumer discretionary income stimulated by lower prices at the gas pump. We believe the market may be overestimating the sustainability of this boost.
For full-year 2016, Target expects GAAP earnings per share from continuing operations and adjusted earnings per share of $5.20-$5.40, better than the consensus mark and compares to GAAP earnings per share from continuing operations of $5.25 and adjusted earnings per share of $4.69 in 2015. Perhaps we’re looking for something a little more “interesting” in wanting more from Target, but simple is working. Target yields just shy of 3% at the moment.