Target Is Boosted by Earnings Beat, Providing Long-Term Optimism

Shares of retailer Target (TGT) jumped more than 6% on Wednesday following news that back-to-school time brought customers back to the store.

The company's projections for the holidays cheered investors, as well, as they also return to the stock.

True, during the third quarter same-store sales dipped by 0.2%, the second consecutive decline for this metric, but the company had been warning of a drop of as much as 2%.

Online traffic was pleasingly healthy, however, with digital sales up 26% from the third quarter last year. This was particularly good news, as for the first two quarters of the year online sales growth had decelerated.

Unlike competitor Wal-Mart, Target didn't quickly lock into an online strategy to battle the threat of e-commerce retailers such as Amazon. And then technical difficulties further hampered Target's e-commerce efforts. This floundering led the company to eliminate the position of chief digital officer and give CEO Brian Cornell more control over online sales.

On Wednesday morning, Cornell remarked, "This year we have devoted both capital and expense to improve the digital experience, increase reliability, and create additional capacity."

Earnings for the third quarter clocked in at $608 million, or $1.04 per share, a good year-over-year increase from the same quarter last year, when they came in at $549 million, or 87 cents per share.

A year-over-year sales decrease of 6.7%, to $16.44 billion reflected the loss of Target's pharmacy business, which it sold to CVS Health last year. However, this beat the Wall Street consensus, which had been calling for $16.3 billion in the third quarter.

For the fourth quarter, which includes the holidays, Target is expecting same-store sales to either drop by 1% or increase by 1%. However, this compares favorably to the company's previous guidance, which called for a drop of as much as 2% to flat sales.

And for the full fiscal year, Target is calling for adjusted per-share earnings of $5.10 to $5.30, versus a prior per-share target of $4.80 to $5.20.

For the holiday season, Target expects robust toy sales, as well as success in its baby and kids departments. The company has recently unveiled two new kids-focused "house brands," Pillowfort and Cat & Jack. The Cat & Jack apparel line itself will see 1,000 new items by Christmas. As for toys, this year the company is bringing 1,800 Target-exclusive items to shelves.

Although the retail landscape looks rocky at best for many bricks-and-mortar companies, Target's health is as good as any. If the company can boost its online business further, Target's good fortune will be additionally secure.

Continue to hold onto Target, or look for major dips in price as a chance to grab shares. This is a long-term play that could yield steady gains.

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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.

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