Target Corp.’s shares soared more than 6 percent Wednesday after the retail giant reported stronger-than-expected third-quarter earnings. The results — the best for the company since a costly computer breach marred its 2014 holiday shopping season — were fueled by strong sales in both the U.S. and Canada.
For the quarter ended Nov. 1, the Minneapolis discount-retail giant had net earnings of $17.7 billion, or 55 cents per diluted share, up from $17.3 billion, or 54 cents per share in the year-ago period.
The latest quarter’s adjusted per-share earnings and revenues both topped what analysts surveyed by Yahoo Inc. had been expecting. Target Corp. beat earnings expectations by 8 cents and brought in $17 million more in revenue than what analysts expected.
“We saw a strong start to back-to-school and to the back-to-college season, and that strength continued in September,” Chairman and Chief Executive Officer Brian Cornell told analysts in a conference call. “Like many others, our sales slowed in October, but recovered nicely towards the end of the month as we approached Halloween.”
Still, the company’s latest positive numbers came with a shadow: after delivering its better-than-anticipated second-quarter results, Target offered full-year earnings guidance that signaled to some investors a lack of optimism about the second half of the year.
“Is management keeping the bar low?” Mark Miller asked in his William Blair & Co. research note released on Wednesday. “With shares rebounding on optimism of a turnaround, Target needs to be on track for real improvement in 2015.”
Last year’s data breach affected two parties: customers who lost personal payment information and Target’s overhead costs. The company incurred $158 million in total breach-related expenses according to Wednesday’s report. Target added that while it does not expect the expenses to increase, it also did not rule it out by stating, “it is reasonably possible” that Target “may incur a material loss in excess of the amount accrued.”
The Canadian Market
The company had to overcome the hurdles that came with building brand recognition in a new country since it expanded to Canada in 2012. The official store count stands at 133 after opening three new stores in October.
But Target Canada struggled with supply chain and merchandising issues when it initially opened 124 stores within nine months.
In an October research note, Morningstar analyst Ken Perkins wrote that he still expects the sales from stores that were opened for a year to improve even as the influx of new stores opened its doors. He added that the company’s reputation was “damaged in Canada” by the company’s disastrous earlier misadventures north of the border, and said that experience remained a “huge obstacle to driving sales and profits materially higher over the near term.”
While the company continues to straighten out its missteps, shoppers increased spending at Target Canada stores by $146 million, rising close to 44 percent from the year-ago period and boosting the company’s confidence in a segment that has been a source of concern for investors.
Perkins also stated in the same commentary that “meaningful positive contributions to consolidated results may not materialize until 2015 and beyond.”
Honing in on the Supermarket
Target strategy calls for increasing traffic and becoming a one-stop shop for customers, particularly in the food segment, as it fights for gain market share with competitors such as Wal-Mart Stores Inc. and Costco Inc.
The company’s expansion efforts come in two-fold: Target expanded 49 more food assortment stores over the year, but it will also close 11 locations come Feb. of 2015, including stores in McHenry and Calumet City, Ill.
In New York Stock Exchange trading Wednesday afternoon, Target shares were trading up $4.35, or 6.44 percent, at a 52-week high of $71.86.