What happened
Shares of Target Corporation (TGT +0.96%), a leading consumer goods retailer with over 1,800 stores and Target.com, are jumping over 19% higher Wednesday morning after a strong second quarter and raised guidance pushed the stock to all-time highs.
So what
Starting from the top, Target's total revenue increased 3.6% from the prior year to $18.4 billion, topping analysts' estimates calling for $18.3 billion. The top-line growth was driven by a healthy 3.4% increase in comparable-store sales and a 2.4% increase in comparable-store traffic -- more people are shopping at Target, and they're buying more when they're there. The good news for investors is that top-line growth filtered down to a stronger bottom-line result. Adjusted earnings per share checked in at $1.82 during the second quarter, a 24% gain compared to the prior year's result and well ahead of analysts' estimates calling for $1.62 per share.
Brian Cornell, chairman and CEO of Target, had this to say in a press release:
We are really pleased with our second quarter performance, which demonstrates the strength of our strategy and the durable financial model we've built over the last several years. By appealing to shoppers through a compelling assortment, a suite of convenience-driven fulfillment options, competitive prices and an enjoyable shopping experience, we're increasing Target's relevancy and deepening the relationship between our guests and our brand.
Target's Lino Lakes, MN, store. Image source: Target.
Now what
Beyond topping analysts' estimates, it was a strong quarter by just about any metric. Thanks to curbside and in-store pickup growth, gross margin increased 30 basis points to 30.6%, and Target's online sales jumped 34% and contributed 1.8 percentage points to the overall 3.4% comparable sales growth. Further, Target's comparable-store sales have increased approximately 10% over the past two years, which management noted is the company's best performance in over a decade.
Target's near-term growth could soon receive another boost as earlier this week, management announced its newest brand, Good & Gather. Roughly 650 products will begin hitting Target stores starting on September 15, with more than 2,000 new products set to be available by late 2020.
What's exciting for investors is that management has proven capable of cutting old brands, as it did in apparel, and driving growth with new brands that capitalize on changing consumer trends, such as Good & Gather, which boasts no artificial flavors, synthetic colors, or high-fructose corn syrup.
Trade tensions between the U.S. and China could still negatively affect Target, but as those developments are out of investors' hands, the takeaway from the second quarter is that Target's core business is clearly strong. That strength is reflected in raised full-year guidance: Adjusted earnings per share was bumped $0.15 higher to a range between $5.90 and $6.20 per share.
