Target’s (TGT, $77.15) Q4 results beat estimates, 2019 also looks bright

Minneapolis-based retailer, Target, delivered estimate-beating earnings during the critical holiday period or the fiscal fourth quarter, resulting its shares surging by 4% on Tuesday. The retailer’s in-house brands and easy delivery options are factors that helped the company drive sales and helped it achieve considerable same-store sales growth.

The company’s adjusted EPS for the quarter stood at $1.53 versus an estimate of $1.52; revenue came at $22.98 billion versus an estimate of $22.96 billion; and same store sales growth rose by 5.3% versus an expected 5.1%.

On an unadjusted basis, net income fell 26.5% to $799 million or $1.52 a share, compared to $1.1 billion, or $1.99 a share, the period the previous year. Revenue was about flat at $23 billion.

Interestingly, Target’s online sales for the quarter grew by 31% versus the brick-and-mortar store sales growth of 2.9%, and contributed nearly 2.4% points to the overall same-store sales growth during the quarter. For the entire 2018, Target’s e-commerce grew by 36%.

Looking ahead to 2019, the company expects a low-to-mid single-digit increase in same-store sales, and a mid-single digit increase in net income. As opposed to estimates of $5.61 earnings per share, the company is calling for adjusted earnings of between $5.75 and $6.05 per share.

To stay competitive, Target has been investing on in-house brands and will soon launch three new lingerie and sleepwear brands to rival Victoria’s Secret. Further, it is also signing deals with other fashion brands whose exclusive merchandise can be sold from within Target stores. Vineyards Vines is a case-in-point.

It is also competing with Amazon (AMZN) by inviting select speciality brands and national retailers to sell their merchandise on its website via a third party marketplace called Target+. This strategy may be useful in relieving pressure on profit margins as all shipping costs could be passed on to the third party sellers.