Target reports mixed fourth quarter, but notes same-day services grew more than 90% in 2019

Sarah Perez

Target today reported mixed fourth-quarter results, but promising growth on the e-commerce side of its business. The retailer's earnings per share came in at $1.69, beating the Zacks Consensus Estimate of $1.66, but revenue fell short at $23.40 billion versus the $23.50 billion expected, as the company saw weaker holiday sales in key categories like toys, electronics and home goods.

The retail industry overall has been struggling with toy sales, following the closure of Toys "R" Us. While that shutdown put 15% of the toy market up for grabs, the market is not what it used to be, as kids today now spend much of their time on mobile devices and gaming. Softer toy sales were also a factor in Walmart's lower-than-expected earnings in Q4, along with weaker sales of media, gaming and apparel.

In addition, Target noted it saw a lower-than-average level of clearance sales in January, which also impacted fourth-quarter profits.

However, on the e-commerce side of Target's business, the news was better. The company said its set of same-day services -- including same-day delivery, Drive Up (curbside) and in-store pickup -- accounted for more than 80% of Target's fourth-quarter comparable digital sales growth.

It later today announced that it would soon add fresh and frozen groceries and alcoholic beverages to both in-store pickup and Drive Up, starting with its hometown market of the Twin Cities and expanding to nearly half of its stores by the 2020 holidays.

Glenview Order Pickup Entrance Exterior

For the year, same-day services grew more than 90% and accounted for nearly three-quarters of the company's comparable digital sales growth.

Target has heavily invested in its e-commerce business in the past few years, with the launch of Drive Up, the acquisition of and further integration with same-day provider Shipt and remodeled stores that better cater to online shoppers. Target says it will complete its 1,000th store remodel in 2020, with about 300 planned for the year. After the remodel completes, Target sees a 2-4% average sales lift that remains at 2+% in year two.

It has also rolled out more small-format stores in urban metros, with its 100th in 2019 and three dozen planned for 2020, including the Las Vegas Strip, The University of Iowa, and Orlando near Disney World.

Richmond Drive Up

"The strategic investments we’ve made over the past several years to elevate the shopping experience, curate our multi-category assortment at scale, and deliver ease and convenience through our fulfillment capabilities are deepening our relationship with our guest," said Brian Cornell, Target chairman and CEO, in a statement. "As we look ahead to 2020 and beyond, we are well-positioned to build on this strong foundation to further differentiate Target and drive long-term, profitable growth," he added.

The strategy of using retail stores to serve online shoppers has been working well for Target in recent months. The company just broke into the top 10 list of e-commerce retailers, moving up from No. 11 to take No. 8, ahead of QVC, HSN (Qurate Retail Group), Costco and Macy's.

Another advantage for Target is its successful rollout of exclusive brands and high-profile partnerships with third-parties, including Disney and Levi's. In 2019, the company launched eight new, owned brands, including its new activewear brand All in Motion, household essentials brand Everspring, an Away luggage competitor Open Story and others, including what's on pace to be its largest, Good & Gather.

For Q1 2020, Target forecast earnings per share in the range of $1.55 to $1.75, in line with expectations. It's still unclear how much Target will be impacted by novel coronavirus COVID-19, as much of the world still doesn't know how significant its impacts will be at this point. But Target says it hasn't seen an impact yet, beyond what Cornell described as "aggressive shopping," where customers are stocking up in the face of the outbreak.