Target Sales Grow at Fastest Rate in Three Years -- 2nd Update

By Paul Ziobro and Chelsey Dulaney 

Target Corp. posted its best sales growth in nearly three years, a sign shoppers are responding to changes under new Chief Executive Brian Cornell such as free shipping and a greater focus on apparel and home goods.

Sales excluding newly opened and closed stores rose 3.8% for the fourth-quarter, ahead of Target's projection for 3% growth, and profit beat the forecast Target gave a little over a month ago.

The company is not yet declaring victory.

"We're still in the very early stages," Target Chief Financial Officer John Mulligan said Wednesday on a conference call. Even with a 3.2% increase in transactions in the fourth-quarter, traffic is still down over a two-year period.

Target is trying to dig itself out of a hole left from several years of disappointing results, when the retailer failed to distinguish itself with enough hip products and found itself trying to stand out with lower prices on commodities goods like toilet paper and laundry detergent. The long string of weakness--capped by the disastrous expansion into Canada and the 2013 data breach--caused executives to rethink Target's purpose and forced the removal of their prior CEO Gregg Steinhafel.

Mr. Cornell, a former PepsiCo executive, took the top job at Target in August, and has since been engineering a turnaround at the retailer. His strategy places more focus on signature categories like fashion, furniture, baby goods and beauty products, and he has also brought renewed attention to digital sales and opening smaller format stores.

Target's results--like those of rival Wal-Mart Stores Inc.--were helped by improving labor market and lower gas prices which made shoppers more willing to travel to big box stores and spend. Target had an easy base of comparison. A year ago, shoppers shunned its stores following the revelation that hackers stole 40 million credit card numbers and another 70 million personal records.

Mr. Cornell is planning to boost investment to drive growth. Top Target executives plan to outline that strategy at an investor event next week. Mr. Mulligan said that Target will work hard to offset those costs by cutting excess expenses.

"There is a lot of investment to be done," Mr. Mulligan said. "We feel that we can pay for those investments with cost takeouts."

Target has eliminated one drain on its capital and attention. The retailer last month said it would liquidate its Canadian business, ending its first international experiment. Target lost more than $2.5 billion in two years in Canada and booked a $5 billion pretax charge, leading to a reported loss for the period.

The Canadian exit cost Target in its results. For the quarter ended Jan. 31, Target posted a loss of $2.64 billion, compared with a profit of $520 million, a year earlier. Excluding the Canadian exit and other one-time items, earnings from continuing operations were $1.50 a share.

Net sales grew 4.1% to $21.8 billion, just topping the $21.6 billion expected by analysts.

Write to Paul Ziobro at [e-mail] and Chelsey Dulaney at [e-mail]

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