Target (NYSE: TGT) shares dropped despite the company topping analysts' expectations on the top and bottom-line due to a strong Halloween and back-to-school shopping season. The company also raised its forecast and sees growth in the high single-digits to the low double-digits range during the holiday season.
Inside the Numbers
In Q3, Target reported $3.03 in adjusted earnings per share, beating expectations of $2.38 per share. This was a 50% increase from last year's $2 per share earnings. Revenue also beat at $25.65 billion vs expectations of $24.8 billion. This was a 13% improvement from last year.
The company also increased its forecast for Q4 due to early indications of strong holiday shopping. Comparable sales, which includes online and physical, in the third quarter grew 12.7%, topping expectations of 8.2%. Online sales grew 29%. Curbside pickup and home delivery service, Shipt, saw growth of 60%.
The company continues to invest in its supply chain and logistics to deal with increased volumes. So far, its strategy of using stores as distribution centers has been working as 95% of sales were fulfilled in stores. Still, the company is adding storage capacity at select locations to support seasonal peaks and increasing the number of curbside pickup spots. Overall, inventory has increased by $2 billion, a 20% increase.
It has continued to innovate by opening up Disney (NYSE: DIS) and Apple (NASDAQ: AAPL) stores within Target stores and now adding 100 Ulta Beauty (NASDAQ: ULTA) locations in addition to a limited-time partnership with Lego. These mini-stores tend to generate more sales on a per-square-foot basis and have proven to be successful partnerships, especially with premium items.
It has also already started promoting holiday deals and pledged price matches for certain items. It's also looking to hire 100,000 season employees, add 30,000 new people in supply chain roles, and increase the total hours worked by 5 million.
Stock Price Outlook
Target has strong earnings and significant momentum. The drop in share prices is most likely due to some profit-taking after a big run and an overall weak tape.
It continues to outperform the market with a 42% YTD gain. And, it's cheaper than the broader market with a forward P/E of 19 vs 21 for the S&P 500 (NYSE: SPY) and should continue to grow at an above-average pace.