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Target just had its best quarter in over a decade

BY CNNMONEY

8/22/2018
Target rode a hot US economy to its strongest quarter in more than a decade.

The company reported that sales at stores open for at least a year increased 6.5%, the most in 13 years. Target also said its customer traffic to stores was the strongest since it began reporting the figure in 2008.

Target's results blew past Wall Street's expectations, sending the stock up more than 5% in premarket trading Wednesday morning.

Target also raised its full-year outlook, reflecting the company's confidence that it will continue to benefit from shoppers spending more in the second half of 2018 and into the holidays.

The company's stock is up 47% in the past year, the result of a strategy shift it laid out in early 2017.

Target said at the time that it would spend $7 billion dollars to improve digital operations, extend private label collections, lower prices, and remodel stores. It's also opening smaller store formats in big cities like New York and near college campuses.

The moves, including purchasing Shipt last year to speed up same-day delivery, have worked: Target's digital sales grew 41% last quarter compared to a year ago. Target has also tried to separate itself from competitors by expanding "Drive Up," a pickup service that allows customers to pre-order from stores and have employees help load them into the items into their trunks.

Wall Street was willing to ignore the hit to Target's profit margin last quarter from its investments and the high costs of online shipping.

Target's same-store sales growth outpaced rival Walmart, which reported a 4.5% rise last week. Walmart said that number was its best in a decade.

Some analysts had worried Walmart's strength would take away from Target, but low unemployment, a jolt from tax cuts, and healthy spending on everything from clothes to furniture mean American shoppers are flush with enough cash to spend at both big box stores.

A string of other retailers have posted stellar quarters, too.

Department stores such as Kohl's, Nordstrom and Macy's posted strong same-store sales growth. On Tuesday, TJX reported a 7% rise in its division that includes TJMaxx and Marshalls on Tuesday, while Urban Outfitters said it had a record period.

"There are macroeconomic tailwinds that can be exploited by the strongest, most financially flexible retailers that are hitting on all cylinders, with Target definitely in that class," Moody's lead retail analyst Charlie O'Shea said in an email.

Target sees a major opportunity to catch shoppers' attention by building on its own brands, which offer higher margins than selling other companies' stuff. In recent months, it has launched Heyday, its first electronics brand, and new clothing lines for men and women.

That's hurting Target's longtime partners though: Hanesbrands, the parent company of Champion, plunged earlier this month after the company said Target was phasing out the C9 by Champion exclusive line.