Sales At Target Rise As Profit Margins Decline

Minneapolis, Minnesota-based retailer Target saw its sales increase by 10% in the fourth quarter to reach a figure of $22.77 billion. Same-store sales on the other hand increased by 3.6% in the same period beating Wall Street’s estimates of 3.1%. This was also the largest increase in same-store sales in three years.

The gross margin of Target however fell to 26.2% compared to a figure of 26.6% which was the reported figure last year for a similar quarter. The fall in profit margins has been attributed to efforts the retailer has engaged in with a view to reviving growth in order to compete against Walmart and Amazon. In these efforts Target has increased its investments in delivery infrastructure and services as well as competing aggressively with regards to prices.

Net income

Target’s net income also rose by close to 35% to reach a figure of $1.1 billion and this was partly attributable to the tax reforms that were carried out in the United States towards the end of last year. When one-off tax gains are stripped out the per-share adjusted income amounts to $1.37. Target had issued a guidance of $1.30 to $1.40 while analysts had been forecasting a figure of $1.38.

With regards to online sales Target saw a jump of 29% in Q4. Customer traffic also increased by 3.2% and healthy sales growth was reported in all the merchandising areas that include home furnishings and fashion. For the full year Target is expecting earnings per share of between $5.15 and $5.45 while Wall Street is projecting a figure of $5.21.

Minimum hourly wage

The Minneapolis, Minnesota-based retailer has also announced that it is raising the minimum hourly pay beginning this spring to $12 from $11. Last year in fall the retailer raised minimum hourly wage from $10 to $11. According to the chief executive officer of Target, Brian Cornell, the increased minimum hourly wage resulted in an increase in the number of job applicants and the quality was also higher.

Cornell also said that the retailer was sticking with a plan to have the minimum hourly wage raised to $15 before the year 2021. Some analysts say while this will increase the retailer’s costs it will benefit Target in the long term.

“While we understand the concern over increasing costs, we are critical of voices that see this as a weakness. We take the contrary view: if it is to grow, Target needs to invest — including in customer service, which affects wages,” GlobalData’s managing director, Neil Saunders, wrote.

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