Target comp sales beat shows turnaround efforts gaining traction

By Sruthi Ramakrishnan

(Reuters) - Target Corp's (NYSE: TGT) quarterly sales at established stores topped analysts' estimates as its initiatives around higher-profit items drove traffic, showing that the company's turnaround efforts under CEO Brian Cornell were gaining traction.

The U.S. retailer, whose shares rose as much as 4 percent to $76.95, also forecast a higher-than-expected adjusted profit for the full year.

Same-store sales at rival Wal-Mart Stores Inc (NYSE: WMT) missed market expectations last week, hurt by a strong dollar and sluggish apparel demand.

Target's apparel sales rose in the fourth quarter, in contrast to weak sales at several retailers including Ralph Lauren Corp (NYSE: RL) and Nordstrom Inc (NYSE: JWN).

Cornell, Target's chief executive since August 2014, has been aggressively trying to turnaround the company after several years of sluggish growth.

Some of his efforts include promoting and investing in a narrower set of higher-margin "signature" categories such as baby and health and wellness, and pulling out of Canada.

Comparable sales in higher-margin categories rose by more than three times the company average in the quarter ended Jan. 30, Target said, with women's apparel, wearable electronics and food being the fastest growing.

"Signs that CEO Cornell's strategic initiatives are gaining traction include: 'signature' categories re-accelerating to about 6 percent growth and traffic rising 1.3 percent," Sterne Agee analyst Renato Basanta said.

Apparel sales were helped by better in-store and online presentation and the stocking of trendier styles, Target finance chief Cathy Smith said on a media call.

"We believe that Target performed somewhat above the market (in apparel) thanks to its more fashion-savvy shopper demographic and its strong marketing efforts around holiday looks," Neil Saunders, CEO of research firm Conlumino, wrote in a note.

Concerns about a slowdown in Target's digital sales were also alleviated by its 34 percent growth in the quarter, Sterne Agee's Basanta said, terming it "solid progress for Target's still nascent platform."

The concerns stem from Target's warning in November that it would miss its target of growing online sales by 40 percent in 2015 due to slowing electronic sales.

Sales at Target stores open at least 13 months increased 1.9 percent in the quarter, beating the 1.5 percent rise analysts had expected.

Excluding items, Target earned $1.52 per share, missing the average estimate by 2 cents, due to promotions.

Total sales fell 0.6 percent to $21.63 billion, mainly due to the sale of its pharmacy business to CVS Health Corp (NYSE: CVS). Analysts had expected sales to remain flat.

(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Ted Kerr and Maju Samuel)

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