Despite $60M Tariff Hit, Target Sees 4.5% Q3 Sales Bump; Eyes 3-4% Q4 Comp Sales Growth

Looking to Q4, which has distinct considerations vs. the rest of the year, Chief Financial Officer Michael Fiddelke noted headwinds from the six fewer shopping days between Thanksgiving and Christmas, a much higher mix of toys and electronics, and “the highly promotional nature of the competitive environment.” Target expects Q4 comparable sales growth of 3-4 percent.

Tariffs “pressured” Target by about $60 million in Q3, up from $50 million in Q2, said CEO Brian Cornell. The company, “watching the headlines,” is “well-positioned to deal with some of the challenges that could be in front of us,” he said, citing efforts to diversify sourcing over the past few years. Cornell credited Target teams for “working through this challenging landscape and allowing us to deliver great value to our guests at a time when they need it most.”

Target's in watch-and-wait mode before the Dec. 15 deadline when Section 301 List 4B tariffs are to take effect on smartphones, laptops, tablets, video game consoles, drones and other goods (see 1908130028), said Cornell. “We’ll see what happens as we go into the next couple of weeks and into the start of 2020," he said, but Target’s “size, scale, the sophistication of our team and our vendor partners positions us well to navigate this uncharted water.”

On what potential benefit Target could see if List 4B tariffs aren’t enacted, Cornell said, “Obviously, if some of the tariffs are pulled back there’s going to be upside going forward.” Changes in announced tariffs could allow Target to “invest in the business and drive even greater acceleration in our trends,” he said. “The biggest challenge,” he said, “is uncertainty. As soon as we get greater clarity, we’ll be able to make better decisions and navigate these choppy waters. Like all of our partners, we’re looking for greater clarity, greater certainty, and as soon as we get that, we’ll decide how to deploy those funds.”

Cornell highlighted a traffic increase of 3.1 percent in Q3, calling traffic a primary growth driver for the business, both online and in store. Store comps were up 2.8 percent in Q3; digital comps grew 31 percent in the quarter vs. 49 percent in the year-ago quarter, representing 1.7 percentage points of total comp sales growth. Positive Q3 results also owed to ongoing changes to Target’s store service and operating model, digital fulfillment capabilities and inventory replenishment process, he said.

In Target's digital business, 80 percent of Q3 growth was driven by same-day fulfillment options: in-store, pick up and its same-day delivery service through Shipt. “Given that these same-day options rely on our store assets, team and inventory, they are much more profitable than traditional e-commerce fulfillment," he said. The slowest growing same-day service in Q3 was order pickup at more than 50 percent, said Chief Operating Office John Mulligan.

High-growth categories for Target were apparel and beauty and cosmetics in Q3. In hard lines, strength in mobile and toys were offset by declines in electronics and entertainment, Cornell said.

For the holiday season, Target will focus on convenience for consumers, said Mulligan, citing the importance of same-day fulfillment services due to fewer shopping days between Thanksgiving and Christmas. Shipt’s capabilities are now fully integrated in Target’s website and e-commerce app, he said.