Target Corp (NYSE:TGT) posted its strongest comparable sales growth in four years, beating analyst expectations on both earnings and revenue, though shares fell as the retailer cautioned that cost pressures would weigh more heavily in the near term.
The Minneapolis-based discount retailer reported first-quarter earnings per share of $1.71, topping the analyst consensus estimate of $1.46, on revenue of $25.44 billion against expectations of $24.66 billion.
Comparable sales, which include store and online transactions, rose 5.6% in the quarter, far exceeding analyst forecasts in the range of 2% to 2.3% and marking the company's best comparable sales performance in four years.
Digital comparable sales rose 8.9%, while non-merchandise revenue streams including advertising, marketplace and membership grew nearly 25%.
Customer traffic rose 4.4% in the quarter, a metric that had been under pressure in recent periods.
Despite the earnings beat, Target warned investors that it expects greater cost challenges in the first half of the year, particularly in the second quarter, than in the second half. Management said the broader operating environment "remains uncertain."
On the strength of the quarterly results, Target raised its full-year sales growth outlook to approximately 4%, up from a prior forecast of roughly 2%, and said it now expects earnings per share toward the high end of its $7.50 to $8.50 guidance range.
Analysts at Jefferies called the quarter a clear beat driven by broad-based strength across all six merchandising categories and channels, and said they view the results as an early validation of strategic changes introduced under new management. The firm noted that gross margin expanded 80 basis points in the quarter.
Jefferies said it expects investors to continue to question the sustainability of the momentum, given relatively easy year-over-year comparisons and a low base following a prolonged period of underperforming comparable sales.
Target shares were down approximately 7.2% following the results.