By Nandita Bose
(Reuters) - Target Corp reported quarterly sales and profit that beat estimates as a strong economy lifted customer visits to the most in a decade, sending its shares up more than 5 percent.
The Minneapolis-based retailer on Wednesday also posted the best comparable-sales growth in 13 years, driven by demand for home products, toys, electronics as well as a rebound in seasonal merchandise, and raised its annual profit forecast.
Strong spending during the back-to-school shopping season and a one-day sale in July designed to compete with Amazon.com Inc's Prime Day, also boosted performance.
Chief Executive Officer Brian Cornell said the jump in customer traffic during the second quarter was unprecedented. Store traffic grew 6.4 percent from a 2.1 percent gain during the same period a year earlier.
"There's no doubt that like others, we're currently benefiting from a very strong consumer environment, perhaps the strongest I've seen in my career," he said. The retailer recorded market share gains across most categories, he added.
Rising wages, lower unemployment and tax cuts have helped to put more money into the pockets of Americans this year, spurring more shopping. Target rivals like Walmart Inc and Nordstrom Inc have also benefited from rising sales.
Target has also been helped by the demise of weaker competitors in the past year, including Toys 'R' Us Inc and department store operator Bon Ton Store Inc. Roughly 4,000 stores in the United States have closed this year through Aug. 10, according to Coresight Research.
"Target hit the bulls-eye in Q2, with improvement across virtually every meaningful measure," said Moody's retail analyst Charlie O'Shea.
Cornell said its performance was aided by investments in its online operations, a supply chain overhaul, store remodeling and delivery options.
Target cut its next-day delivery fee for household items to $2.99 from $4.99 and is rolling out a new drive-up service where shoppers can pick up orders in an hour.
Target is also expanding its delivery services through Shipt, a same-day delivery company it bought for $550 million last year, and partnering with courier services on same-day orders in U.S. metro areas.
The retailer plans to make capital expenditure of $3 billion this year on its supply chain, online delivery, its own brands and merging online and in-store shopping. The retailer intends to reinvest more than $7 billion through 2020.
Second-quarter same-store sales rose 4.9 percent, topping analysts' expectations of a 3.99 percent increase, according to Thomson Reuters I/B/E/S.
Online sales jumped 41 percent in the quarter, versus a 28 percent gain in the first quarter and a 32 percent rise a year ago.
Excluding one-time items, Target earned $1.47 per share in the quarter ended Aug. 4, higher than the average analyst estimate of $1.40.
Margins remained under pressure from investments in e-commerce. The gross margin rate was 30.3 percent, compared with 30.4 percent a year ago.
Revenue rose to $17.78 billion, topping the average estimate of $17.31 billion.
For the full year, Target raised its earnings forecast to a range of $5.30 to $5.50 per share from $5.15 to $5.45.
The stock rose 5.4 percent, or $4.52, to $87.79 in early trade. Shares of the Minneapolis-based chain have risen more than 27 percent so far in 2018 and over 47 percent in the past 12 months.
(Reporting by Nandita Bose in New York; Editing by Chizu Nomiyama and Jeffrey Benkoe)
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