We knew the holidays were good, but Minneapolis-based Target crushed expectations last year.
The company’s fourth quarter and full year earnings results for 2018 highlight the retailer’s strongest performance since 2005, with comparable sales up five percent. While store sales comps were up 3.2 percent, comparable digital sales were up 36 percent for the year. Foot traffic in the fourth quarter was up 4.5 percent, with stores fulfilling nearly three quarters of Target’s digital sales. Following a big investment in expanding its selection of toys, games, and baby gear in the wake of the Toys “R” Us closure in the U.S., those efforts have paid off — though not on the bottom line.
“The primary driver of this upside was toys, and toys and baby — where we captured greater market share than we had planned,” says Cathy Smith, outgoing Target CFO. “This out-sized growth in toys and baby created unexpected mix pressure on our gross margin rate, causing it to be lower than our initial expectations.”
Gross margin for the year checked in at 28.4 percent versus 28.8 percent last year, while Q4 reflected a 25.7 percent gross margin, compared to 26.1 percent the year before.
Overall takeaways from Target’s nearly two-hour call should be basic retail fundamentals that echo what many in the toy industry have been saying for years — the most important things are investments in stores, technology, and people. If you provide a great experience and can react quickly to change, the shoppers will come.
For more on Target’s 2019 outlook on toys, see The Toy Book‘s State of the Toy Industry Q&A with Kelly Caruso, senior vice president, hardlines merchandising.
