Why Target is shocking everyone and putting Amazon on notice

Brian Sozzi

Are you kidding us with that second quarter, Target (TGT)?

Isn’t traditional retail supposed to be dead thanks to digital beast Amazon (AMZN)? Aren’t we nearing a bruising recession that hammers consumer spending and stock prices? Didn’t Macy’s (M) disastrous second quarter signal a new round of retail doom and gloom looms large? Tariffs are supposed to be obliterating retailer sales and profits right now, no?

With that entire dreary backdrop out in full force on Wall Street the past two months, it is no small surprise Target’s stock spiked 19% to a record on Wednesday following a blowout quarter. Target delivered and then some, crushing many of those dire narratives on retail.

Talk to top retail analysts and it becomes quickly evident why Target continues to defy conventional thinking. In many respects Target (and even rival Walmart) is starting to crack the code on delivering a seamless shopping experience between their physical stores and online — as many on the Street call “omni-channel shopping.”

That primarily boils down to Target offering more services to shoppers such as order online, pick up in-store the same-day and buy online, then have it delivered same-day via its Shipt business.

“Target has done a real good job building a strong omni-channel business model and engaging the customer,” veteran retail analyst Janet Kloppenburg of JJK Research said on Yahoo Finance’s The First Trade. “They are flexing their muscles in some key categories such as apparel and beauty, which are outpacing the average comparable store sales from the company. They have also done an excellent job in other omni-channel services and fulfillment.”

That’s for sure.

Wow, that Target quarter

FILE - In this July 10, 2019, file photo shoppers visit the downtown Target Store in Minneapolis. Target Corp. reports financial results Wednesday, Aug. 21. (AP Photo/Jim Mone, File)

Target reported second quarter adjusted earnings of $1.82 a share, trouncing forecasts for $1.62 a share. Same-store sales rose 3.4%, ahead of estimates for 3% growth.

The retailer cited a surge in same-day fulfillment as driving sales growth. Its order pick up, drive up and Shipt services accounted for nearly 1.5 percentage points of Target’s overall comparable sales growth during the quarter. Online sales jumped 34% during the quarter.

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Target also hiked its estimates for the third quarter, seeing adjusted earnings of between $1.04 per share to $1.24 per share, better than current expectations of $1.16.

“We are really pleased with our second quarter performance, which demonstrates the strength of our strategy and the durable financial model we've built over the last several years,” CEO Brian Cornell said in a statement.

“Traffic and sales continue to grow while our EPS reached an all-time high, driven by the strength of our team's execution and their focus on delivering for our guests,” he added.

Target deserves the healthy market response Wednesday.

Whether Target’s stock continues to push higher into the all-important holiday shopping season is anyone’s guess. But when it comes to nailing what it can control, Target deserves high marks.

This writer can attest to Target’s vastly improved stores, significantly expanded food departments with a host of compelling emerging brands and upgraded offerings in the home department. Target is giving people real reasons to shop at its stores on weekends and order online during the week. Not many in retail could say that one.

Amazon — and all of retail — you have been put on notice by Target.

Yahoo Finance’s Heidi Chung contributed to this story.

Brian Sozzi is an editor-at-large and co-host of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi