MINNEAPOLIS _ Target saw strongest quarterly traffic growth in more than a decade in the first quarter, with a 3 percent sales gain at comparable stores.
But its profit missed analysts' expectations as costs rose from higher employee wages, increased staffing and the greater expense of filling more digital orders.
The company also said the later start to spring delayed sales of high-margin warm weather, items such as outdoor furniture and apparel, but those sales have since picked up more recently.
The Minneapolis-based retailer's net profit was $718 million for the three months ended May 5, a 5.9 percent increase from $678 million a year ago. When adjusted for one-time expenses, it earned $1.32 a share, which was lower than the $1.38 a share analysts were expecting. Target's shares dropped 5 percent in early trading.
"Slight margin pressure is understandable due to the various sensible strategic investment initiatives that are in process, from employees to e-commerce, as well as the impact of the competitive dynamic rippling throughout retail led by Walmart and Amazon as they continue to battle for market share using price," Moody's analyst Charlie O'Shea said in a statement.
Target's revenue in the quarter rose 3.4 percent to $16.8 billion, beating analysts' expectations. Online sales rose 28 percent. The company said it saw broad market share gains across all its core categories and expects to see sales accelerate even further in the second quarter.
In a conference call with reporters, CEO Brian Cornell acknowledged the strong economy, with low unemployment and the benefits of tax reform, is helping fuel Target's results. But he said it's also a reflection that customers have been responding well to the retailer's initiatives across the board.
"We're growing market share in a strong consumer environment across all major categories," he said.
As it has been looking to stay competitive, Target has been remodeling stores, introducing new brands, and expanding its curbside Drive Up and same-day delivery service through Shipt to more parts of the country. Target also launched free two-day shipping on online orders over $35 earlier this year. It also raised its minimum hourly wage to $12 from $11, on its way to its pledge to increase it to $15 an hour by 2020.
"We're investing in our greatest differentiator: our team, because human touch still matters even in a digital world," Cornell told analysts.
Other retailers, including Macy's and Kohl's, have also reported strong first-quarter sales in the last week.
