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Target’s sales on the rise in Q4 results

BY Marianne Wilson

Wage increases took a bite out of Target’s profit in the fourth quarter even as its sales surpassed Street expectations and its digital channel continued to make impressive gains.

Net income for the quarter ended Feb. 3, which included an extra week, rose to $1.10 billion, or $2.02 a share, from $817 million, or $1.45 a share, in the year-ago period. Excluding non-recurring items, including about $388 million benefits from recent tax legislation, adjusted earnings per share came to $1.37, which was one penny short of analysts’ forecasts.

Target said investments in its employees increased the chain’s expenses and put a dent in profit margins. In October, the retailer raised its minimum wage to $11 an hour, with plans to increase it to $15 by the end of 2020.

Analyst Neil Saunders, managing director, GlobalData Retail, commented that Target’s excellent sales results “more than justify” its increased costs.

“We are encouraged that the 3.6% uplift in comparables was driven by an evenly split contribution from stores and online,” Saunders said. “Not only does this indicate that Target’s omnichannel strategy is delivering, but it also shows that the store enhancements are working. In essence, it justifies Target’s view that stores remain a critical part of the proposition and are worth spending money on.” For more, click here.

Sales rose 10.0% to a better-than-expected $22.8 billion from $20.7 billion last year, reflecting the impact of an additional week in this year’s fourth quarter. Same-store sales increased 3.6%, better than analysts had expected. Traffic rose more than 3%.

Comparable digital sales surged 29% and contributed 1.8 percentage points of comparable sales growth. Digital sales accounted for 8.2% of the company’s revenue mix in the fourth quarter, compared with 6.8% a year ago.

“Our fourth quarter results demonstrate the power of the significant investments we’ve made in our team and our business throughout 2017,” said Brian Cornell, chairman and CEO of Target Corporation. “Our team’s outstanding execution of Target’s strategic initiatives during the year delivered strong fourth quarter traffic growth in our stores and digital channels, which drove healthy comparable sales in every one of our five core merchandise categories.”

Target has been rolling out exclusive brands and limited-time partnerships, its newest being with British heritage brand Hunter. The company is also in the midst of a major update of its stores. On Monday, Target announced it will remodel 325 stores this year, on the heels of some 110 remodels in 2017.

In the first quarter of 2018, Target expects a low-single-digit increase in comparable sales and adjusted EPS of $1.25 to $1.45.

For full-year 2018, Target expects a low-single-digit increase in comparable sales and adjusted EPS of $5.15 to $5.45.

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Rite Aid asset transfer to WBA 85% complete

BY Michael Johnsen

Rite Aid on Monday reported the successful asset transfer of more than 85% of the stores the company is selling to Walgreens Boots Alliance. As of March 2, Rite Aid has transferred 1,651 stores and related assets to WBA, and has received cash proceeds of $3.6 billion, which the company continues to use to reduce debt.

Under the Asset Purchase Agreement, WBA will purchase a total of 1,932 stores, three distribution centers and related inventory from Rite Aid for an all-cash purchase price of $4.4 billion on a cash-free, debt-free basis.

The majority of the closing conditions have been satisfied, and the subsequent transfers of Rite Aid stores and related assets remain subject to minimal customary closing conditions applicable only to the stores being transferred at such subsequent closing, as specified in the Asset Purchase Agreement.

Rite Aid expects to complete the store transfer process in the spring of 2018.

After all stores are acquired, stores are planned to be converted to the Walgreens brand in phases over time. The stores to be purchased are located primarily in the Northeast and Southern U.S., and the three distribution centers to be purchased are located in Dayville, Conn., Philadelphia, Pa., and Spartanburg, S.C.

The deal was first announced in September.

More recently, Albertsons announced its intent to merge with remaining Rite Aid stores as part of a deal that would make the new Albertsons/Rite Aid combo the fourth largest pharmacy in the U.S.

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Hy-Vee expands Great American Milk Drive participation

BY David Salazar

Hy-Vee is committing in March to help deliver milk to food banks in the eight states it serves by partnering with the Great American Milk Drive. Throughout the month, Hy-Vee shoppers will be able to donate $2 toward the purchase of a half-gallon of milk or $4 toward a full gallon at the checkout. At the end of the month, Hy-Vee said all donations would be used to buy milk from area processors for local food banks.

This year’s effort marks an expansion of Hy-Vee’s participation in the Great American Milk Drive campaign. Last year, the West Des Moines, Iowa-based company’s shoppers donated enough for more than 120,000 gallons of milk in a two-week period.

“Hy-Vee is expanding its participation in The Great American Milk Drive to the entire month of March this year to provide even more assistance to help alleviate hunger,” Hy-Vee executive vice president, chief marketing officer and co-COO and Jeremy Gosch said. “Through the generosity of our customers, and with participation from all of Hy-Vee’s 246 stores, our goal is to increase donations and make nutritious milk available to those in need.”

The campaign is carried out in partnership with Feeding America, Milk PEP and the National Dairy Council. Sponsors this year include Dean Foods, Kellogg’s, Kraft Heinz, Mondelez International, Post Holdings, Hiland Dairy, Kemps and Anderson Erickson Dairy.

In Hy-Vee’s eight-state region, there are roughly five million food insecure people, according to Feeding America, with milk constituting the most request and least available items in food banks nationwide.

“The Great American Milk Drive offers us all an opportunity to make a meaningful impact for local families throughout our eight-state region,” Gosch said.

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