Target's digital fulfillment strategy drives strong Q3 results

Target said Q3 revenue from existing digital channels climbed 31%, with the majority of that growth stemming from in-store pickup, Drive-Up, and Shipt same-day delivery.

Target's array of digital fulfillment options have led to another blockbuster quarter for the cheap-chic retailer. The company reported its third quarter financial results Wednesday and noted that its Shipt same-day delivery and pick-up-in-store services added 1.7% to its overall same-store sales growth in the quarter and accounted for 80% of its digital sales.

Target acquired Shipt in 2017 and used the deal to build out a digital fulfillment strategy that has helped the company thrive in an otherwise challenging retail environment. 

Target said Q3 revenue from existing digital channels climbed 31%, with the majority of that growth stemming from in-store pickup, Drive-Up, and Shipt.

Like other retailers learning how to optimize against Amazon, Target is now using its stores as fulfillment hubs to get closer to customers and ease the last mile. The company enacted a years-long effort to increase efficiency through improved processes and technology -- including algorithm-optimized routes for picking orders, and enhanced data and reporting for fulfillment teams -- that has allowed the company to process more orders at a lower cost. 

Target CEO John Mulligan said the company's new inventory planning and control system has also led to lower out-of-stocks and lower levels of backroom inventory.

"We're also testing and rolling out distribution center automation designed to increase our speed and simultaneously reduce store backroom labor and inventory," Mulligan said.

As for the numbers, Target said third-quarter earnings were $1.36 per share on revenue of $18.67 billion. Analysts were expecting earnings of $1.19 per share with revenue of $18.49 billion. Target's shares were up as high as 15% in early trading. 

"Our current performance feels great, especially because it's confirmation that our long-term plan is working," said Target chief executive Brian Cornell. 

Looking ahead, Target is forecasting 2019 earnings in the range of $6.25 to $6.45, up from its previous range of $5.90 to $6.20 per share. Analysts are calling for for $6.18 per share.

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