Target Didn’t Miss the Digital Mark

Target reported fourth-quarter earnings of $1.37 a share, lagging estimates of $1.38 a share. The stock had its biggest intraday tumble since a much more significant profit warning about the holiday season back in November.

On other fronts, though, the company gave investors a lot to celebrate. Revenue for the quarter reached $22.8 billion, beating estimates of $22.5 billion, and comparable sales increased 3.6% from the same period a year ago. It wasn’t all confined to the holiday season either: strong sales continued into January, sending the company’s e-commerce sales for the quarter up 29%. That was the best in recent memory and was better than Walmart for the quarter. Target’s big-box rival had been increasing its online sales at a far more rapid clip in previous quarters but its e-commerce growth dipped to just 23% as it redirected its efforts from its Jet subsidiary to Walmart . WMT -1.02% com.

Target’s revenue for the quarter reached $22.8 billion, beating estimates of $22.5 billion. Photo: LM Otero/Associated Press

Target’s profit miss was largely due to the cost of its own digital investments. Its gross margin fell to 26.2% for the quarter from 26.6% a year earlier. Citing “pressure from digital fulfillment costs,” Target Chief Executive Brian Cornell emphasized that the company is making careful, long-term investments to compete in the new retail world.

In December the company paid $550 million for Shipt, a same-day delivery startup—part of a three-year, $7 billion investment plan that includes launching private labels and remodeling stores to better handle pickup of online orders.

Those investments may be costly in the short-term, but they are the right moves if Target is serious about surviving in the digital era. Optimism sent retail stocks too high; a reality check has brought them back to earth. But investors should be pleased with Target’s turnaround. Beating Walmart in digital sales growth is nothing to frown at.