Target Corp. emerged as a winner this holiday season, boosting its turnaround plan and pressuring rival Wal-Mart Stores Inc. to match the performance.

Target’s shares jumped after raising its full-year revenue and profit forecasts thanks to a 3.4 per cent increase in holiday-period sales. That’s an acceleration from the third quarter’s pace and a turnaround from last year’s disappointing Yuletide performance.

“We saw increased guest traffic in November and December and strength in all five of our core merchandise categories,” Chief Executive Officer Brian Cornell said in a blog post on the company’s website.

The just-ended holiday period could be the best for U.S. retailers in a decade, buoyed by low unemployment, robust consumer confidence and demand for hot items like L.O.L. Surprise toys and voice-enabled home assistants. Department-store chains Macy’s Inc., J.C. Penney Co. and Kohl’s Corp. all enjoyed sales increases, fueled in part by online transactions that should comprise more than 11 percent of total holiday shopping, the largest portion ever, according to EMarketer.

Target’s strong holiday sales are a balm for Cornell, who’s nearly a year into a US$7 billion turnaround plan that includes opening smaller urban locations, introducing more store brands and lowering prices on everyday items. Target made several moves last year to upgrade its web operations to keep pace with Wal-Mart and Amazon.com Inc., most recently the $550 million acquisition of startup Shipt, which will speed the rollout of same-day delivery.

Online sales should grow more than 25 per cent this year, the company said, about half the pace of Wal-Mart’s e-commerce expansion of late. Target shares rose as much as 4 percent to $69.88.

Profit Forecast

Target said it now sees full-year profit of US$4.64 to US$4.74 a share, sending the shares up as much as 4 per cent to US$69.88.

The chain also raised sales and profit guidance for the fourth quarter, and said the new federal tax legislation will boost earnings between six and eight cents in the period. A lower corporate tax rate next year will also increase cash flow, the company said, which will be used for capital investments, dividends and share buybacks.

Target also said the tax benefit would push up 2018 earnings to a range of $5.15 to $5.45 a share. That’s well above the $4.57 average of analysts’ estimates, and came as a “real surprise” to analyst Chuck Grom of Gordon Haskett Advisors.

The retailer’s performance could have been better as new store brands suffered from “poor merchandising and display,” according to analyst Neil Saunders of GlobalData Retail.

Still, shoppers snatched up items like Threshold home decor, Keurig coffee makers and Nintendo Switch game consoles, Target said. Total gift spending on average increased 18 per cent over the holidays versus the same period last year, the International Council of Shopping Centers said in a separate statement Tuesday, and two out of three shoppers visited discounters like Target.

“Give ’em credit, it was a strong holiday,” Edward Jones analyst Brian Yarbrough said. “But is this the start of a trend, or a head fake? They need three or four good quarters in a row to get more people interested.”

To contact the editors responsible for this story: Caroline Salas Gage at csalas1@bloomberg.net, Jonathan Roeder, Lisa Wolfson

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