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Beauty, fashion help Target beat expectations to post 52 percent profit rise

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After a turbulent 18 months, Target appears back on track after reporting a 52 percent boost in profits for the first quarter of 2015.

Having battled through the data breach, its withdrawal from Canada and the elimination of 2,000-plus jobs in its Twin Cities home, Wednesday's results are a sign the company's turnaround plan is taking effect.

The profits boost – thanks to a 2.3 percent rise in same-store sales and a 37.8 percent in online sales – has been put down to above-expected performance in its "signature categories" of style, baby, wellness and kids.

The retail giant recorded profits in the quarter up to May 2 of $635 million, up from $418 million last year, with people shopping more often at Target (0.9 percent growth in transactions) and spending more when they're there (1.4 percent rise in transaction amount).

This managed to be achieved even though the company paid out $103 million in "restructuring costs" following the swathes of job cuts.

"We’re pleased with our first quarter traffic and sales, particularly in our signature categories, which drove better-than-expected profitability through improved gross margin and continued expense management," Target CEO Brian Cornell said in the release.

"We’re encouraged to see early progress on our strategic priorities, including strong sales growth in Apparel, Home and Beauty, nearly 40 percent growth in digital sales, and positive traffic in both our stores and digital channels."

Lilly Pulitzer demand 'the icing on the cake'

Target's chief financial officer John Mulligan told the Star Tribune one area the company made a significant improvement was in beauty, where it had invested in store presentations and fashion, with around 1,000 stores now having mannequins.

One thing that did not have a big impact on the quarter's results is the retailer's Lilly Pulitzer collection, which sold out within hours in stores and crashed the company's website following its launch in April, though Mulligan did say the success of the line was a major boost to the Target brand.

Cornell: While thrilled by response to Lilly Pulitzer, disappointed by performance of website, company is working to fix for holidays $TGT

— Kavita Kumar (@kavitakumar) May 20, 2015

Speaking on a conference call Wednesday morning, Cornell said he was "delighted" with the response to the collaboration, but was "disappointed" that its digital channels were unable to handle the demand.

Apparel as a whole performed well, particularly with sales of swimwear and the Merona brand, with Cornell noting that warmer weather in March led to a boost in sales across the board.

The performance of Lilly Pulitzer in late April was described by chief merchandising officer Kathee Tesija as "the icing on the cake."

The Wall Street Journal notes Target's latest earnings figures come a day after Wal-Mart posted only a "slim gain" in U.S. sales for its first quarter thanks to higher wages and the strong dollar, while stores like Macy's have also reported underwhelming sales.

Payouts for job cuts, Canada, data breach

The company is still feeling the effects of the company's failure in Canada as well as the massive data breach that compromised the personal details of tens of millions of customers.

Target posted $16 million in after-tax losses in the first quarter relating to its exit from Canada and spent $3 million in costs relating to the data breach.

The company is in the midst of a major reorganization that in March led to the elimination of 1,400 jobs and closure of 300 open positions at its Minneapolis headquarters, which followed the loss of 550 jobs in the Twin Cities because of its Canada withdrawal. More recently, the retailer laid off a further 100 administrative assistants.

The job cuts cost the company more than $100 million in the first quarter, mainly covering severance packages for workers, and though Cornell said the reductions "were difficult for all of us" they were "necessary" to move the company towards a leaner operation.

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