Boots and beer boost Target sales but earnings…

Sales of beer, boots and groceries boosted sales at Target at the start of the year. But the earnings were ultimately less than what investors had expected.

The big box retailer reported that traffic to its stores increased 3.7% in the first quarter --the biggest surge in more than a decade --�lifting sales at stores open at least a year by 3%.

Target also reported that its digital sales soared 28%.

But its adjusted earnings of $1.32 per share missed the prediction of analysts with S&P Global Intelligence by seven cents.

That appeared to confirm concerns by some investors that despite a range of initiatives, from smaller, more tailored stores to an expansion of same day delivery, Target will have to continue cutting prices to beat rival Walmart, as well as Amazon and other e-commerce sellers.

Target's stock price was down 5.86% to $71 in pre-market trading.

We believe the company
is facing increasingly competitive pressures from several different
fronts. First, the company faces competition from Internet retailers
that typically offer lower prices, and the company's online sales
are not as profitable as sales in physical stores due to the costs for
shipping goods. Second, we have concerns about Walmart getting
more aggressive on pricing, which will most likely cause Target
to lower prices as well. We believe these competitive issues will
pressure profit margins and thus limit future earnings growth.

"We believe the company�is facing increasingly competitive pressures from several different�fronts,'' Brian�Yarbrough, an analyst�for�Edward�Jones said in a note. "First, the company faces competitWe believe these competitive issues will�pressure profit margins and thus limit future earnings growth.''

Target CEO Brian Cornell was more upbeat, saying in a statement that while winter weather hindered some sales, "we��re very pleased that our business continued to generate strong traffic and sales growth in the�first quarter, as we made significant progress in support of our long-term strategic initiatives.��

Target has been reaching out to a younger, urban customer by opening smaller, tailored locations in cities and near college campuses. But it�also revamped 56 stores in the first quarter, tweaks that Cornell says lead to a 2% to 4% lift in sales.

Target also continued to build on on its reputation as a low-cost fashion destination, unveiling three of�a dozen new, exclusive brands�in the first quarter, and partnered with popular boot maker Hunter for a limited collection.�

In the race to beat Amazon by getting packages to customers as fast as possible, Target expanded same day delivery in cities where many shoppers may not have a car and depend on public transportation. The service is now available in 55 stores in Boston, New York,Chicago, Washington D.C and San Francisco.

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It offers a separate same day service through Shipt, a�delivery company that Target recently acquired, which will drop�purchases on the doorsteps of customers in more than 40 states by the end of this year.

Target's also going toe to toe with Walmart and Amazon in the lucrative grocery space, cutting its next-day delivery fee nearly in half�starting last week�for household items like napkins and peanut butter.

And it's drive up service, that allows customers to sit in their cars while their purchases are toted to their trunks or back seats, was rolled out to 270 stores after debuting in Minneapolis-St.� Paul.�

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Customers are "reacting to our offerings,'' Cornell said in a call with investors. "As�we remodel more stores, as we open up stores in neighborhoods . . .�we expect traffic to continue to grow.����

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