After several years of sluggish sales and falling earnings, Target (NYSE: TGT) has gotten back on track in the past year and a half. On Wednesday, the discount retail giant reported that its strong growth continued in the first quarter -- even as many other big retailers suffered from a slowdown in consumer spending. This confirms that Target's growth strategy is working.

Target's best quarter yet?

In fiscal 2018, Target achieved a 5% increase in comparable sales, with strong growth in stores and a 36% surge in digital sales. Adjusted earnings per share (EPS) jumped 15.1% to a new record high of $5.39. Target's operating margin declined modestly last year, though, and tax reform was the main driver of the company's earnings growth.

Target's underlying earnings trajectory improved further last quarter. Comparable sales rose 4.8%, driven by a strong 4.3% increase in traffic. Comparable digital sales jumped 42%, while comp sales rose a solid 2.7% year over year in Target's stores. Management pointed to the toys and baby categories as particularly strong performers, indicating that the company is capitalizing on Toys R Us and Babies R Us having gone out of business last year.

Crucially, Target's operating margin improved to 6.4% from 6.2% a year earlier. Gross margin ticked down by 0.2 percentage points to 29.6%, due to rising fulfillment and supply chain costs. However, Target was able to more than offset this pressure through strong expense control, as selling, general, and administrative expenses fell to 20.8% of sales from 21.1% in Q1 2018.

Target managed to expand its operating margin last quarter. Image source: Target.

The net result was that operating income rose 9%, reaching $1.14 billion. Adjusted EPS jumped 15.9% to $1.53, getting an additional boost from Target's share buybacks. That exceeded the company's $1.32 to $1.52 EPS guidance range. Analysts had expected EPS of just $1.43.

Digital investments are paying off

The strong first-quarter results show that Target's digital-focused sales growth strategy is succeeding. The company is investing in three key initiatives to make ordering online more convenient: speedy order pickup (most orders are ready within an hour), drive-up service (Target staff bring pre-ordered items to customers in their cars within minutes), and same-day delivery through Target's Shipt subsidiary.

In the first quarter, these three convenience initiatives drove more than half of Target's digital sales growth and more than a quarter of its total comp sales gain.