Target turnaround effort shows momentum as grocery sales jump
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Target CEO Michael Fiddelke said 95% of the retailer's back-to-school items are priced at or below last year's prices. Photo: Michael M. Santiago/Getty Images
Target's turnaround shows signs of accelerating under its new CEO as the retailer reported a sharp uptick in grocery sales and online delivery.
Why it matters: The big-box chain had been mired in a slowdown, struggling to keep up with rival Walmart on price and with other competitors on merchandise mix.
Driving the news: Target reported a comparable store sales increase of 2.7% in the period ended Aug. 1, beating S&P Capital IQ expectations of 2.5%.
- The retailer also recorded comparable digital sales growth of 8.7% as its same-day delivery service soared 25%.
- Overall, the company's revenue jumped 5.3%, to $26.5 billion, compared with a year earlier, exceeding S&P Capital IQ expectations of $26.1 billion.
- The company also raised its revenue and earnings outlook for the full year.
What they're saying: Michael Fiddelke, who took over as CEO in February, said on a conference call with reporters that "it's evidence guests are choosing Target more often."
- He said the company had enhanced its food presentation and offerings, made "major changes" in its home furnishings section and benefited from partnerships with brands like LoveShackFancy, Pokémon and Hollister.
Zoom in: The improvement in Target's grocery performance was particularly notable.
- Food and beverage sales rose 7.2% — a positive sign in an area where the retailer has struggled to attract price-sensitive consumers.
- Chief merchandising officer Cara Sylvester said customers responded positively to Target's refreshed assortment of food, including wellness items, "global flavors" and "emerging brands."
Yes, but: Fiddelke acknowledged that Target still has significant room to improve in the apparel and home sections, calling it a "multi-year journey" in home products despite already changing 75% of its decorative accessories.
- Bank of America analyst Christopher Nardone said last week in a research note that Target has shown "an impressive improvement in sales under new leadership, but we remain wary" about multiple aspects of the turnaround, including the "sustainability of strong comp trends from here."
- There's a risk that "the apparel/home turn takes longer than expected due to competition and potential promo pressure in the industry," plus that a "competitive pricing environment in food/beverage tempers share gains," Nardone added.
What to watch: Target is already "really encouraged by what we see so far in the back-to-school and back-to-college seasons," Fiddelke, the CEO, said, noting that 95% of its school supplies are priced at or below last year.
- And the company is rolling out Target Beauty Studio venues within 600+ stores in hopes of jolting beauty sales.
