We review Target’s second quarter performance, which included its strongest comparable sales growth for 13 years.
Comparable stores sales up 4.9%
Target’s second quarter net revenue increased 6.9% to $17.8bn. Comparable sales growth increased 6.5%, its strongest performance in 13 years, with traffic up 6.4%. Comparable store sales were up 4.9%. Operating income increased 3.6% to $1.1bn. This was an outstanding performance from the retailer, with sales growth ahead of the excellent numbers posted by Walmart earlier this month. While the retailer is benefiting from the strong consumer environment, it is also seeing the rewards from the investments it has been making in its stores, pricing, private brands, ecommerce and supply chain. Commenting on the results, president and CEO, Brian Cornell, stated,
"There is no doubt that like others, we're currently benefitting from a very strong consumer environment, perhaps the strongest I've seen in my career.”
Source: IGD Research
Digital channel sales benefit from new fulfilment options
Target’s digital channel sales increased by 41%, with its one-day sale in July having a significant impact. Volumes were three times higher than forecast. Ecommerce has been a major area of focus for the retailer, introducing a range of new fulfilment options over the last year. Same-day delivery via Shipt is currently available in more than 1,110 stores, with the retailer expecting to reach 65% of US households by the holidays. Drive Up is now available at more than 800 stores while Restock has been expanded nationally, reaching 75% of the US population. One of its most successful services is Delivery from store. This has been rolled-out to almost 60 urban stores, and generates the highest basket spend, over $200, of any of its services.
Improving baby and toys to capitalise on Toys R US exit
The retailer has continued to enhance the in-store experience, remaining on-track to remodel 300 stores by the end of the year. These stores continue to generate a sales uplift of 2-4%, in line with its forecast. Target has also invested in its toys and baby departments, improving the offer and in-store experience. The retailer is seeking to capitalise on the closure of the Toys R Us and Babies R Us businesses.
Private brands helping to mitigate margin impact of ecommerce
The retailer also launched several new private brands in the quarter. These include the Made by Design homewares range, its first electronics brand, Heyday, and Wild Fable and Original Use in clothing. These launches, and over 10 other brands that have been launched in the last 18 months, are also an important element in helping it to mitigate the margin impact of a fast-growing digital business.
Improving outlook but cautious on tariffs
The improving performance led the retailer to update its guidance for the year. It expects comparable sales growth to be around 4.8%, in line with the first half. However, the issue of tariffs remains front of mind. It has been expressing its concerns to leaders in Washington and putting contingency plans in place, should the situation escalate further. Target, however, maintains a positive outlook for the year, and expects to continue gaining share in key categories. Commenting on the trading environment, president and CEO, Brian Cornell, stated,
” What you're seeing right now from a macro basis, is well-run retailers with strong balance sheets that generate cash that they can invest back into their business, are winning right now. There are others that can't afford to invest in their store experience or build capabilities or drive differentiation, and they're giving us share.”
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