Target’s latest earnings report shows signs that its new strategy is working.
Jump in profit contrasts with other retailers’ lackluster results
Target’s chief executive, Brian Cornell, arrived at the company last August with big plans for turning around a retailer that was in a rut: The cheapchic merchandise that had earned it the “Tar-zhay” nickname had lost its sense of style and originality, and a massive data breach had bruised consumers’ trust.
The company’s latest quarterly earnings report, released Wednesday, offered early signs that Cornell’s strategy might be working. Target profit soared 52 percent to $635 million in the most recent quarter, and it saw a solid 2.8 percent increase in sales at stores open more than a year. That sales growth was fueled by a growth in the number of transactions that customers made, as well as a growth in their “basket size,” which means shoppers were spending more per trip.
Target also said that sales growth in its style, baby, kids and wellness categories was more than double the company average. This is particularly crucial because Cornell has made these departments the centerpiece of his comeback strategy.
Target has focused sharply on improving the mix and in-store presentation of items in these categories, with tactics such as adding mannequins to better display the clothing. The theory is that one-of-akind merchandise assortments in these “signature categories” can help pull shoppers into Target in the first place. Once they are in the store, they might also shop for more routine items, such as laundry detergent or diapers, that they might otherwise have purchased from a competitor.
In April, Target saw stellar sales of its Lilly Pulitzer women’s apparel collection. The limited edition merchandise was expected to last several weeks but ended up selling out within hours as shoppers lined up outside Target stores and deluged its website to get the goods.
Target’s chief financial officer, John Mulligan, said Wednesday that the robust sales of this collection were “financially, not really material to the quarter.” But executives believe the groundswell of buzz around the collection serves as a sign that they’re finding their stride again in the apparel business.
Target’s new strategy centers on offering customers value, not necessarily a rock-bottom price. This seemed to have contributed to the 1.4 percent increase in average transaction amount that the retailer saw in the quarter.
A flurry of recent retail industry earnings results have offered mixed messages about the U.S. consumer’s willingness to spend. Wal-Mart’s modest U.S. sales growth, reported on Tuesday, along with lackluster reports from Macy’s and Kohl’s last week, had some analysts questioning whether shoppers were actually going out and spending their tax refunds and their savings from lower gasoline prices.
Target also noted this unevenness.
“The consumer continues to be choppy out there,” said Mulligan during a call Wednesday with reporters.