Target’s Remarkable Run Continues Amid Uncertain Times
● The big-box retailer navigates crisis on top of crisis, determined to grow.
Target’s landscape continues to evolve, right along with the pandemic, as it navigates from one crisis to the next.
In February, just as the Omicron rates were slowing nationwide, the big-box retailer lifted the mask mandate among shoppers and employees alike. That same month, Target instituted a pilot program in select markets, allowing shoppers to make drive-by returns and even order a Starbucks latte while at the pick-up window. Meanwhile, Apple and Ulta
Beauty shops-in-shop continued to open in Target stores around the country. There’s also talk of more categories and product expansions across the assortment, from apparel to home to electronics to food and beverage, in newly remodeled stores, both large and small, executives say.
All this helps explain Target’s most recent blowout quarter. Early Tuesday morning the firm revealed $1.5 billion in quarterly profits (nearly $7 billion for all of 2021), raising its full-fiscal 2022 guidance as a result. This caused company shares to surge during Tuesday’s session, closing up 9.84 percent to $219.43 apiece.
“We see a growth horizon for years to come,” Brian Cornell told analysts and media during an in-person financial meeting Tuesday in Midtown Manhattan.
But Target’s chairman and chief executive officer started the meeting by remarking on the current crisis playing out in Europe.
“It’s been a long couple of years,” Cornell told the crowd. “But I also have to acknowledge the continued uncertainty that surrounds our world, which has only been magnified by the growing conflict between Russia and the citizens of Ukraine.”
As to whether the crisis has impacted consumer sentiment and shoppers’ willingness to buy more — or perhaps hoard products similar to the onset of the pandemic — Cornell told reporters, “I think we’re going to have to watch it carefully, just to see how the U.S. consumer reacts to this geo-political challenge and the attacks that are taking place on Ukraine, each and every day, for the last six days. Right now, we’ll just watch it carefully. And as we always do, we’ll listen to the guests and make sure we pivot and adjust accordingly. I think we’ll learn a lot over the next few weeks and perhaps over the next few months.”
There are other factors at play, of course, such as inflationary pressures, continued supply chain challenges and the ongoing pandemic, the details of the latter which seems to change on a daily basis.
But executives at the Times Center Tuesday were confident in the company’s continued growth prospects.
“We know today’s consumers are facing a series of hardships from the pandemic,” Cornell said. “We see higher prices across the country. We see supply chain constraints that are steadily working themselves out but will likely take more time, both of which are made more uncertain by the crisis in Ukraine. And we see people reevaluating how they think about work.
“As we look at the next five years, we’re going to continue to build on our strengths,” the CEO continued. “We have a culture, we have the connections and we care. We care about delighting our guests. We care about delivering value to our stakeholders and as you see in our fourthquarter results, we’re accelerating our investment in what’s next as we continue to deliver what’s now.
“We know March and April are going to be important time frames as the consumer overlaps in stimulus checks and childcare, so we’re taking a cautious approach to the first quarter,” Cornell said. “But we continue to see a very resilient consumer who has a solid balance sheet and is balancing that desire for value and concerns with inflation with a desire to find something new and just go back out and experience everyday life.”
In fact, Target is so confident that it now expects revenues to rise low- to mid-single digits in fiscal 2022, compared with 2021, with high-single digit growth in adjusted earnings-per-share during the same time period. The company also released a new long-term financial algorithm Tuesday morning for fiscal 2023 and beyond, anticipating total revenues to continue to grow in the mid-single digit range, with high-single digit growth in adjusted earnings-per-share. The retailer also intends to invest between $4 billion and $5 billion on capital expenditures.
To get there, Target said it plans to increase investments in stores, the workforce and the assortment.
“Growth doesn’t just happen. You have to invest in that. The algorithm contemplates that,” said Michael Fiddelke, chief financial officer at Target. “Whether you’re talking about physical capital or human capital, underinvesting might lead to great-looking results over a very short period, but they’re not sustainable over time.”
Target is currently in the process of remodeling around 200 stores this year. “And [we’ll] keep that pace in the years that follow,” John Mulligan, chief operating officer at Target, said during the live presentation. “Following a remodel, traffic gains across the store help drive an average 2 percent to 4 percent sales lift in year one and another 1 percent to 2 percent lift in year two.” he added.
In addition, the retailer plans on opening roughly 30 new locations each year, including soon-to-open stores in Charleston, S.C. and New York’s Times Square, across small-format, mid-size and larger stores.
“For the better part of the last decade, our store growth has been driven by small formats, with a more flexible footprint, these stores have enabled us to enter new markets and reach more guests,” Mulligan said. “Today, we have the opportunity to open and operate stores in spaces of any size, so we can meet our guests wherever they are. This year we’ll open stores ranging from 14,000 square feet to 10 times that size, using that flexibility to design shopping experiences that best meet the needs of each local community.”
As for which categories, products or private-label partners will be on Target shelves in coming months, executives wouldn’t say. But the company did emphasize newness across the assortment.
“Our search terms and what the guest is looking for changes seasonally, all the time,” said Cara Sylvester, chief marketing and digital officer. “We take the friction out so that guests can experience Target on their own terms, which means we are guest obsessing at every touch point to stay a step ahead of evolving guest behaviors. Routines developed early in the pandemic are now part of their lives, things they cannot live without, but they look a little bit different today. So here’s a guest who had a drive-up order, but then, she was drawn inside to discover something new…. These new kinds of Target runs and stock-ups reflect our guests evolving needs and wants and a seamless omnichannel experience that delivers on them.
“And our marketplace is truly differentiated because it is invite-only and it will remain invite-only as we think through who are the right trusted partners that we are looking to actually complement our assortment with,” Sylvester continued.
Christina Hennington, chief growth officer at Target, added that Target’s five primary categories all grew double digits in 2021, with apparel leading the way for the entire year and beauty leading the way in the fourth quarter.
“You’d be surprised at how quickly those ebb and flow week by week as the consumer went through so much change over the year and I think that’s where the breadth of our multi-category portfolio has played to our advantage, that whether it’s a mask they’re looking for, or an Xbox, or it’s a new spring dress, we’ve been able to be there for them in all those moments,” she said.
Currently, Target’s selection of private label and national brands includes Levi’s, Apple, Disney, lingerie brand Journelle, Thinx period panties and Priyanka Chopra’s hair care brand Anomaly, among others, both in stores and online.
There’s also Target’s own brands, 10 of which are billion-dollar brands and all together grew 18 percent in 2021. In February, Target’s activewear brand All In Motion revealed its billion-dollar revenue status after less than a year on the market. That same year, Target sold more than 330 million units of children’s apparel brand Cat & Jack.
Behind the scenes, Target is also making investment. On Monday, the company said it was raising its minimum wage to $24 an hour for some workers, while expanding access to healthcare benefits. That’s on top of last summer’s announcement that the retailer will offer tuition assistance to qualified employees.
And despite labor shortages across multiple industries, Mark Schindele, chief stores officer at Target, said, “Our stores are fully staffed and we’ve been able to leverage the training and the tenure of our team to easily shift against demand without missing a beat.”
Cornell added: “We know we’ve got a consumer who is looking for value but as Christina [Hennington] noted, they are looking for newness as well, and anything new is exciting and showing up in that basket. There’s clearly inflationary concerns that are starting to pop up in the conversation, but it’s still a U.S. consumer with a pretty healthy balance sheet, so we’re going to have to watch this carefully.”