5 Things Target's Management Wants You to Know

Key highlights from the company's latest conference call with analysts.

Sep 2, 2014 at 3:36PM


Target's (NYSE:TGT) latest quarterly earnings results didn't do much to change the story of a retailer in distress. It's struggling to find growth in the U.S. while at the same time getting pinched by major losses from its expansion into Canada. Still, the company is under new management now, and the business is starting to show faint signs of a recovery that could drive a rebound in the stock.

With that bigger picture in mind, here are a few key highlights from management's recent conference call with analysts.

Focusing on digital sales growth in the U.S.

Tgt Ceo

New CEO Brian Cornell. Source: Target.

CEO Brian Cornell officially took over the retailer's top spot in August, giving him just a few months to get settled before the holiday season selling crush. His strategic review of the business isn't complete, but it's far enough along that investors can see outlines of the new direction that the executive team is taking. 

For example, management is looking at better integrating Target's online business with its physical store footprint in the United States. "We need to build capabilities focused on satisfying the wants and needs of our guests and ensuring that our digital and store operations operate seamlessly to provide a single superior solution," Cornell said. That might be enough to kick sales growth back into firmly positive territory again. Comparable-store sales were flat last quarter, but started trending slightly higher in the month of July.

Revamping the product assortment in Canada

In Canada, where the sales growth shortfall is much worse, bigger changes are in the works. In fact, the stores are going through a sort of relaunch between now and the holiday season, which is good news considering that the segment has lost more than $400 million so far this year. Here's how Executive VP Kathee Tesija described the new strategy:

We are adding product lines that our guests told us were missing from our everyday lineup. We are adding more newness to our stores and we are adding more exclusive items and designer partnerships what we are known for in both the U.S. and Canada. Putting all these changes together means that of the 70,000 items in a typical Canadian Target store, about 30,000 items will be new between now and the holiday season.

Ending the profitability dip

Price cuts have been hurting profitability for most retailers, including Target, which saw its profit margin slip a full percentage point last quarter, to 30% of sales.

TGT Gross Profit Margin (TTM) Chart

TGT Gross Profit Margin (TTM) data by YCharts

But that trend could be turning positive again as customers are showing signs of shopping with a bit less caution. Here's Chief Financial Officer John Mulligan:

We are working to moderate our promotional intensity to a level we believe is more appropriate in the long run. We are encouraged with the recently improved U.S. comparable sales trend, in particular because our promotional intensity over this period was not as elevated as earlier in the year.

Still no share buybacks

Target's profitability may be set to recover, but the business isn't nearly strong enough to support capital returns in the form of stock repurchases. Those won't resume until management sees steadier growth in the U.S. and a much stronger operation in the Canadian market.

In the meantime, Target will be marshaling its resources with the aim of strengthening its balance sheet. "We expect to continue to suspend cash investments in share purchases until operating performance improves," Mulligan said. 

A (slightly) improving outlook

Management sliced its overall profit forecast for the year on account of the underperformance in its business these last six months. That outlook includes a steadily improving profit picture in the U.S. and some recovery in the Canada segment.

However, the company expects to book a brutal profit margin of -25% in Canada along with sluggish sales growth of between 0% and 1% in the United States. "These expected results are clearly not where we expect to perform over the longer term," Tesija said.

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple


Demitrios Kalogeropoulos owns shares of Apple and Netflix. The Motley Fool recommends and owns shares of Apple, Google (A and C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers