Target's (TGT -0.25%) latest earnings report contained the kind of optimistic language that its shareholders haven't seen in some time. Executives described the latest growth numbers as "unprecedented" while saying they were "extremely pleased" with the demand trends that they're seeing.
In a subsequent conference call with Wall Street analysts, CEO Brian Cornell and his team added context to those statements with a more detailed discussion of Target's market share, its long-term growth plans, and its brightening expectations for the rest of 2018. Below are a few highlights.
Image source: Getty Images.
More than just a booming industry
There's no doubt that, like others, we're currently benefiting from a very strong consumer environment, perhaps the strongest I've seen in my career. But market share data demonstrates that our current results are benefiting from more than just the environment, as we're seeing broad market share gains across categories we sell.
-- Cornell
Target's 6.4% sales increase was a blowout number for a few reasons. It represented the retailer's best performance on this metric since 2005. The boost was also powered by a 6% spike in customer traffic that executives described as unprecedented in their experience.
Management admitted that growth in the broader industry is helping lift Target's results, just as it is for rivals like Walmart and TJX Companies. However, executives listed a few growth initiatives that they've implemented since early last year that are combining to deliver robust market share gains. These include store remodels, price cuts, and increased investments in wages and employee benefits. "We can't evaluate each of [these investments] in isolation, [but] it's the collective benefit of all these initiatives that is keeping Target more top of mind with guests," Cornell said.
Doubling down on growth investments
We have increasing confidence that we can deliver very strong results in the years ahead as we move into the next phase of our strategic plan and achieve scale across the full slate of our growth initiatives.
-- Cornell
The speeding sales-growth trends, and the extra profits that come with them, are giving management more confidence in its investment strategies -- and extra resources for these initiatives. As a result, Target aims to finish wall-to-wall remodels of about 1,000 locations by 2020 while transforming its supply chain to place more emphasis on stores that double as online fulfillment centers. Its repositioning also includes lots of small-format store launches and continued focus on keeping prices low.
Altogether, this shift into multichannel retailing with an emphasis on price leadership will likely result in slightly lower profitability than Target had enjoyed before 2016. But management is betting that overall earnings growth will be strong thanks to a far larger sales base.
Capitalizing on market opportunities
These upgrades to our outlook reflect the current trends we're seeing across our business, including a very strong start to back-to-school and back-to-college. In addition, we continue to focus on unique opportunities in key toy and baby categories, given the recent closure of Toys R Us and Babies R Us across the country.
-- Cornell
Target lifted its outlook and now expects sales growth over the next two quarters to run at about the same 5% pace as it has over the last two quarters. The retailer believes it will continue to benefit from liquidations in the toy niche, and from generally strong economic growth. Executives are keeping a close eye on trade spats that could lift costs for many everyday products.
But they say they aren't especially worried about these moves hurting the business over the next few quarters. "When we're faced with tariffs or any other external factors, there are multiple levels we can pull to remain price competitive and maintain profitability," Cornell said. He said the business is expressing its concern to Washington and worries more about the impact of tariffs on consumers and the economy overall.
