Target (TGT 1.28%) executives won't mind if you call it a comeback. The retailer just closed the books on a fiscal 2018 that was most notable for how much better it was than just a couple of years ago.
The way CFO Cathy Smith sees it, quarterly market share trends constitute a type of real-time report card on the health of a retailer's business, she said in a conference call with analysts this week. "Two years ago," Smith explained, "those report cards were clearly showing that we needed to change."
Target's holiday season results demonstrated that the company has made the right adjustments, if you believe the management team. They also set the company up for better growth ahead even as the retail industry continues to change rapidly. Let's take a look at what executives want investors to know about their business strategy today.
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Succeeding at growth
"We're growing market share in every major category and our guests love what they see."
-- CEO Brian Cornell
Management spent a good portion of the conference call taking a victory lap in celebration of the past year's operating metrics. They had plenty of good news to highlight, especially around market share metrics.
Target's 5% comparable-store sales gain over the holidays was the chain's best finish to a year since 2004. Customer traffic was strong both online and in stores, and the company gained market share across its apparel, home, beauty, baby, and toys categories. Sure, a strong economy helped lift these sales numbers. But Target executives primarily credited recent investments in things like store remodels, employee wages, and the digital sales infrastructure for the strong results.
Check out the latest earnings call transcript for Target.
Profiting in a multichannel selling world
"On the operating income line, our business delivered a 5.5% rate last year. This will serve as a good benchmark for the years to come."
-- CFO Cathy Smith
A quick glance at the financial statements might suggest that Target's profitability problems haven't been solved. Pre-tax operating income fell 3% in 2018 after diving 13% last year.
Yet the latest decline had everything to do with a calendar quirk that added an extra selling week to 2017's fiscal fourth quarter. Strip that out, and operating income rose at about the same rate as sales. Executives made it clear that they see that success as marking a dependable stabilization of profitability, with the metric now in a good position to begin climbing again.
Looking to 2019
"For the full year, we're guiding to comp sales growth in the low to mid-single digits that reflect the combination of increased traffic to our physical stores, strong market share gains in digital, greater adoption of our fulfillment capabilities and market share growth in every major category across both stores and digital."
-- Cornell
Target is predicting that many of the trends that lifted 2018's results will push sales and profits higher again this year. Beyond market-beating growth, executives see room for modestly higher operating margins. That forecast answers an important question for investors who were wondering where the chain's earnings power might eventually land after its expensive switch to an omnichannel sales model.
Still, while its biggest spending initiatives appear largely to be behind it, Target stands ready to pour more cash into the business as needed. "The reason is simple," Smith explained. "In today's retail environment, those who have the resources to evolve are beating those who don't."
