Target (NYSE:TGT) had a mild stumble with its holiday-season sales. The retail giant saw comparable-store sales grow by only 1.4%, down from 5.7% during the same period in 2018.
That's not a disaster, but its a disappointment that might make shareholders question whether the chain's long-term plan is working. CEO Brian Cornell understands those concerns and addressed them in an interview last week posted by the company.
"After three strong quarters this year and a record-breaking holiday season in 2018, we had some really ambitious plans heading into the season," he said. "While we knew this season was going be challenging, it was even more challenging than we expected."
Cornell attempts to calm investors
In his somewhat unusual interview, Cornell made an effort to acknowledge the poor two months of performance but also explain why they did not matter to the company's overall plans. He made a strong case that there's nothing for shareholders to worry about.
"We've built a financial model that -- despite the softer sales -- still delivered on the bottom line because of a strong gross margin mix, the unique role our stores played in digital fulfillment and our incredibly clean inventory position closing out the holidays," he said. "Today, we're on track to deliver a historically strong full-year financial performance -- hitting every one of our financial goals for 2019 -- growth in operating income and EPS, as well as our 11th straight quarter of positive comp growth."
Basically, Cornell is arguing that while the comparable sales number was down, that's not really the number the company should be judged on. That makes sense when you learn where the company did well and where it underperformed:
When you look across the business, we saw strength -- both sales and market share gains -- in frequency categories like Essentials and Food & Beverage. Beauty was a true standout. Apparel -- a high-margin business -- also performed exceptionally well. At the same time, there was notable weakness in Electronics and parts of Home. After two strong holiday seasons in Toys, our growth was essentially flat, but we continued to grow market share in the category.
The sales mix, Cornell is arguing, matters. The company did well in areas where it makes more money. It also performed the best in the categories that drive its long-term success.
What's next for Target?
Cornell gave shareholders hope that the right foundation has been laid for the future. He noted that improvements had been made in the supply chains and said that operations were "superb" during the entire quarter.
"Stores fulfilled more than 80% of the products our guests bought digitally," he said. "We knew our same-day services would be a lifesaver for busy guests, and it was great to see so many families adopting them to make life a little easier. The speed and convenience clearly resonated -- sales through Order Pickup, Drive Up and Shipt were up more than 50%."
Cornell kept his message positive but also shared hard numbers. He wasn't rationalizing. Instead, he was offering a perspective that shows why investors sometimes make stock decisions based on surface numbers that don't reflect what's actually happening at a company.
"We're on track to deliver on each one of our key metrics for the full-year -- sales, operating income, and earnings per share -- and that's something to celebrate, considering how high we set the bar for 2019," he said. "We're confident that our strategy will continue to generate profitable growth in the year ahead."
This isn't rhetoric or cheerleading. Cornell speaks the truth. Target missed on holiday season comp sales but that's a misleading number. The company performed well where it mattered, driving bottom-line numbers and showing its strength going forward.