Is Target ready for what comes next?
Target is ready to get back to its more profitable ways.
That was the message yesterday from CEO Brian Cornell on the chain’s second-quarter earnings call with analysts.
Mr. Cornell recapped that Target found itself earlier this year overstocked with merchandise in discretionary categories at a time when inflation was forcing consumers to concentrate their dollars on buying everyday staples.
“We could have held on to excess inventory and attempted to deal with it slowly, over multiple quarters or even years. While that might have reduced the near-term financial impact, it would have held back our business over time,” he said.
Target’s decision to mark down overstocked categories may have cut into its second quarter profitability (down 90 percent year-over-year), but the move put it in a position to approach the second half of 2022 from a position of strength.
“We’ve meaningfully reduced our ownership and commitments in categories where we’ve seen softening demand,” said Mr. Cornell. “This has allowed us to strengthen our inventory position and in-stock position in the categories that are driving our growth, most notably in food and beverage, beauty and essentials.”
Target posted a 2.6 percent increase in sales for the quarter, marking 21 straight quarterly gains. The chain saw its customer traffic improve by 2.7 percent during the quarter, 20 percent higher than the same time in 2019.
“In raw numbers, that means in the second quarter alone, we’ve added more than 90 million guest visits over the last three years,” said Mr. Cornell. “These visits are a vivid demonstration of a deepening level of guest engagement resulting from multiple investments throughout our business. These investments include dozens of new stores and hundreds of remodels every year. They also include investments in our industry-leading same-day services, which have transformed our business in a short time.”
Mr. Cornell said that Target was “leaning into value” at a time of high inflation.
“We’re focused on providing great everyday pricing and strong opening price points across every category, including in our owned brands. At the same time, we hear from our guests that they’re focused on celebrating the seasonal moments they missed over the last two years. As a result, we’ll lean into those seasonal moments, helping our guests find ways to come together and celebrate with family and friends. So, we still have a lot of business ahead of us.”
- Target (TGT) Q2 2022 Earnings Call Transcript – The Motley Fool
- Target Corporation Reports Second Quarter Earnings – Target Corporation
DISCUSSION QUESTIONS: Was Target more effective at right-sizing its inventory during the first half of the year than the retail industry as a whole? What do you see as Target’s strengths and weaknesses as it moves into the back half of 2022?