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Will gains make believers of investors who opposed Target’s toy category push?

Written by George Anderson

Photo: Target

Retail, much like the universe, abhors a vacuum. A case in point is the baby and toy categories where Amazon.com, Bed Bath & Beyond, J.C. Penney, Party City, Walmart and others are chasing after the millions of dollars in annual sales that previously went through Toys “R” Us and its sibling chain, Babies “R” Us. As it turns out, there is concrete evidence that at least one chain — Target — is a direct beneficiary of the two chains that died under the weight of $5 billion in leveraged buyout debt.

In its second quarter earnings announcement, Target highlighted both the toy and baby categories as factors in its 6.5 percent comparable sales growth. Sales increased in the high teens for baby apparel and double-digit gains in the toy category. The chain said that it increased inventory in the two categories to take advantage of the opportunity created by the closing of hundreds of Toys and Babies “R” Us stores around the country during the first half of the year.

Speaking on the chain’s earnings call this week, Mark Tritton, Target’s chief merchandising officer, said the retailer is expecting to see continued traffic and market share gains in the two categories “for the rest of the year and beyond.” 

Target CEO Brian Cornell told CNBC’s Becky Quick that “with Toys ‘R’ Us going away, with Babies ‘R’ Us going away, we’ve got to make sure we are taking more than our fair share of that market share and that’s going to drive even more trips to our stores in the back half.”

Considering the strong quarter, it will be interesting to see if investors who criticized Target for aggressively pursuing the lower margin toy category have a change of mind.

“The toy category is not a growth category,” Steven Roorda, an analyst and portfolio manager with Stonebridge Capital Advisors, told Reuters in February. “U.S. birth rates are moderating and along with children using other devices to access entertainment at an earlier age [that] means that the toy category has been under pressure as evidenced by what is going on with [toymaker] Mattel.”

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