Release Date: May 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Target Corp (TGT, Financial) reported first-quarter comparable sales just above the midpoint of their guidance range.
- The company's Q1 EPS was near the upper end of their expectations.
- Target Corp (TGT) saw a meaningful improvement in discretionary trends, particularly in Apparel, which improved by approximately 4 percentage points compared to the previous quarter.
- The relaunch of the Target Circle loyalty program added more than 1 million new members in the first quarter.
- The Roundel advertising business, the fastest-growing part of Target Corp (TGT)'s business, saw more than 20% growth in Q1.
Negative Points
- Comparable sales were down 3.7% in the first quarter, driven by continued softness in Home and Hardlines categories.
- Traffic was down 1.9% in the first quarter, reflecting cautious consumer spending.
- The average transaction value also declined by 1.9%, indicating cautious consumer behavior.
- SG&A expenses increased by about 130 basis points due to higher compensation, benefits, and marketing expenses.
- Despite improvements, Target Corp (TGT) is still facing pressures from higher promotional markdown rates.
Q & A Highlights
Q: Can you talk about the balance of margin and top line growth that you initially sought for 2024? Are you finding that you're beginning to lean more in terms of driving the business, the cost of that to drive the sales a little more?
A: (Brian C. Cornell, Chairman of the Board & CEO) We have a balanced approach to performance in 2024. While Q1 results met expectations, we aim for positive comps and profitable growth. We see green shoots like improved traffic, digital growth, and strong categories like Beauty and Apparel. We're also focusing on operational efficiencies and managing inventory effectively.
Q: How much of the price investment that Target announced this week is going to be funded by Target versus being funded by the vendor community?
A: (A. Christina Hennington, Executive VP & Chief Growth Officer) Our commitment to investing in price is to pass savings to guests to drive traffic and unit growth. Our partners understand our playbook and contribute to the value equation. This is a long-term commitment consistent with our strategies.
Q: Did the SG&A related to Target Circle go away, or is it used differently? And how do lower prices get contemplated in the guidance?
A: (Michael J. Fiddelke, Executive VP, COO & CFO) Our expectations for the year are unchanged. The investment behind the relaunch of Target Circle was planned, and we feel good about managing costs throughout the business. Target Circle is an ongoing commitment to build guest engagement and membership.
Q: How much of the price investments were contemplated 90 days ago when you gave your full-year outlook?
A: (Brian C. Cornell, Chairman of the Board & CEO) The price investments were part of our full-year guidance and plans. We knew investment in value was essential for success this year.
Q: Can you comment on the trends during the quarter and any quarter-to-date trends? Did weather have any meaningful impact?
A: (Michael J. Fiddelke, Executive VP, COO & CFO) The quarter played out as expected, and we expect to return to growth in Q2. Improved in-stock positions and retail fundamentals give us confidence. Weather volatility affects everyone, but our teams have responded well.
Q: How are consumers responding to newness and innovation in your merchandising?
A: (A. Christina Hennington, Executive VP & Chief Growth Officer) Consumers respond well to newness and innovation, especially when it offers incredible value. We are accelerating newness across our portfolio, including apparel and frequency businesses. This focus on newness will continue to build throughout the year.
Q: What are you seeing in your private-label business, and how is it performing?
A: (A. Christina Hennington, Executive VP & Chief Growth Officer) Our owned brands are performing well, with early positive results from new launches like dealworthy and up&up. We are introducing new price points and reformulating products to add quality, driving unit and traffic acceleration.
Q: Can you talk about your current inventory positioning and its impact on margins?
A: (Michael J. Fiddelke, Executive VP, COO & CFO) We feel good about our inventory position, which is 7% lower than a year ago, while maintaining higher in-stock levels. Efficient inventory management helps unlock better margins and overall system efficiency.
Q: Can you provide more detail about the margin contribution from Roundel, Target Plus, and other revenue streams?
A: (Michael J. Fiddelke, Executive VP, COO & CFO) Roundel continues to grow, contributing significantly to both top and bottom lines. Target Plus is also expanding, adding to growth. These revenue streams are important contributors to our overall financial performance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
