- Comparable Sales Growth: 2% in Q2, driven entirely by traffic.
- Earnings Per Share (EPS): $2.57, representing growth of more than 42% over last year.
- Digital Sales Growth: High single-digit growth in digital comps, with same-day services growing in the low teens.
- Drive Up Sales: Generated more than $2 billion in Q2 and more than $4 billion year-to-date.
- Apparel Comp Sales: Grew by more than 3%, with All In Motion brand growing in the low teens.
- Beauty Comp Sales: 9% growth in Q2.
- Food & Beverage and Essentials: Traffic growth in Q2, with price reductions on about 5,000 items.
- Target Circle Membership: Over 100 million members, with more than 2 million new users added in Q2.
- Roundel Ad Business Growth: Double-digit growth in Q2, expected to grow in the high teens for the full year.
- Gross Margin Rate: 28.9%, about 190 basis points higher than a year ago.
- SG&A Expense Rate: 21.2%, about 30 basis points higher than a year ago.
- Operating Margin Rate: 6.4%, about 160 basis points higher than last year.
- Inventory Position: Q2 ending inventory slightly lower than a year ago.
- Capital Expenditures: $1.3 billion through the first half of the year, with full year CapEx expected in the $3 billion to $4 billion range.
- Share Repurchases: $155 million allocated to retire 1.1 million shares in Q2.
- After-Tax Return on Invested Capital (ROIC): 16.6%, nearly 3 percentage points higher than a year ago.
- Q3 Guidance: Comparable sales growth of 0% to 2%, GAAP and adjusted EPS of $2.10 to $2.40.
- Full Year Guidance: Comparable sales growth of 0% to 2%, GAAP and adjusted EPS range raised to $9 to $9.70.
Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Target Corp (TGT, Financial) achieved a 2% growth in comparable sales for Q2, driven entirely by increased traffic.
- EPS of $2.57 exceeded the high end of guidance, representing a 42% increase over the previous year.
- Digital sales saw high single-digit growth, with same-day services like Drive Up and Target Circle 360 growing in the low teens.
- Apparel sales improved significantly, with a 3% growth in comp sales, driven by the All In Motion brand.
- Target Circle loyalty platform added over 2 million new members in Q2, enhancing customer engagement and personalized offers.
Negative Points
- Despite overall growth, discretionary categories like home and hardlines remain soft, though they showed some improvement.
- The company faces ongoing challenges with inventory shrink, although there has been some progress in reducing these costs.
- The macroeconomic environment remains uncertain, leading to a cautious outlook for the remainder of the year.
- Supply chain and digital fulfillment costs continue to exert pressure on gross margins.
- The search for a new CFO is still ongoing, which may impact leadership stability in the financial department.
Q & A Highlights
Q: You mentioned that you haven't seen a notable change in the consumer versus what you've seen year-to-date. Can you help us understand or reconcile your ability to get to the high end of guidance range for quarter 2, maintain the guidance range for Q3, but also flagged you are likely to get to the lower end for the same-store sales guidance range for the year?
A: Thanks for the question, Kate. I think the headline is, at the start of your question, we see a consumer that's largely consistent with how we would have described the consumer over the last couple of quarters, a consumer that's been resilient overall in their spending and flat in spite of significant inflation over the last couple of years, a consumer that's choiceful. And so our combination of getting newness and value right in the second quarter led to the performance that was at the top end of our expectations. As we look at the balance of the year, we've got more of the year in front of us than is behind us, and we think it's prudent to take a review against the kind of consumer behaviors we'll be watching over the balance of the year. But importantly, that guidance is still centered on growth. We expect to continue to grow in Q3. We expect to have a growth story for the year. And you can see us playing offense appropriately against that goal but being measured in our outlook. We think that's the right way to position the business.
Q: I just wanted to go back to the operating margin performance during the quarter. We still had very strong delivery during the quarter. How do you feel about the sustainability of the improvement? And then over time, getting back to that 6% plus margins on an annual basis?
A: Yes. Thanks for the question, Rupesh. As we laid out at the start of the year, this year was going to be about progress to that better margin performance over time. And two quarters in, I just can't thank the team enough their work to put us solidly on the path of the improvement that we laid out for the year. If you unpacked the quarter, I hit on some of this in my remarks, but it always starts with the top line. So to grow the top line on a 2% comp, to see a category like apparel -- so we like the margins in apparel, to see that category return to growth helped us from a mix perspective. Great work by the team to continue to find efficiency within the business. And we expected a more promotional environment this year. We've certainly seen that so far. But you can see the strength on the margin line due to the team's really hard work to continue to squeeze efficiencies out of the business in ways big and small. And we're pleased with the progress we're making on shrink. Now there's some noise quarter-to-quarter about how that will come through. So tried to unpack some of those details in my prepared remarks. But the net punch line there is ahead of where we expected to be in terms of progress on shrink too. And so all that's adding up to an earnings result, we're certainly pleased with. And our work going forward will be continue to continue that momentum in Q3 and Q4.
Q: Can you talk more specifically about what drove the strength in the merchandise margin strategy in the second quarter? And what are you embedding in the back half in terms of sustainability?
A: Yes. Thanks for the question, Chris. There's a lot that goes into that margin line on any quarter. And so the headlines are some we've touched on a little bit already. We've definitely seen a more promotional environment. But against that backdrop, the teams have worked hard to find efficiencies within the business. And that can show up in ways big and small. To give a tangible example, and one of the things that we've continued to see progress with is -- the most expensive thing we do in fulfilling product is shipping a brown box, and we've seen significant improvement in the cost per unit of that activity, as teams have worked to better align inventory with where we see demand. So we have to split shipments frequently. And the core productivity within those processes, big improvements in our stores team, delivering that product more efficiently as we pick and pack in the stores, and so that work adds up. And the teams have been at it for multiple quarters now, and we're seeing it pay off.
Q: It sounds like comps due in July were relatively steady. And I don't know if you talked about product back-to-school, curious about how the consumer is behaving. And then connected to it, any expectation when the discretionary comps may inflect to positive?
A: Simeon, as we sit here today, obviously, we're in the heart of back-to-school season, kind of the early chapters of back to college. And as Rick talked about, excited about the upcoming Halloween season. I think as we sit here today, we feel well prepared for those big seasonal moments, and we'll continue to make sure we lean in with a great physical and digital experience.
Q: Can I ask about price investments, the 5,000 items that have been lowered if, one, I assume you're pleased with some of the elasticity. Does it make you think about price positioning broadly? Are there opportunities to enhance the price position in other places?
A: I think we sit here today, we feel really good about the way the consumers reacted to the price investments we've made on those 5,000 frequently purchased items, but it really goes beyond those investments. If you're a Target Circle member, you're getting personalized offers every time you shop. If you're using a Target Circle card, you have the opportunity for that 5% discount. If you're taking advantage of the amazing value we provide through our own brands, that's just one more way to find value when you're shopping with Target. So it's really a bundle of all those things that we do each and every day to strengthen the relationship we have with the guests and provide them with the value they're looking for in this economic environment.
Q: I was hoping, maybe from Brian or others, you could talk about a couple of things, Target Circle penetration. It hasn't been going up is that expected to change? And also, same-day delivery is still -- and I guess, Target Circle 360, as you call it, is still not growing as fast as Drive Up. Is that expected to change? And with changing these things potentially be a sales driver? And then is there any margin implication from that on the offset?
A: Yes. Importantly, Robby, I'll kind of take your second point first. We're really pleased with our Circle 360 same-day delivery business, both it and drive-up grew in the low teens. And so we've seen some acceleration in that business on the heels of our relaunch of Circle, and so we're encouraged by that. And importantly, both of those services, we've talked about this before, but I think it warrants a re-emphasis, the thing we see when people engage
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
