Digital has Target’s future looking bright

“Newness” was repeated over and over by Target officials during the retailer’s first-quarter earnings report on Wednesday. However, the territory Target is on the verge of entering is not new at all. One could even call it a “renewal.” It’s long-term profitable growth, and after quarters of struggle over the last year or so Target is ready to engage — or reengage — into that level of prosperity.

“At our Financial Committee meeting in March we outlined our long-term vision for profitable growth and a broad range of investments we’re making to support those ambitions,” said Target Chairman and CEO Brian Cornell. “With the first quarter behind us, I’m happy to report we’re firmly on track to deliver on that guidance.”

Target provided financial guidance for 2024 during the Financial Committee meeting in March, and marked this year as one where the company would get back to growth and build on gains in guest engagement and top-line sales.

Comparable sales for the first quarter were down 3.7% year over year, and store comparable sales also showed a 4.8% decrease, but digital comparable sales were up 1.4% compared to Q1 2023.

Target leadership talked about the digital success at length during the call. It was the first time the retailer saw an increase in digital sales in over a year. Cornell said the growth was driven by same-day services, Drive Up, in-store pickup, and same-day delivery. Same-day services experienced high single-digit growth in Q1 year over year and Drive Up grew in the low teens. In fact, Drive Up sales were more than 30 times larger than what was experienced during the first quarter of 2019.

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Target Circle also excelled during the opening quarter, as more than 1 million new members were added. The relaunch brings Target Circle, Target Circle Card, and Target Circle 360 together, and the retailer wants to make a sustained investment in the program over the next few years.

“Our guests tell us they find the program easier to use, appreciate the clarity of the promotions offered and understand the value provided with their membership,” said A. Christina Hennington, executive VP and chief growth officer at Target.

Hennington added that Target Circle Week in April drove the highest traffic to Target’s website and app over the past year outside of the Q4 holiday season. In addition, three-quarters of Target Circle members who shopped during Target Circle Week redeemed an offer.

Officials are also leaning on the company’s digital marketplace, Target Plus, to play an incremental role in growth over the next several quarters.

Related:Target sued for allegedly improperly gathering biometric data

“We view digital as more than just a sales channel,” said Hennington. “It’s also the connective tissue across most of our transactions. Around half of guests that open the Target app on a given day make in-store purchases with us that same day.”

The retailer hopes to get a boost from slashing prices on thousands of items. Target made the announcement on Monday and said it would take advantage of seasonal items.

Hennington said during the call that the summer grilling season will bring an abundance of new food offerings through the retailer’s Good & Gather and Favorite Day private-label brands. Over 125 new items will hit the shelves in the coming weeks.

Beauty is another category that has led a positive push over the last few months. In the first quarter, beauty produced growth in the low single digits thanks to the Ulta Beauty line sold at stores.

Target also invested in AI and machine learning during the opening quarter. The retailer recently engaged in a pilot with one of its biggest vendors to test personalization capabilities with consumers shopping personal care categories. Target is encouraged by the early results, which showed a nearly three times lift in conversion rates from personalized promotions versus mass offers.

Cornell also highlighted inventory management during the earnings call. Inventory was down 7% during the quarter and in-stocks improved.