Wellness sales help Target beat Street in 2Q

While Target’s repositioning of its food assortments won’t be complete until next year, expect to see a heavy emphasis on wellness, natural and organic, company officials said Wednesday.

“We know we have an opportunity to provide fresh healthy options and more relevant and localized [food] assortment, as our guests are responding to healthy choices we're offering today,” Brian Cornell, Target’s CEO, said during a conference call discussing second quarter financial results Wednesday. “Within food, our market share and wellness is already double our food share overall.”

Items in this category showed double-digit sales increases during the second quarter, Cornell said, highlighting overall financial results for the period that exceeded company and Wall Street expectations.

For the quarter ended Aug. 1, Target said sales increased 2.8% to $17.4 billion, with comparable-store sales up by 2.4%. While the sales and comp gain were within the company’s expected range, net earnings of $753 million — a 221.9% increase from last year’s second quarter — came in ahead of expectations as a result of higher margins resulting form a favorable sales mix, including wellness items, officials said.

Earnings in last year’s second quarter were impacted by markdowns to spark sales in the wake of a data breach that shook confidence in the brand.

The results prompted Target to raise its earnings guidance for the fiscal year and now expects earnings per share to come in at a range of $4.60 to $4.75, a 10-cent-per-share improvement over its previously stated guidance.

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John Mulligan, Target’s CFO who will take over a new role as chief operating officer on Sept. 1, said his priorities include addressing in-stock conditions in stores, which he said had been “deteriorating” in recent months.

“This challenge is understandable because we've been asking our supply chain to move well beyond its original design and become more flexible in the way we serve our guests,” Mulligan said. “However, while we understand the reasons, a simple fact is that our current performance is unacceptable. So beginning this quarter, my team will be looking at quick and more comprehensive solutions to make improvements on the supply chain both this year and over time.”