Target Is on Track to Keep the Cartwheels Spinning

After posting its best financial performance in 13 years during its most recent fiscal second quarter, Target Corp. executives have good reason to believe the company is on track to keep the cartwheels spinning while work on its grocery offerings continues to show signs of improvement.

During a call with investors last week, Target execs, including Brian Cornell, chairman and CEO; John Mulligan, COO; Mark Tritton, chief merchandising officer; and Cathy Smith, CFO, provided perspective on the retailer’s strong Q2 results and its progress to date on strategic initiatives, including its food and omnichannel platforms.

When discussing Target’s stronger-than-expected Q2 performance, which saw an impressive 6.5% same-store sales gain alongside an unprecedented 6.4% increase in traffic—the strongest such feat logged since the retailer first began reporting traffic numbers in 2008—Cornell provided an upbeat outlook for the retailer’s series of key initiatives, all of which he said are ahead of schedule.

While Target is clearly seeing the benefits of a very strong consumer environment, which Cornell termed “perhaps the strongest I’ve seen in my career,” market share data “demonstrates that our current results are benefiting from more than just the environment, as we’re seeing broad market share gains across categories we sell.”

Related:Target Amps Up Multiyear Strategy

Photograph courtesy of Target

Noting “really positive responses from our store remodels” as a particular bright spot, Cornell said the Minneapolis-based retailer continues to work on improving its food and beverage sectors, which have been on a gradual upswing for the past six quarters. “We’re learning how to operate that business both differently in the store and in the supply chain,” he said. However, while the company is encouraged by “the progress we’ve made, we are not satisfied with our current in-stock position. There is more work to do there.”

In food and beverage, Mulligan told investors the changes the retailer has made with “how the team accomplishes everyday tasks” has improved guest interaction with store associates and elevated standardized “operations to ensure we have fresh and full presentations,” including a greater focus on food safety. “While these investments are already helping us to deliver stronger traffic in sales, we are also focused on driving efficiencies that can help us offset the cost,” said Mulligan. “As a result, we have completely redesigned when and how our team sort in-stock product, reducing steps and creating more opportunity for guest interaction during key business hours.”

Related:Target to Acquire Shipt for $550M

In Shipt Shape

Mulligan also discussed the rollout of Target’s new fulfillment options, including Shipt, which it acquired in December 2017 for $550 million, and Drive-Up, both of which he said have “been moving at an amazing pace.”

Target’s same-day personal shopping service with Shipt is now in place in 160 markets and 1,100 stores. “Over the last year, Shipt’s membership base more than tripled,” Mulligan said, while orders and revenue are also on a roll, with some of the growth being driven by Shipt’s entry into new markets. Mulligan also noted the growth of Shipt’s new platform partners, which includes 19 new retailers operating under 24 unique banners across the country and which “is more than double the number of new partners that Shipt added to its marketplace in all of 2017.”

Another high point during the quarter, Mulligan said, was the rollout of its new delivery-from-store service in densely populated urban market stores, for which guests pay a small fee at checkout and choose a time window for same-day delivery of shopping baskets to front doors. “This service is now available in 58 stores across five markets, and guests continue to love it,” he said, pointing out that the average basket size for its delivery-from-store service is more than $200, which is “the highest of any service we provide.”

Photograph courtesy of Target

Further, Target’s new Drive-Up service, which started with 50 stores at the beginning of the year and has since expanded to more than 800 locations around the country at the end of Q2, has also been well received by shoppers. “Our stores have done an excellent job training their teams to deliver this new service, and guest satisfaction is off the charts,” said Mulligan. He said results from the most recent Net Promoter Score for Target Drive-Up is 88, which he termed “a crazy high number—the highest of any service we provide. We expect to have this service rolled out to nearly 1,000 stores by the holiday season, and we will continue the rapid expansion next year.”

Beyond its new services, Target is also logging continued growth and adoption of other digital fulfillment services, including restock, in-store pickup and traditional e-commerce, all of which have generated “year-over-year growth in our digital sales in the 20% to 30% range for several years.” During Q2, however, the pace of growth accelerated even further as a result of Target’s one-day sale in July, which he said provided the company’s team with a preliminary “stress-test of systems and processes in advance of the peak holiday season.”

Tritton also spoke to investors about other bright spots during the calendar year, which he said included “some of our strongest market share gains around key life moments like Mother's Day, Father's Day, Memorial Day and, of course, July 4. But we also saw sustained results outside of those holidays, driven by the strength of our essentials in food and beverage categories, which saw share gains in every week of the quarter.”

Baby and pet categories were top performers in Target’s essentials line during Q2, both of which Tritton said “saw double-digit comp growth.” In food and beverage, he continued, Target “delivered our sixth straight quarter of accelerating comps,” led by adult beverage and produce, where the chain has “made important investments over the last couple of years.”

When speaking about Target’s ambitious store remodeling and expansion campaign, Cornell told investors, “In the month of July alone, we had over 250 stores under construction and in each market, we’re seeing really strong guest response to the reimaged stores. Our new small formats continue to impress and are driving productivity from a sales standpoint that are beyond our expectations,” he said. Target’s urban stores in markets such as New York, Chicago, San Francisco, Boston and Washington, D.C., which enable consumers to shop and their orders delivered to their doorsteps for a $7 fee, have been “very well received,” said Cornell, adding that all of the company’s key initiatives are “working together as one [and] are ahead of the schedule” set 18 months ago and which he said are expected “to continue to accelerate."

“As you heard me say numerous times, the traffic number to me is the most important measure that our strategy is connecting with the consumer, both in our stores and online,” said Cornell, who attributed the company’s more confident outlook in the second half of the fiscal year to the “great response from our guests" to price investments in key food, beverage and household essentials. "Those are driving footsteps to our stores, visits to our site, and have been a key driver behind the rapid acceleration in traffic.”