Despite experiencing strong growth across its digital channels, Target missed earnings estimates while reporting top-line results slightly ahead of revenue estimates. The retailer reported earnings per share of $1.32 and revenues of $16.8 billion compared to analysts’ estimates of $1.38 and $16.5 billion, respectively.
In a post-earnings conference call on Wednesday (May 23), Target chairman and CEO Brian Cornell reported that traffic growth rose by 3.7 percent. The increase was “the strongest we've seen in more than 10 years, reflecting healthy increases in both our stores and digital channels,” Cornell said on the call. Additionally, Cornell said that comparable sales growth of 3 percent was buoyed by the retailer’s home, household essentials and food & beverage categories.
Through its digital channels, Target also is seeing “strong trends even as we compare over rapid growth in past years,” Cornell said on the call. In the first quarter, the retailer’s digital channel sales increased by 28 percent. The rise comes as Target ups its shipping game: The retailer introduced free two-day shipping on items through its eCommerce site earlier this year.
Cornell said that Target is able to roll out this offering through the use of its brick-and-mortar stores: “We're able to make that commitment and control costs because over the last few years, we've developed the capacity to increasingly rely on our stores to serve as a shipping point for digital orders.”
In addition, Cornell said that its same-day delivery offering with Shipt is “expanding rapidly.” Target rolled out the service to almost half of the retailer’s stores in the first quarter after acquiring Shipt for $550 million in cash last year. As of now, Cornell said, the service is in 70 markets and well-received: “The guest reaction has been superb,” Cornell said on the call.
Beyond Shipt, the company is launching a new same-day delivery service in some markets: Shoppers can peruse the selection at a brick-and-mortar location and have a courier deliver their purchases at a later time. In addition, Target continued to roll out its Target Restock next-day delivery service over the first quarter: “We expanded this service nationwide and dropped our industry-leading delivery fee even further,” Cornell said on the call.
In May, Target lowered the price of its Target Restock program from $4.99 to $2.99 per order and made the service free for Target REDcard purchases. The changes came as the service has been expanding to reach more customers in the U.S.
In addition, Target plans to bring about improvements that will reduce the workload of its staff in stores. As a result, those staff members can turn their attention to shoppers. In order to make this happen, Target is “testing and rolling out cutting-edge automation that will allow our DC teams to customize and sort each shipment to match the needs of an individual store,” Cornell said on the call.
Overall, Target is experimenting with a new strategy to distribute products. The goal is to speed up its replenishment cycle to a matter of hours, rather than days, while reducing inventory at its brick-and-mortar stores.