Target 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Good back to school/september slowed in October but recovered towards the end of the month

“we saw a strong start to back-to-school and to the back-to-college season and that strength continued in September. Like many others, our sales slowed as we entered October, but recovered nicely towards the end of the month as we approached Halloween.”

Omnichannel is key to long term success

“While our work to define Target’s longer-term vision is not yet complete, we’ve made significant progress in defining the short and longer term priorities for our business. First omni-channel and flexible fulfillment capabilities are key to our long-term success.”

Traffic trend has improved each month

“third quarter US traffic was down slightly from a year ago but we are encouraged that our traffic trend has improved meaningfully every quarter this year’

Target calling out TOMS on the conference call

“In September we announced that Target would be partnering with TOMS on a limited edition holiday collection of home goods, apparel, accessories and shoes for women, men and children.”

Probably not going to see much benefit from fuel saving on P&L quite yet

“Certainly there would like to be some benefits if we continue to see fuel prices come down, but we haven’t reached the threshold where fuel surcharges begin to come out of our contracts and I think important given work the team has done to manage some of the port issues out west, we are working around that and moving some freight further, expediting some freight, flying some freight, and I think net-net, that will probably be more of a drag than any fuel savings we will see.”

Target 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Why new CEO came to Target

“As a vendor partner, I’ve known Target as a smart, savvy, innovative, ethical and guest-focused merchandiser. As a competitor, I’ve known Target as a disciplined, tough, focused retailer; a company that redefined the discount space by delivering outstanding design, world-class fashion, innovative products at amazing prices. As a guest, my family and I have known Target as unique place that makes shopping fun, saves us time and offers a differentiated experience based on newness and discovery. And finally, as a member of the community, I’ve known and admired Target for its commitment to making the places where we live and work better, both through its corporate giving programs and the commitment to volunteerism from our team members.”

Omnichannel is key initiative

“While I’m very impressed with the progress the team has made recently including innovations on our mobile platform, subscription service, Cartwheel and flexible fulfillment, we need to continue to move faster and grow faster than the marketplace. We need to build capabilities focused on satisfying the wants and the needs of our guests and ensuring that our digital and store operations operate seamlessly to provide a single superior experience.”

Still a promotional environment

“While the impact of promotions was a bit less than we experienced in the first quarter, it was more than we expected at the beginning of the quarter reflecting a retail environment in which a broad set of competitors are leaning heavily on promotions and a consumer environment in which shoppers are still cautious and focused on deals.”

Pleased with back to school guests focused less on promotions, more on occasion

” while it’s still early, we have been pleased with the results so far in the back-to-school and back-to-college season in which we have seen improved sales trends from guests focused on the occasion rather than promotions.”

Changing almost half of the inventory at Target Canada

” of the 70,000 items in a typical Canadian Target store, about 30,000 items will be new between now and the holiday season. We believe these changes will position the Canadian segment for improved performance in time for this holiday season and the Canada leadership team will look for additional opportunities as they continue their review.”

EPS guidance of 3.10-3.30

“Altogether, these updated expectations would put our full year adjusted EPS in the range of $3.10 to $3.30, below the range we provided a quarter ago. These expected results are clearly not where we expect to perform over time.”

Focus on understanding the organization, Canada and omnichannel

“My focus right now is to really understand the business in both the U.S. and Canada, and I’m spending a lot of time with John and Kathee and the team to understand the guest perspective on Target, how we improve our traffic, how we enhance our performance in Canada, and how we continue to build out and rapidly build out our omnichannel capabilities. So I’m very focused on making sure that we’re going to make progress against those key three initiatives as I continue to look at the broader and longer-term strategic options. So my focus is really understanding the business today and strategy before we have any discussions around organization modifications going forward.”

ecommerce immature, does put pressure on GM

” there’s no doubt with e-commerce being as immature as it is, there is some pressure on gross margin. We are committed to going where our guests go and they want to be able to shop online, and we are going to make sure that we’ve got all the right products for them both online and in our store”

We’re reviewing Canada

“as I mentioned earlier, I spent time just last week with the Canadian team and I’m certainly aware that the expansion has been challenging. And from a Target standpoint, we have disappointed many of our Canadian guests. And Kathee has already referenced the fact that we are conducting an in-depth evaluation of our Canadian business. That began several months ago. And we are certainly looking to make material improvements in that business. Right now, short-term, the focus is on improving in-stock conditions, our pricing and assortment and really ensuring that we’ve got plans in place to improve our performance in the holiday upcoming.”

Our online guest is our best guest

” The guest that shops Target online is absolutely our best guest. They shop both online and in stores. It’s really all about what’s convenient for them, and sometimes it’s just easier to knock an item off your list by buying it on your mobile device”

Retailer Inventory Comparison

There have been a few comments on retail/apparel earnings calls suggesting that retailers are currently managing their inventories relatively tightly.  Fossil, for instance, said this:

What we discovered or what we experienced in the second quarter was that both with department stores and some of our boutiques, they were really focusing on managing their inventories tightly. And relative to our expectations, we saw some compression on sales because they were reducing their inventory level.”

TJX echoed that sentiment on its call yesterday

we are very clean in the stores. In fact, our inventory, well, it’s been lean off season and, given the second quarter with sales picking up, our clearance levels are very under control. No real liabilities there.”

If this is true, it’s a good sign for retail that inventories are under control.  Lean inventories are not only more efficient from a working capital standpoint, but also could help signal that the highly promotional environment that retailers have been complaining about is about to let up. If retailers are more conservative with their inventories, they don’t have to take as many markdowns to clear it.

If retailers are running their ships more tightly it’s not really showing up in financial statements quite yet though.  Below is a chart of a few important retailers’ days of inventory on hand (365/COGS/Inventory) since 2000.  If anything it looks like retail inventories have been trending slightly higher as of late.  For what it’s worth, the Census Bureau’s data shows that retailers’ inventory to sales ratio is above its recession low, but below where it was at the beginning of the year.

WMT AMZN TGT Inventory

M TJX KSS Inventory

Source: Factset

Retailer Square Footage Comparison

With some retail quarters starting to trickle in, I wanted to put together a comparison of some of the US’ largest multi-line retailers based on square footage.

It’s always amazing to think about just how large $WMT is compared to its competitors.  Partially because it has more international locations than the rest of its peers, it has nearly four times the amount of real estate that $TGT does: 1.1 Billion Square Feet!  That’s 39 square miles, or about 1.7x the size of Manhattan.

Even more amazing perhaps, the company generates a respectable $116 gross profit dollars per square foot on all that space.  That’s higher than everyone else on this list besides $COST and $JWN.  Costco and Nordstrom do a great job of generating gross profit relative to their size, but also have the highest valuations per square foot to go along with that.

Retail Square Footage Comparison


Sources: Most recent 10-k, Compustat Data

Target 1Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“Our first quarter earnings fell short of our expectations, as we faced a choppy and challenging environment caused by unfavorable weather and this year’s payroll tax increase.”

“our guest continue to shop cautiously, planning their spending and sticking to shopping lists, and they continue to feel the burden of economic pressures. Recent guest surveys indicate that three-quarters of our guest are aware of this year’s payroll tax increase, and among those, the majority have noticed the impact of the tax increase on their paychecks and indicate that it’s affected their spending.”

“Basket data confirms that needs-based trips have been increasing, while wants-based trips focused on discretionary categories have been declining.”

“You know, we did see better results in areas that had more normal weather. So that would primarily be the west coast.”

“Mobile, in general, has a much lower conversion rate than the site’

“I think we’ve said a couple of times the Affordable Care Act, the changes for us will not be material externally.”