Target (TGT) 2Q16 Earnings Call Notes

posted in: Earnings Call, Notes, Retail, TGT | 0

Shift to digital remains a retail trend to which Target continues to adapt

“Digital sales grew more than 60% in the second quarter on top of 30% growth last year… In the second quarter, we launched a brand new fully adapted site, which means we now provide a seamless experience across all platforms from desktop to tablets to smartphones. This is increasingly important because for many guests, a single purchase journey crosses over two or more of these digital devices.” Brian Cornell – Chairman and Chief Executive Officer

 

Target is making strides in use of distribution centers (DCs) and relations with vendors

“In the past, an unacceptable number of vendor shipments were received by our DCs either too early or too late. This variability drove a lot of extra workload in the DCs while reducing our reliability downstream. As a result this year, we have been collaborating with our vendors to increase the percent of shipments that arrive on the correct date and we have already seen meaningful progress. The percent of shipments that arrive on time has more than doubled and we expect to see additional improvement as we roll out new processes to additional vendors over time.” John Mulligan – Chief Operating Officer

 

And is utilizing existing store locations to improve supply chain

“Our flexible fulfillment initiatives, including store pickup and ship-from-store are one way we are reinvesting store labor savings to serve guests in new ways. At the end of 2015, more than 460 stores were shipping items directly to guest homes and we are planning to double our capacity this year by expanding this capability to more than 500 additional stores.” John Mulligan – Chief Operating Officer

 

Consumer caution has led to challenging environment for retail over the last year

“I think we have seen this environment persist now for well over a year. It’s a very cautious consumer. And if we look at the overall trends within retail, we have certainly seen on a rolling 12-month basis a slowdown in retail sales growth, but that’s not an excuse for us. We are going to make sure we are leveraging our strategic levers…So it’s competitive, but it’s always competitive and we got make sure that we are leveraging our assets and our strategy to continue to drive performance in the back half of the year.” Brian Cornell – Chairman and Chief Executive Officer

 

CEO vigorously rebuffs claims of stinginess regarding CAPEX

“food and perishable and consumable categories will play a very important role in driving traffic to our stores…John is doing to make sure and we are investing and improving our in-store pickup processes and experience. That’s an investment we are making, an investment we are making for the holiday season. We are continuing to invest in our digital assets. So there is no hesitancy at all from this management team nor the Board in making the right investments in our long-term success.” Brian Cornell – Chairman and Chief Executive Officer


SK Additions:

Brian Cornell

Negative trends in electronics and grocery

“As we analyze the drivers to our second quarter performance, we have identified some company-specific challenges we are actively addressing. This includes meaningful pressure on electronics, where we saw a double-digit decline in comp sales this quarter, accounting for approximately 70 basis points of overall comp decline. Notably, about a third of this pressure was driven by Apple products, which are down more than 20% in the quarter. We are focused on reversing these trends and we are collaborating with Apple and other vendor partners to evolve our assortment and accelerate innovation to deliver stronger sales. In grocery, despite improvements in assortments, quality, freshness, presentation and in-stocks, we were disappointed with our sales performance as we saw a small comp sales decline in the second quarter.

We over-indexed Apple products

” as we think about factors that we have to address to improve our traffic and overall sales performance to the back half of the year, we have to improve electronic performance. It was a significant drag, 70 basis points on our overall comp declines in the quarter. And Apple played a significant role there. So we over indexed with Apple products. Our guests come to us looking for those products. They are looking for the newness and the innovation and we are putting together plans with Apple and our merchandising teams to make sure we are ready to take advantage of that in the back half of the year.”

West coast markets doing better than east coast

” We have seen particular strength in many of our West Coast markets, very strong performance in California, driven by great performance in LA and San Francisco, but other parts of the West Coast. We have seen pockets of softness on the East Coast.”

There are winners and losers in tech

“So we have certainly seen pockets of strength, I mean there is certainly winners and losers within that space. We have seen continued performance with wearable technology, but it’s not overcoming the softness we have seen in mobile, in tablets and in some of the core items.”