Target has ended its streak of sales declines with positive first-quarter results, marking an “early win” for the new CEO and his team, according to an analyst.
The company’s net sales for the quarter ended May 2 rose 6.7 per cent to $25.4 billion, reversing the declines recorded last year.
Comparable sales also grew 5.6 per cent, reflecting a 4.7 per cent increase in comparable store sales and 8.9 per cent in comparable digital sales.
GlobalData MD Neil Saunders said the results brought some warmth to a long period that must have felt like an “eternal winter”.
“While it is true that the numbers have been delivered against a weak prior year comparative, they are nonetheless comfortably positive and represent an early win for Michael Fiddelke and his team,” Saunders said.
According to the analyst, consumers have been a little more willing to spend on small indulgences like fashion and beauty during the period, aided by higher tax refunds, which gave them more to play with in their discretionary spending.
Aside from external factors, Saunders also praised the initial steps Target has taken to show up better for customers and inject more energy and discipline into stores.
“While we do not believe that all of Target’s problems have been solved, nor that it is executing perfectly across all areas, there have been some solid initiatives to improve the customer experience and lean into meaningful pockets of demand.
“Things like a focus on trading cards and collectibles, showcasing food more effectively and with more innovative brands, injecting more fashion in the shape of edited capsules, and so forth, all helped to drive custom and spend. They have also been underpinned by better in-stock positions, although we believe there is a lot more work to do on this front,” he elaborated.
The pain remained in the bottom line, however, as net income declined 24.6 per cent, which Saunders attributed to the investments in stores, fulfillment capability, systems, and staffing.
“In our view, a temporary retreat on profitability is a price worth paying as it buys future relevance and growth. Today’s sales numbers will help build confidence around this narrative. In essence, they give management more of a green light to push ahead,” he said.
Saunders also noted that solid performance for one quarter does not represent a permanent return to growth, and that Target needs to prove itself over many more quarters.
“Fortunately, there is a plan to accomplish this. And, in our view, things like range simplification, improved in-store merchandising, greater emphasis on style and newness, a focus on wellness, attracting family shoppers, and stronger service levels are the right levers to pull.
“The vision is at least there, and there is a stronger management team to deliver on it,” he said.
The company has raised its full-year guidance, expecting net sales to grow approximately 4 per cent, up from its previous 2 per cent outlook.
