Earlier last month (5.17) Minneapolis-based big box retailer held its Q1 2017 Target Corp Earnings Call. The call was led by Brian C. Cornell Target Corporation – Chairman and CEO and his team: Catherine R. Smith Target Corporation – CFO and EVP, John Hulbert Target Corporation – Senior Director of IR, John J. Mulligan Target Corporation – COO and EVP and Mark J. Tritton Target Corporation – Chief Merchandising Officer and EVP.
The call was notable for two things: its optimistic tone and private brand was mentioned more than 20 times throughout the presentation. With the most mentions going to the 12 new brands they plan to launch over the next two years. Unfortunately, there was no mention of private brand in grocery or of the thinking from home and fashion influencing the private brand portfolio strategy in consumables.
First quarter results were better than expected: earnings per share came in 20¢ above the high end of Target’s guidance. The retailer recorded $16.02 billion in first quarter revenue, a result that’s down 1.1% year-over-year but meaningfully above the $15.62 billion the market anticipated. Same-store sales declined 1.3%, outpacing Wall Street prognosticators forecast for a 3.7% decline. Net income for the quarter came in at $681 million, up 7.7% year-over-year.
Brian C. Cornell began the meeting:
“At our Financial Community Meeting in February, we outlined our multiyear plan to position Target to deliver consistent growth, market share gains and outstanding financial performance over the long term. This plan includes capital investments of more than $7 billion over the next 3 years, focused on continued investments in technology and our supply chain to build a smart network, a network that leverages all of our store and distribution assets to serve our guests more quickly and flexibly in every channel; investments to reimagine the shopping experience in more than 600 of our existing stores; and the addition of more than 100 new small-format locations around the country.
On top of these capital investments, we discussed our plan to invest $1 billion of operating margin this year to allow us to move faster in support of our strategic priorities. We said our biggest operating investment will be in our team, equipping them to deliver enhanced service, convenience, and deeper product expertise as we prepare for the launch of 12 new and exciting brands over the next 2 years.”
“Swim is another big first quarter story in Apparel, and we expect that to continue all year. As you know, we already have the #1 unit share in swim, but as other retailers began closing and exiting this business, we saw a big opportunity to gain an even stronger position. Our team worked quickly to launch our new brand, Shade & Shore, which has delivered strong results since its launch. Given this momentum, we expect to see continued growth in Swim in the second quarter and beyond.”
Tritton went on to discuss the first of the planned new private brand launches and the success of Cat & Jack.
“At our Financial Community Meeting in February, we announced our plan to roll out 12 new exclusive brands across our signature categories through next year, and we’re getting ready to launch the first of those brands later this month. It’s called Cloud Island, and it’s a new exclusive line of nursery décor, bedding, bath and layette products designed by our own internal design team. We’ve built this collection of more than 500 items to be both stylish and affordable with a focus on safety, durability and comfort. We’ll roll out the décor and bedding items to all stores and our site beginning May 28, and we’ll follow with the bath and layette pieces later in the summer. This new brand is a natural addition to the successful Kids brands we launched last year, Pillowfort and Cat & Jack, which continue to perform really well.
The guest response to Cat & Jack, in particular, has been amazing. Among guests who purchased Kids’ Apparel from Target in the months leading up to the launch of this new brand, spending on Kids’ Apparel increased more than 50% in the months following the launch. This increase in spend was driven by both frequency and spend per visit. Even more encouraging, the launch brought an energy and traffic to the whole category, leading to an increase in spending on Kids’ clothes at Target even among guests who didn’t buy Cat & Jack. This shows why we are so excited about our plans to launch additional signature category brands later in the year and even more next year.”