Target doubles annual sales growth forecast as turnaround starts to pay off

Arun Sundaram, senior vice president at CFRA Research, joins BNN Bloomberg to discuss Target's Q1 earnings results.

Target on Wednesday raised its annual sales growth forecast for the first time in two years, in a sign that new CEO Michael Fiddelke’s investment-heavy turnaround strategy is starting to pay off.

The retailer struggled with three straight years of declining revenue as cost-conscious shoppers moved to cheaper options, while its merchandise failed to attract higher-income shoppers looking for nice-to-have apparel and home decor.

Fiddelke took over the top job in February from Brian Cornell and his plan to revive sales included spending an extra US$2 billion this year to ensure well-stocked merchandise and better deliveries.

• Latest updates on company news here

It also cut prices on about 3,000 items in March, including on toys, pantry staples, packaged foods, and apparel, as inflation and the fuel shock from the Iran war boosted economic anxiety among consumers.

The strategy helped Target better compete with aggressive pricing strategies from Walmart and Amazon, as well as off-price retailers like TJX and Ross Stores.

Target expects net sales to grow around four per cent this fiscal year from a year ago, double its prior target of two per cent growth.

“Despite our updated guidance, we’re maintaining a cautious outlook, given the work we know we have in front of us, and ongoing uncertainty in the macroeconomic environment,” Fiddelke said on a call with the media.

Target’s shares were up about one per cent in volatile premarket trading. They have surged about 30 per cent so far this year.

The US$59-billion retailer’s same-store sales grew 5.6 per cent in its first financial quarter, exceeding expectations of a 2.5 per cent rise, according to data compiled by LSEG.

Digital sales surged 8.9 per cent, Target said, well above the 1.9 per cent growth in the prior three months. A 27 per cent jump in same-day deliveries under Target’s Circle 360 membership program also helped, as households sought convenience and the option to save fuel.

Perfect execution was crucial if Target wants to overcome Walmart’s price advantage and gain back market share, analysts have said.

“Target sits in a middle ground of retail - not the cheapest, not the go-to place for any one thing,” said Morningstar analyst Brett Husslein.

For the three months through May 2, Target posted a rise in sales in all six of its core merchandising categories, compared with declines in five categories a year ago.

Sales grew in the double-digits for toys where the company priced more products south of US$10, executives said.

• Latest updates on international news here

Target also benefited from its newly introduced baby boutique segment offering more premium brands in about 200 stores and which comes ahead of its planned Target beauty studio launch in nearly 600 stores this fall season.

Net sales jumped six per cent in the food and beverages category, where Target said it brought in 3,000 new food items in the reported quarter. It expects adjusted earnings per share at the upper end of its target range of US$7.50 to US$8.50.

Retail bellwether Walmart will report quarterly results on Thursday.

(Reporting by Juveria Tabassum in Bengaluru and Nicholas P. Brown in New York; Editing by Arun Koyyur)