Release Date: November 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Target Corp (TGT, Financial) reported a healthy growth in traffic, with a 2.4% increase, equating to over 10 million additional transactions compared to last year.
- Digital sales grew nearly 11% in the third quarter, with same-day delivery powered by Target Circle 360 increasing by almost 20%.
- The beauty category saw a strong performance with a comparable sales growth of more than 6%, driven by both core beauty business and Ulta Beauty at Target offerings.
- Target Corp (TGT) successfully navigated supply chain challenges, including port strikes, by rerouting shipments to ensure inventory readiness for the holiday season.
- The company enrolled nearly 3 million new Target Circle members in the quarter, enhancing customer engagement and loyalty.
Negative Points
- Target Corp (TGT) faced a decline in average ticket size by 2%, primarily due to cautious consumer spending in discretionary categories.
- Operating margin rate decreased by about 60 basis points from the previous year, impacted by softer-than-expected sales in high-margin categories and cost pressures.
- The company experienced higher-than-expected general liability and healthcare costs, contributing to an increase in SG&A expenses.
- Discretionary categories such as home and hardlines continued to show softness, with consumers spending cautiously in these areas.
- Target Corp (TGT) had to manage elevated inventory levels earlier than usual due to receipt timing changes and softer-than-expected sales, leading to higher supply chain costs.
Q & A Highlights
Q: Can you quantify the unique costs mentioned and how they were split between gross and SG&A? What level of unique costs are embedded into the fourth quarter guidance?
A: Michael Fiddelke, CFO and COO, explained that the profit outcomes in Q3 were affected by a deceleration in high-margin categories like home and apparel. Additional costs were incurred due to prepositioning inventory in anticipation of a port strike. Jim Lee, CFO, added that general liability and healthcare costs contributed approximately 1% to the SG&A increase.
Q: With the consumer not showing up as expected, does your approach or risk appetite change, especially as you head into the holiday season?
A: Brian Cornell, CEO, emphasized playing the long game despite short-term macro challenges. He highlighted the strength in traffic and digital performance, with digital growing by almost 11% and same-day delivery by nearly 20%. Target will continue investing in value, newness, and digital assets.
Q: What are your thoughts on the recovery in discretionary categories, and do you expect a better outlook in 2025?
A: Rick Gomez, Chief Commercial Officer, noted bright spots in apparel, particularly in performance and women's apparel. He mentioned that newness in home categories is resonating with consumers. Brian Cornell added that discretionary categories will continue to be significant, and Target will plan cautiously while looking for trends and green shoots.
Q: Why do you think consumers are leaning more into promotions now, and has this altered your approach to Q4 pricing and promotions?
A: Brian Cornell stated that consumers have become more resourceful, looking for value and promotions. Target plans to lean into value throughout the holiday season, bundling newness with great value to stay in step with consumer expectations.
Q: In a world where consumers concentrate spending among few retailers, does Target need to do anything different to be among that consideration set?
A: Brian Cornell emphasized continuing to make Target unique with a mix of national brands, own brands, and unique partnerships. Investments will continue in stores, digital assets, and the Circle program. Michael Fiddelke highlighted the strength of the digital business and the importance of making it easy to shop at Target.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
