Target Corp. Sees Q2 Gains, Plans Supply Chain Readjustments

Target, Target Corp., omnichannel, omnichannel fulfillment, retail, retail financialsTarget Corp. reported second quarter sales of $17.4 billion, up 2.8% from $16.9 billion in 2014. Net income was $753 million or $1.21 per share, up 221.9% from $234 million or 61 cents per share in the year-ago quarter. However, the 2014 results were impacted by the company’s departure from the Canadian market, early retirement of debt and costs related to its massive 2013 data breach.

Confident in its performance to date, Target raised its fiscal 2015 adjusted earnings per share guidance from $4.50-$4.65 to $4.60-$4.75.

Same-store sales in Q2 were up 2.4%, in line with the company’s expectations. Comps in Target’s signature lines of apparel, baby, children and wellness grew three times faster than the company average, resulting in comp growth of 4%-5% in both home and apparel categories.

Online sales grew at a healthy 30% as Target’s substantial digital and omnichannel investments started to kick in – to the tune of $1 billion in 2015 – but this was still below the aggressive 40% goal set by chairman and CEO Brian Cornell.

He told analysts that over time, Target’s incredibly complex supply chain had been built for yesterday’s retail world, where most items moved from vendor to distribution center to store. But that must change in an omnichannel world where consumers want to shop when, where and how they choose, Cornell said.

“To serve guests today we are becoming much more flexible in a way we fulfill demand for products and services,” he said. “And this is stretching our supply chain well beyond its core capabilities. And frankly, as a result some retail fundamentals have started to suffer. Specifically in stocks in our stores have been unacceptable so far this year. And our guests deserve better.”

For this reason, Cornell has tasked incoming COO John Mulligan – who hands over the CFO reins to former Walmart and Express Scripts financial head Cathy Smith on Sept. 1 – with improving Target’s supply chain capabilities, work across discipline areas “to understand and address root causes that are hampering day to day execution.”

“Beyond these immediate needs I’ve asked John to continually assess and evolve our capabilities to ensure our operations keep up with our strategy and a rapidly evolving retail landscape,” he said.

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