Daily Newsletter

21 August 2023

Daily Newsletter

21 August 2023

Target remains cautious despite speed, agility driving positive Q2

US retailer Target Corporation (Target) has reported better than expected profits in the second quarter (Q2) thanks to its resilient business model, according to chair and CEO Brian Cornell, however he issues caution for the remainder of this year.

Shemona Safaya August 18 2023

For the three months ended 29 July 2023 (Q2), Target reported a 4.9% decline in total revenue from $26.04bn to $24.77bn in the second quarter.

However, the operating income rose to $1.19bn as opposed to $321m in the previous year. While earnings saw a 356.5% jump to $835m in comparison to last year's $183m.

Cornell believes the retailer's second-quarter financial results demonstrate the resilience of its team and business model in the face of multiple headwinds in the external environment.

He told the management and shareholders on the earnings call: "Last year's inventory actions laid the groundwork for the recovery and profitability we've achieved so far this year. Our team also played a critical role in our second-quarter profit performance. As we began to see softening sales trends early in the quarter, the team in our stores and supply chain responded with speed and agility."

Cornell points out that consumers are also choosing to increase spending on services like leisure travel, entertainment, and food away from home, putting near-term pressure on discretionary products.

He highlights that beyond the macroeconomic headwinds in the second quarter, many of Target's store members faced a negative guest reaction to its pride assortment, something which the retailer says it has been doing for more than a decade.

Target issues revised guidance

Given recent sales trends, Target now expects comparable sales in a wide range around a mid-single digit decline for the remainder of the year. The company now expects full-year GAAP and adjusted EPS of $7.00 to $8.00, compared with the prior range of $7.75 to $8.75.

For the third quarter, Target expects comparable sales in a wide range around a mid-single digit decline, and GAAP and Adjusted EPS of $1.20 to $1.60.

Target's opportunities moving forward

During the Target earnings call Cornell was quizzed on where the opportunities lie for apparel moving forward.

He shared the company will continue to lean into seasonal moments because it is traffic-driving and at the same time combine newness with affordability throughout those seasons.

He says: "If you're in our stores today or looking at target.com, you're seeing us lean into this back-to-school season with great affordability. We'll continue to do that as we enter the Halloween season, and get ready for the holidays, combining that great Target newness with great affordability that meets the needs of our guests. So, we'll be cautious as we plan for the back half of the year, but we'll lean into those big seasonal moments where we know the guest expects Target to be there to meet their needs."

Last month, Target was amongst other major retailers to have partnered with the sustainable fashion initiative Fashion for Good on a footwear recycling project aimed to drive the adoption of recycled materials in the footwear industry.

COVID-19 drove rapid digitalization within the retail and apparel sector

As ecommerce experienced booming growth during the COVID-19 pandemic, retailers accelerated their digitalization strategies to keep up with demand. The cloud has become an important model for delivering and maintaining enterprise IT resources. Many retailers have developed in-house cloud divisions that will allow them to better exploit the cloud’s capabilities. However, for those players that do not have the necessary skills in-house, the cloud can pose some significant challenges.

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