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More signs that Target is getting out of its rut

🕐 3 min read

Target’s chief executive, Brian Cornell, arrived at the company last August with big plans for turning around a retailer that was in a rut: The cheap-chic merchandise that had earned it the “Tar-zhay” nickname had lost its sense of style and originality, and a massive data breach had bruised consumers’ trust.

The company’s latest quarterly earnings report, released Wednesday, offered early signs that Cornell’s strategy might be working. Target profit soared 52 percent to $635 million in the most recent quarter, and it saw a solid 2.8 percent increase in sales at stores open more than a year. That sales growth was fueled by both a growth in the number of transactions that customers made, as well as a growth in their “basket size,” which means shoppers were spending more per trip.

Target also said that sales growth in its style, baby, kids and wellness categories was more than double the company average. This is particularly crucial because Cornell has made these departments the centerpiece of his comeback strategy.

Target has focused sharply on improving the mix and in-store presentation of items in these categories, with tactics such as adding mannequins to better display the clothing. The theory is that one-of-a-kind merchandise assortments in these “signature categories” can help pull shoppers into Target in the first place. Once they are in the store, they might also shop for more routine items, such as laundry detergent or diapers, that they might otherwise have purchased from a competitor.

“The momentum we’ve seen so far makes us more confident than ever that we’re moving in the right direction, and encourages us to move even faster,” Cornell said on a conference call with investors Wednesday.

Back in April, Target saw stellar sales of its Lilly Pulitzer women’s apparel collection. The limited edition merchandise was expected to last several weeks, but ended up selling out in within hours as shoppers lined up outside of Target stores and deluged its Web site to get the goods. Target’s chief financial officer, John Mulligan, said Wednesday that the robust sales of this collection were “financially, not really material to the quarter.” But executives believe the groundswell of buzz around the collection serves as a sign that they’re finding their stride again in the apparel business.

Target’s new strategy centers around offering customers value, not necessarily a rock-bottom price. This seemed to have contributed to the 1.4 percent increase in average transaction amount that the retailer saw in the quarter.

“Our guests are trading up to higher quality and premium-branded items,” said Kathee Tesija, Target’s vice president of merchandising, during the call with investors.

Executives said the company is in the early stages of testing a reinvention of the presentation and the product line-up in its food section. It plans to roll out a broad revamp of this category next year.

A flurry of recent retail industry earnings results have offered mixed messages about the U.S. consumer’s willingness to spend. Wal-Mart’s modest U.S. sales growth, reported on Tuesday, along with lackluster reports from Macy’s and Kohl’s last week, had some analysts questioning whether shoppers were actually going out and spending their tax refunds and their savings from lower gas prices.

Target also noted this unevenness. “The consumer continues to be choppy out there,” said Mulligan during a call with reporters on Wednesday.

While the company’s improved sales suggest that shoppers are opening their wallets more, Mulligan said that Target’s data show its customers are increasing the payments they’re making on their Target credit cards. That could be a sign that they’re using their extra money to pay down debt, not splurge on goods.

Target’s revenue rose 2.8 percent to $17.1 billion in the first quarter. Target for the first time broke out what share of its sales come from its e-commerce channel; it was a tiny sliver of overall sales, at just 2.8 percent. This helps explain why Target has outlined an aggressive 40 percent growth goal for its online business this year: The retailer clearly has a long way to go before its digital sales are in the same ballpark as those of e-commerce giant Amazon. (Jeffrey P. Bezos, chief executive of Amazon, owns The Washington Post.)

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