Target’s Bumpy Q1 Reveals Room for Improvement

Despite downturn in sales and revenue, retailer sees growth ahead through revamped loyalty, price cuts and digital enhancements

Lynn Petrak

5/22/2024

Target expanded its own brands during the first quarter as a way to address consumers' ongoing quest for value.

Target reported a rather soft first quarter, with declines in sales and revenue that reflect overall shopping habits. Although the retailer didn’t open the year with a bang, it is setting up for growth later in the year through new initiatives and, hopefully, in a more conducive selling environment.

For the quarter ending May 4, comparable sales slid 3.7%, a rate that Target noted was in line with its expectations. Sales came in around $24.13 billion for the period, below the $24.94 billion reached in the first quarter of 2023. Revenue was down a similar 3.1$ to $24.54 billion.

Chair and CEO Brian Cornell summed up the quarterly results from the leadership perspective. "Our first quarter financial performance was in line with our expectations on both the top and bottom line, tracking the trajectory we outlined for this year and setting up a return to growth in the second quarter," he remarked. "Looking ahead, our team will deliver for our guests through lower prices, a seasonally relevant assortment, ease and convenience, as we keep investing in our strategy and efficiency initiatives to get back to growth and deliver on our longer-term financial goals."

On that forward-looking note, Target reported that it expects a 0-2% lift in comp sales for the second quarter and for the full year. “While we won’t be satisfied until we return to growth, we are encouraged by what we’ve seen over the last few months,” Cornell remarked during the May 22 earnings webcast. “These trends reinforce that we are on the right track and positioned for growth in Q2.”

Delving into the data, Target’s Q1 performance shows where consumers are reining in their spending and where pockets of growth remain. For example, the apparel category fared relatively well in the quarter, while shoppers’ perceptions of inflation caused them to spend more cautiously in other discretionary segments. Within essentials, sales in food and beverages dipped by low single digits, as shoppers continue to shop across retail channels for value and savings.

Meanwhile, the retailer's e-comm channel experienced an uptick, following Target’s ongoing investments in this area. Digital sales comps went up 1.4% and same-day services climbed nearly 9%, with particular strength in drive-up service.

Additionally, the company shared that it pleased with early results from the relaunch of the Target Circle rewards program, rolled out in April with a paid membership component. Target welcomed more than a million new members to the platform in the first quarter. “We are very encouraged by the strong response and are just getting started,” said A. Christina Hennington, EVP and chief growth officer during the earnings webcast.

She highlighted the role of technology in improved efficiencies and experiences. “Newly developed generative AI is expanding the scope and reach of what we can offer our guests. We recently engaged with a pilot to test our latest personalized strategy and we are encouraged by early test results. In addition to driving more personalization, we are also positioned to grow relevance,” Hennington remarked.

The retailer’s new COO, Michael Fiddelke, who took on his position during the first quarter, shared in the earnings call that Target is shoring up efficiencies across its business that will affect its performance through the rest of the fiscal year and beyond. “This discipline has led to a notably leaner inventory overall and much better in-stocks as well. A key indicator of progress is our overall in-stock position, which improved by three percentage points over the quarter," he reported.

Fiddelke provided an update on the retailer’s front-end changes, too, including the move to limit self-checkout scanning to 10 items. “This decision was made after rigorous testing last year and when we made the recent change, we engaged with store teams across the country to ensure they are providing adequate staff to checkout lanes. With these changes, we’ve seen a rapid rise in guest satisfaction scores,” he said.

Minneapolis-based Target Corp. is No. 7 on The PG 100, Progressive Grocer’s 2024 list of the top food and consumables retailers in North America, with nearly 2,000 locations. PG also included the company on its Retailers of the Century list.