Target CEO Brian Cornell Discusses the Company's Holiday 2016 Results

January 18, 2017 - Article reads in
Target CEO Brian Cornell in front of merchandise displays

This morning, Target shared an update on its business results coming off of the 2016 holiday season. We sat down with CEO Brian Cornell to gain further insight into the company's performance.

How did the holiday season treat Target this year?
Our team works toward the holiday season all year, striving to bring guests the right combination of convenience, value and inspiration. This year, our performance was mixed. While we drove strong sales during those key shopping moments of Black Friday, Cyber Monday and the days leading up to Christmas, overall sales for November and December did not meet our expectations. Our November and December traffic was flat, which shows some improvement over last quarter but a more significant shift from stores to digital than we expected. Generally, we saw guests visiting our stores and for very specific items and shopping the remainder of our assortment less. There was also softness in our Electronics and Entertainment and Grocery and Essentials businesses, though candy was a bright spot within Grocery.

Along with several retail industry peers, we felt the impact of consumers shifting to shopping online at a much more rapid pace. Against that backdrop, we’re really pleased with our digital sales growth of more than 30 percent—40 percent in December—and the experience and stability provided guests. Additionally, Target’s Signature Categories grew nearly three percentage points faster than the company average, as guests responded to our Apparel, Home and Kids offerings.

But overall, the season simply was not up to our expectations. In the face of these challenges, we now expect fourth quarter comparable sales in the range of (1.5) percent to (1.0) percent and adjusted EPS from $1.45 to $1.55, which is down from prior guidance of $1.55 to $1.75.

How did your promotions perform?
Like the season overall, response to our promotions was mixed. We know our guests are busy and seeking value, particularly during the holidays, so we set out to deliver broad, meaningful savings. Guests gravitated to our most compelling and easy-to-understand deals that matched their needs at a specific point in the season, like 30 percent off Toys. In other instances, we learned that our offers were overly complex or lacked excitement and newness. For example, some deals, like buy-one-get-one frozen pizza, were brought back because of their popularity in 2015 but didn’t perform as well in their second year. In total, as we look to apply learnings from the season moving ahead, we know that we have a clear opportunity to refine our promotional strategy, making offers even more compelling.

What’s behind the shifting consumer behavior? What does it mean, and is it new?
Of course, consumers shopping online and from their mobile devices isn’t a new dynamic. In fact, 98 percent of Target’s guests regularly shop online, and we’ve seen digital growth faster than the industry average for four consecutive years. And throughout the 2016 holiday season, we noticed a clear migration to digital shopping, a behavior we would attribute to how time-pressed our guests are during the season. They are looking for convenient options and our improved online experience coupled with free shipping and the ability to pick up orders in store provided an easy way for our guests to get their shopping done. In fact, the number of items we shipped from store doubled year-over-year and, in the few days leading to Christmas, we saw nearly 50 percent of orders picked up in store. Moving forward, we will continue to focus on the role our stores play in facilitating ease and convenience within the digital experience, as well as what our physical stores can offer guests in terms of breadth of assortment, newness, inspiration, service and value.

With Holiday in the rearview, what’s next?
Looking ahead, we expect to deliver full-year adjusted EPS of $5.00 to $5.10 in 2016, which would mark an all-time high for Target. And, importantly, we’re making big strides in improving the shopping experience in every channel, evolving our supply chain and technology in support of flexible fulfillment, and bringing our flexible format stores to more and more guests in dense urban and suburban markets.

I continue to be encouraged by our progress and even more committed to the areas where we haven’t quite reached our potential. We’ll share more at our Financial Community Meeting on February 28 about how we view the consumer dynamics we’re facing and how we’ll define our strategy going forward.

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