Food in Target's bull's-eye

by Monica Watrous
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Target plans to expand its Simply Balanced line of organic and natural products.
As part of its food strategy, Target plans to expand its line of organic and natural products.

MINNEAPOLIS – The key ingredient for higher sales at Target is food, according to the company’s executives. The retail giant is in the process of repositioning its food offering with an eye to consumer trends and insights.

“We’ve got work to do on food, but when we reinvent food and get the assortment right there and improve the presentation, I think that gives us all great confidence that we’re going to continue to drive traffic to our stores, and that’s going to convert to really solid and sustainable comps,” said Brian Cornell, chairman and CEO of Minneapolis-based Target Corp., during an Aug. 19 earnings call.

Early efforts contributed to sales growth in the recent quarter. For the second quarter ended Aug. 1, Target posted net earnings of $753 million, equal to $1.18 per share on the common stock, up 222 percent from $234 million, or 37 cents per share, for the prior-year period. Adjusted diluted earnings per share from continuing operations advanced 21 percent to $1.22 from $1.01, exceeding company expectations. Items affecting comparability included a higher net interest expense in the second quarter of fiscal 2014, including a charge related to the early retirement of debt.

Sales for the quarter increased 2.8 percent to $17.427 billion from year-ago sales of $16.957 billion, reflecting comparable sales growth of 2.4 percent and sales from new stores.

Going forward, Target plans to expand its selection of natural and organic products based on positive customer feedback. 

Brian Cornell, president and CEO of Target Corp.
Brian Cornell, president and CEO of Target Corp.

“Through guest research, we already know we need to be more clearly highlighting wellness in our food offering through both assortment and the information we provide,” Cornell said. “We’re also focused on ways to elevate our food presentation and experience to fit the way the guests live and shop. We know we have an opportunity to provide fresh, healthy options and more relevant and localized assortment, as our guests are responding to healthy choices we’re offering today.

“Within food, our market share in wellness is already double our food share overall. And this quarter, we continue to see double-digit sales growth in these important categories. This clearly shows that our guests are already responding when we enhance our assortment of natural, organic, and better-for-you items in our stores.”

During the third quarter, Target will add new food items in its Made to Matter collection of natural and organic products and nearly 50 new items across six categories in the store’s Simply Balanced brand.

“(While) still in the early stages, the reaction to some of the changes we are making in our food assortment, the reaction the guest is taking to Made to Matter, our wellness initiatives, gives me a tremendous amount of confidence that as we continue to bring great design, fashion, quality, and excitement to our signature categories, and combine that with the opportunity to reinvent food, to bring the right assortment that meets the needs of our guests, that to me is the magic to unlock sustainable sales growth at Target and make sure we’re driving traffic to our stores, more visits to our site,” Cornell said.

Other initiatives under way include the testing and roll-out of more flexible format stores in urban markets and the expansion of ship-from-store capabilities to more stores to improve delivery times and drive digital performance.

“Retail is changing more rapidly today than any time in my career, and we need to ensure that core operations keep pace with the new ways we’re serving the guest,” Cornell said.

Net earnings for the six months ended Aug. 1 were $1.388 billion, or $2.16 per share, up 113 percent from $653 million, or $1.03 per share. Sales for the period increased 2.8 percent to $34.546 billion from $33.614 billion.

“So far this year, traffic and sales are increasing, digital growth is far ahead of the industry, and signature categories are leading the way,” Cornell said. “Yet we will not slow down. We’ll continue to invest in newness, innovation, and presentation, while we focus on maintaining strong execution.”
Target raised its full-year guidance for adjusted earnings per share to $4.60 to $4.75, up from the previous outlook of $4.50 to $4.65.

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