Target Corp.’s turnaround gained traction last quarter, but the retailer worried investors after striking a more cautious tone about the coming months.
The company that has been struggling to revive growth after a pandemic-fueled boom showed Wednesday that it’s making progress. Comparable sales jumped 5.6% last quarter, the biggest increase since the end of 2021 and triple the gain analysts were expecting. The chain also raised its annual revenue guidance by 2 percentage points to about 4%.
Shares initially rose, but then cratered as company executives warned on the earnings call that there are tougher comparisons in the current quarter, more cost challenges ahead and the benefit of tax refunds on its business are fading.
“A single good quarter has never been our goal; our goal is consistent long-term growth,” new Chief Executive Officer Michael Fiddelke said on the call. “We’ve got a lot of work in front of us.”
Last quarter was the retailer’s first under Fiddelke and showed that the chain’s strategy, which includes freshening up merchandise and stores and integrating more technology operations, is paying off.
The stock fell as much as 7% shortly after the market opened. Investors had been turning more positive on Target’s turnaround prospects. The shares gained 30% this year through Tuesday’s close, compared with about a 7% increase for the S&P 500 Index.
Target is looking to win back increasingly selective shoppers amid resurgent concerns about inflation as the conflict in the Middle East boosts gas prices. Competitors such as Walmart Inc. and Costco Wholesale Corp. have been gaining market share with low prices, increased online options and expanded selections.
Adjusted earnings also beat expectations during the quarter through May 2. Among the bright spots were health and wellness, baby and toys, where the company boosted assortment.
The first-quarter results show that the chain’s strategy is resonating with shoppers and driving growth, Fiddelke said in the earnings press release. The retailer will seek to stay “disciplined and flexible in an uncertain operating environment” and continue investing across its operations, he said.
The company is facing easier comparisons from prior quarters when weak demand weighed on performance. At the same time, the latest results suggest a “meaningful inflection,” Jefferies analyst Corey Tarlowe wrote Wednesday.
“While skepticism around durability is likely to remain near term, the combination of improving traffic, multiple growth drivers, and a raised outlook increases our confidence,” he said.
Later this year, Target will roll out its biggest revamp in food and beverage and up new items by 50%. Beauty studios, an in-store section highlighting trendy items, will launch in more than 600 stores this fall, and the company will start a multiyear refurbishment of its home offerings.
In stores, the retailer is also working to improve wait times, product availability, cleanliness and interactions with staff, executives said. In-stock availability remains the biggest issue for shoppers.
Target has struggled coming out of the pandemic as some of its merchandise lost favor — especially in discretionary categories such as apparel and home goods that make up an important part of sales. Political controversies have also weighed on demand, especially after the company pulled back its long-established diversity initiatives.
The company has looked to drum up interest by forming partnerships with Parke, Pokemon and Roller Rabbit. The retailer is also creating “baby boutiques” in stores with premium brands and concierge service.
Under Fiddelke, the company has also revamped its management team. On Tuesday, Target named a new supply chain and logistics officer.
