Target Corporation 1Q24: Could Be Better…

Jun 5, 2024 | Corporate Insights, No Bull Economics

Target reported that its view of the highly resilient U.S. consumer remains the same as 3 months ago. While consumers begin to moderate their post-covid spending emphasis on services, entertainment & travel, continued discretionary category softness (most notably in Home & Hardlines) reflects the cumulative impact of higher retail prices on consumer budgets.

Big Picture

  • Higher interest rates, uncertainty around the future of the economy, continued social & political divisiveness and the upcoming election cycle have consumers concerned about what lies ahead.
  • Resultantly, consumer confidence took a meaningful dip in April despite a strong job market & normalizing inflation.
  • Currently, 1 in 3 Americans have maxed out, or is nearing the limit, on at least one of their credit cards.
  • While discretionary trends are expected to remain pressured in the short term, they are expected to normalize over time as consumers shift more spending into discretionary from frequency.
  • Target has implemented price cuts on 1,500 frequently shopped items in many markets, with plans for price cuts on an additional 1,000 items this summer. These cuts are focused on everyday items in its Food & Essential categories.
  • Target Circle loyalty program was relaunched in April & includes 100MM+ members. Mentions of Target Circle on social platforms increased +500% y/y during the quarter, boosted by a marketing campaign featuring Saturday Night Live alum, Kristen Wiig, revisiting her role as the Target Lady. Guests look to Target’s digital platforms for inspiration, helping them to plan their next in-store Target run. Also, they use the app while in the stores to check prices, compare products & navigate the shopping aisles.

Revenue Trends

  • 1Q24 total sales declined -3% y/y, reflecting lower unit volume & less benefit from price. Notably, 1Q revenues of $24.5B represented a +39% increase over 1Q19.
  • A -3.7% decline in comparable sales (-1.9% traffic/-1.9% average transaction) was driven largely by continued softness in its Home & Hardlines categories & softening trends in its Frequency categories.
  • The -3.7% comp decline reflected -4.8% in-store results partially offset by a +1.4% increase in digital. Notably, 1Q digital sales increased for the first time in more than a year, driven by Drive Up (up low teens), in-store pickup, and same-day delivery. 1Q Drive Up sales were 30x larger than 1Q19.
  • Category sales performance: Beauty up low single digits; Apparel down low single digits, but up +4% over 4Q23; Frequency categories down low single digits; and “softness” in Home & Hardlines.
  • FY24 comp guidance: 0% to +2%, reflecting an improved in-stock position.

Margin Trends

  • 1Q24 gross margin increased +1.4% y/y to 28.9%, reflecting: favorable freight rates which offset a higher promotional markdown rate; 20 bps improvement from mix; and 20 bps benefit from lower retail theft.
  • 1Q operating income margin improved +1.0% y/y to 5.3%, driven by its gross margin improvement.

Target 1Q24 Financials

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