Target CEO to analysts: 'Omnichannel journey just beginning'

MINNEAPOLIS — Target’s efforts to regain its footing following last year’s data breach and its digital efforts appear to be gaining traction as the company posted U.S. same-store sales growth of 1.2%, reflecting digital sales growth of more than 30%. However, the company’s “omnichannel journey is just beginning,” Brian Cornell, chairman and CEO of Target, told analysts during Wednesday morning’s conference call, detailing a number of new digital and mobile-based efforts, including, the coming launch of a new pharmacy app.



“Omnichannel and flexible fulfillment capabilities are key to our long-term success. Target’s digital sales are growing much faster than the industry and they’ve been accelerating all year. We are planning for even faster growth in the fourth quarter," Cornell said.



As the company looks to the future, Cornell said the retailer will take a “channel agnostic” view of its growth, allowing guests to interact with the company where and when they want — online, in stores and on their mobile devices.



In today’s tech-driven environment, retailers are increasingly looking for ways to personalize the shopping experience, and Target is no exception.



“This year, we developed and rolled out a new personalization engine, which is currently generating product recommendations for guests on our digital platforms,” Cornell told analysts. “Even though this new engine is still in the beta-rollout stage, conversion rates from its recommendations are already exceeding what we were previously seeing with a third-party product. As we continue to make changes based on initial learnings, we expect conversion rates will expand further over time. Over time, we expect to leverage this engine’s capability to provide customized experiences across digital platforms.”



For pharmacy patients, Target will launch in 2015 a pharmacy app that will enable patients to organize and transfer prescriptions, check prescription status and order refills.



Going forward, Cornell said the company will increase its focus on signature categories — baby, kids, wellness and style. The company will work to grow these categories by investing in greater capital, marketing and product development.

“Over time, we will work to grow these areas more quickly by investing a higher share of our resources. … This doesn’t mean we are abandoning our other categories but we will have different expectations for those categories compared to the ones in which we are investing to outperform,” Cornell told analysts.



He also told analysts that smaller store formats — such as City Target and Target Express — present an “exciting opportunity” for the company in serving its urban shoppers.



“We can offer urban consumers greater convenience, unique merchandise and an outstanding value, with an extended assortment available at Target.com,” Cornell said.



Sales for the quarter increased 2.8% to $17.73 billion compared with $17.26 billion in the year-ago period. Net earnings increased 3.1% to $352 million. Diluted earnings per share were 55 cents compared with 54 cents in the year-ago period.



In the U.S. segment, sales increased 1.9% to $17.3 billion from $16.9 billion, reflecting a 1.2% increase in same-store sales.



In Canada, sales increased 43.8% to $479 million from $333 million in the year-ago period and same-store sales increased 1.6%. Cornell stressed, however, that much work remains to enhance its Canadian operations.



“We know that to succeed in Canada we will need a major step change in performance. The fact is, given where we are performing today, we need to see improved financial performance for every Target store in Canada over time,” Cornell said. “The team has worked hard to prepare for the Canadian operations for the fourth quarter and we will be watching how those improvements connect with our guests during the holiday season.”



For the fourth quarter, the company expects adjusted EPS of $1.13 to $1.23, reflecting operating results in its U.S. and Canadian segments. Target expects full-year 2014 adjusted EPS of $3.15 to $3.25. Full-year 2014 GAAP EPS is expected to be 45 cents below adjusted EPS.



“While there is much work to be done, I’m very pleased with the momentum we are seeing in the U.S. business and the changes we’ve implemented to better position our Canadian segment. My confidence in the potential of this company and this brand have only been reinforced in the last three months as I’ve gained deeper knowledge of Target in my work with the team," Cornell said.



During fourth-quarter 2013, Target experienced a data breach in which an intruder gained unauthorized access to its network and stole certain payment card and other guest information. In third-quarter 2014, the company incurred breach-related expenses of $12 million. Since the data breach, the company has incurred total net breach-related expenses of $158 million, reflecting $248 million of gross expenses, partially offset by the recognition of a $90 million insurance receivable.