TGT earnings call for the period ending June 30, 2024.
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Target (TGT 12.04%)
Q2 2024 Earnings Call
Aug 21, 2024, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Target Corporation’s second quarter earnings release conference call. [Operator instructions] As a reminder, this conference is being recorded, Wednesday, August 21, 2024. I would now like to turn the conference over to Mr.
John Hulbert, vice president, investor relations. Please go ahead, sir.
John R. Hulbert — Vice President, Investor Relations
Good morning, everyone, and thank you for joining us on our second quarter 2024 earnings conference call. On the line with me today are Brian Cornell, chair and chief executive officer; Rick Gomez, chief commercial officer; and Michael Fiddelke, chief operating officer and chief financial officer. In a few moments, Brian, Rick and Michael will provide their insights on our second quarter performance, along with our outlook and priorities for the third quarter and remainder of the year. Following their remarks, we’ll open the phone lines for a question-and-answer session.
This morning, we’re joined on this conference call by investors and others who will be listening to our comments via webcast. Following the call, Michael and I will be available to answer your follow-up questions. And finally, as a reminder, any forward-looking statements that we make this morning are subject to risks and uncertainties, including those described in this morning’s earnings press release and in our most recently filed 10-K. Also, in these remarks, we refer to non-GAAP financial measures, including adjusted earnings per share.
Reconciliations of all non-GAAP numbers to the most directly comparable GAAP number are included in this morning’s press release, which is posted on our investor relations website. With that, I’ll turn it over to Brian for his thoughts on the second quarter and his priorities for the third quarter and beyond. Brian?
Brian C. Cornell — Chair and Chief Executive Officer
Thanks, John, and good morning, everyone. I’d like to start my remarks today by welcoming Rick Gomez to this call, following his recent move into the role of chief commercial officer. This change was one of several we announced in June, including Christina Hennington’s move into the role of chief strategy and growth officer, and Lisa Roath’s transition into the role of chief merchandising officer of food, essentials and beauty. Lisa has done a fantastic job leading our marketing team and I’ve asked her to remaining that role until early 2025.
This will provide adequate time for us to complete an external search for her successor before Lisa brings her impressive commercial leadership experience back into the merchandising team. These changes follow our January announcement that Michael would move into the pivotal role of our chief operating officer. Michael took on the CFO role just before the pandemic, and he’s done an outstanding job leading the company through a period of unprecedented growth and volatility. The search for Michael replacement as CFO is ongoing, and I share Michael’s excitement for the time when he is able to fully focus on his new role leading all of our operational functions.
And of course, we were pleased this month to welcome Amy Tu into the role of chief legal and compliance officer. During her career, Amy has served in key leadership roles for several Fortune 100 companies. And I’m excited to welcome her to the Target team. Amy is taking the place of Don Liu on our team as he prepares for his retirement.
I want to pause to thank Don for his many years of thoughtful and conscientious service to Target and our stakeholders. He is an outstanding leader who has served as a trusted partner to me, to our board and our entire leadership team during his tenure here at Target. All of these changes on our team are just the latest evidence of our focus on developing enterprise leaders, ones who go well beyond subject matter expertise to develop strong leadership skills, with a foundation based on a comprehensive understanding of our business and how we fit into the broader landscape. And as you’ve seen from our second quarter results, the strength of our entire team was clearly evident in our financial performance, which came in well above our expectations.
On the top line, we met our goal of returning to growth, but moved well beyond that baseline expectation. More specifically, our Q2 comparable sales grew 2% at the very top end of our guidance range. And on the bottom line for the quarter, our EPS of $2.57 was well above the high end of our guidance, representing growth of more than 42% over last year. Among the drivers of our comp sales, we’re pleased that our second quarter growth was driven entirely by traffic, reflecting the combined benefits of the multiple guest-focused initiatives we outlined in our financial community meeting back in March.
It’s also notable that our store and digital channels both saw growth in Q2. Our digital team has done an outstanding job of enhancing our digital experience, and that’s showing through in our business results. We saw high single-digit growth in our digital comps in Q2 and even faster growth in same-day services, led by Drive Up and Target Circle 360, both of which grew in the low teens. Same-day services now account for more than two thirds of sales, with the biggest contribution from Drive Up, which generated sales of more than $2 billion in Q2 and more than $4 billion so far this year.
Our balanced, multi-category merchandising assortment continues to resonate with our guests as trends strengthened across the board in Q2. And we’re encouraged to see discretionary category trends improved for the fourth consecutive quarter. In Apparel, comp sales grew by more than 3%, marking an improvement of more than 5 percentage points when compared with the first quarter. Our Apparel team has done a fantastic job incorporating great design, newness and value throughout their assortment, most notably in our All In Motion brand, which delivered growth in the low teens.
Beauty was another standout as the category continues to gain share, with comp growth of 9% in Q2 on top of double-digit growth a year ago. On the frequency side of our assortment, both our Food & Beverage and essential categories saw traffic growth in the quarter as consumers are responding to our offerings in an environment where they are focused on value. Over the summer, we reduced our prices on about 5,000 frequently purchased items in many markets, and we saw an acceleration in both our unit and dollar sales trends in these businesses. We’re also seeing continued momentum in our Target Circle loyalty platform following its relaunch in the first quarter.
With over 100 million members, we’re always happy to welcome guests who choose to join, and we added more than 2 million new users in the second quarter. But our aspirations go well beyond growing our membership base. We redesigned Target Circle with a goal of increasing engagement among existing members, and we’ve already realized the benefits. For example, during our July Target Circle Week, about two thirds of our transactions were made by Target Circle members.
Beyond the direct benefit of guest engagement with the platform, Target Circle also helps us gain deep consumer insights, allowing us to extend more personal, customized offers through our Roundel advertising business. Roundel continued to experience rapid growth. based on the joint value it creates for both our guests and our vendors. In the second quarter, Roundel delivered double-digit growth to the benefit of both gross margin and the other revenue line of our P&L.
For the full year, Roundel is expected to grow in the high teens on top of more than 20% growth in 2023. As we continue to survey consumers and monitor the external environment, our view remains largely the same as we’ve been sharing for some time. Consumers have shown remarkable resilience in the face of multiple challenges over the last several years, and they remain resilient today. Given the significant headwinds they faced with inflation over the last few years, consumers continue to focus on value as they work hard to manage their household budgets.
