NEW YORK, N.Y. – Target Corp. is stepping up spending on capital expenditures, primarily in its supply network and technology, as the retailer aims to be more nimble in an era of online shopping.
The Minneapolis-based discounter told analysts Wednesday at its annual meeting it plans to spend $1.8 billion for the current year and ramp that up next year to up to $2.5 billion. In the last fiscal year ended in January, the company spent $1.4 billion in capital expenditures.
The spending comes as Target, like other retailers, grapples with an infrastructure that has been stretched with shoppers buying in different ways. That has left Target struggling to keep basic products like diapers on the shelves.
Target also sees a key revenue measure increasing at a faster clip next year. The retailer believes that revenue at stores opened at least a year will be up at least 3 per cent, compared with this year’s projected rise of 1.5 per cent to 2.5 per cent. In its last fiscal year, it posted a 2.1 per cent increase.
Target is also forecasting 10 per cent growth in earnings per share for next year. That’s on top of the $5.20 to $5.40 per share it expects for the current fiscal year.
The gathering in New York comes as Target has made solid progress in reinvigorating its business and winning shoppers under CEO Brian Cornell, who took the helm in August 2014. He wants to regain the retailer’s cheap chic status and make Target more nimble after a series of headline-grabbing setbacks, including a major debit and credit card breach that hurt sales and profits for months.
During the Great Recession, the company lost its mojo as a trendsetter when it expanded aggressively into groceries.
Under Cornell, the company closed its Canadian operations last year and shook up its leadership ranks. It’s focusing on key merchandise categories like fashion, baby, home furnishings and wellness products. The company has spruced up its presentation and added mannequins to display its clothing. It has created vignettes to feature its home products. Target is also overhauling its grocery area to offer healthier, fresher options. The company is also shifting more of its spending from physical stores to online investments and its supply network. Cornell laid out a multiyear reinvention plan last March to investors that is consistent with his talk Wednesday.
“Our guests are falling back in love with Target…all over again,” Cornell told a group of 250. “So are we declaring victory? Not even close. We’re proud of this momentum, but we have a lot of work to do.”
Target recorded its sixth straight quarter of increases for the key revenue measure in its most recent quarter and posted an uptick in customer traffic for the fifth quarter in a row. But Target had to step up discounting that squeezed profit margins during the holiday quarter.
Target also saw online sales surge 34 per cent during the latest quarter, after online sales jumped 30 per cent in the third quarter. However, the pace — while besting rivals like Wal-Mart — was below the 40 per cent goal it laid out last year.
Cornell said that he is confident that Target’s sales pace will improve as the company keeps pushing out new brands and sees the efforts of its better presentations attract shoppers. Revenue at stores opened at least a year for its so-called signature categories like fashion grew more than three times faster than the company average during the fourth quarter.
Target announced that its latest limited-time-only partnership will be with Finnish brand Marimekko and hit stores and online April 17. The collection will feature about 200 items with the average price under $50. Target is having a strong response to its new homegrown children’s furnishing collection called Pillowfort. In addition, Target is launching another brand called Cat + Jack, a children’s clothing line that he sees could have the potential for being a multibillion-dollar business and grow twice as fast as the industry average.
But overhauling the supply network is an essential part of Target’s reinvention as it can lose sales by not having products that shoppers want. That’s because Target, like many retailers, is having to fulfil orders in many different ways as shoppers shop online. John Mulligan, Target’s chief operating officer, told analysts Wednesday that the number of Target.com orders that its customers chose to pick up at the store rose 60 per cent last year, compared to the year before.
Mulligan said the stores have “become showrooms, fulfilmentcentres ad pick-up locations…But here’s the rub: We can’t continue to add this kind of complexity without ensuring the foundation can support it.”
The discounter has made some progress, finishing the year with the out-of-stock issues improving by 40 per cent year over year. But the company is just getting started in attacking the problem.
As part of the strategy, Target named Amazon heavyweight Arthur Valdez to lead the overhaul of its supply network. The company said Tuesday that he will start March 28.
Target said it is putting more product on the sales floor as it redesigns its shelf presentation. It’s also reducing the number of products it carries by merchandise category, focusing on bestselling items. Executives said it would be a surgical approach. It’s also working with suppliers to send case packs that match each product’s rate of sale and allotted shelf space. And Target is turning three of its distribution centres into warehouses that house slower-turning, more seasonal products.
Shares of the company closed up 14 cents at $81.10.
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