Target put its money where its mouth is, and it's paying off—at least in shopper visits. Thanks to heavy investments the retailer has made in store remodels, new in-house product lines and better delivery options, store traffic for the first quarter grew 3.7 percent, the strongest performance in more than 10 years.
"Target has always thrived by being different," CEO Brian Cornell said on a conference call Wednesday morning.
The Minneapolis-based chain reported a 3.5 percent rise in revenue to $16.6 billion over the year-earlier period, and earnings of $718 million. During the period, the company completed 56 store remodels, opened seven new stores and introduced new brands such as Universal Thread, for women; Opalhouse, for home; and Umbro for kids. It also expanded its beauty assortment into more diverse lines—Mark Tritton, executive VP and chief merchandising officer, said on the call that beauty "continues to benefit" from "areas focused on naturals and diversity."
This summer, Target plans to debut a new collection, including Mickey-themed kids' and adult apparel, beauty and home products, with Disney. It is also working with New York's Museum of Ice Cream to sell a new clothing and accessories line and custom ice cream flavors.
Such pairings have helped the company reach new customers, executives say. Target has had success in driving "awareness through marketing," said Tritton, who noted that there are also four more new in-house brands coming later this year.
"Target's Q1 results reflect the favorable impact on sales, both in stores and online, of the company's exclusive brand initiatives, which continue to resonate with shoppers," said Charlie O'Shea, the lead retail analyst at Moody's, in an statement.
But investors are still not satisfied—especially as Target's report missed expectations. Despite the brand's positive sales, its share price was down 6 percent in Wednesday morning trading. Some investors are worried that the investments Target is making in its stores and products could weigh on margins—already, the chain saw a decline in apparel sales because of weather woes this spring.
"We expect continued innovation in convenience features," wrote Oliver Chen, a Cowen & Co. retail analyst in a Wednesday note, but added, "these features need to be coupled with sharp and clear promotions and pricing and marketing."
Target is not the only brick-and-mortar retailer holding its own. Earlier this week, Kohl's reported same-store sales growth of 3.6 percent. JC Penney, however, saw comparable store sales that were essentially flat and just announced the June departure of CEO Marvin Ellison, who will join Lowe's in July.