Target to invest $2 billion more in AI, stores and staffing as it seeks to reverse sales slump
Target will invest another $2 billion in its business this year to spruce up stores, remodel locations and invest in workers, the retailer said Tuesday as it outlined plans to try to reverse a persistent sales malaise and reclaim its footing in fashion and home categories.
The announcement came at Target's annual investor meeting at its Minneapolis headquarters, and followed a quarterly report that showed another period of declining sales and profits even as the company offered a brighter annual profit outlook than Wall Street expected. Target said it believes net sales will grow every quarter this year, and that comparable-store sales rose to start the current quarter.
"This is a new chapter, and it's all about growth," said CEO Michael Fiddelke, a 20-year company veteran who succeeded longtime CEO Brian Cornell last month. "We'll do so by playing our own game and making big changes to delight our guests."
Target had previously disclosed in November that it would raise capital spending by $1 billion for the year, to a total of $5 billion. On Tuesday, the company provided more details. The $2 billion is split between capital and additional operational expenses, Target said: $1 billion in capital expenditures, and $1 billion in operating costs.
Capital plans include opening 30 new stores and remodeling 130 existing locations, many of which have not been refreshed in a decade, executives said. The operating expense commitment includes hundreds of millions of dollars to support additional store labor and training, as well as investments in artificial intelligence.
One new retail concept set to roll out this fall is Target Beauty Studio, which will appear in 600 stores. The area will offer upscale beauty products and enhanced product expertise from staff, and it will partly replace stores within stores operated in partnership with Ulta Beauty, which is ending that partnership in August, Target said.
The company also described merchandising and inventory moves aimed at reenergizing its assortments. In the home category, Target said 75 percent of its decorative assortment will be new this year. Executives said Target is reworking store-label brands, including its Threshold home brand, and is using an artificial intelligence tool to better spot trends. The tool is intended to cut the time from design concept to store shelves from over a year in some cases, to a matter of weeks, Cara Sylvester, Target's chief merchandising officer, said in remarks at the meeting.
Food offerings are also a focus, as Target looks to drive more shopper trips by expanding fresh produce and adding items from niche brands such as Fishwife, which sells canned fish. Target said it plans to increase new assortment in food by nearly 50 percent this year.
The strategy comes against a backdrop of heightened political and economic tensions that executives said have weighed on the retail environment. Target's hometown of Minneapolis has become a flashpoint in national debates over immigration enforcement; some stores have been targeted in protests tied to actions by U.S. Immigration and Customs Enforcement, and the company has faced pressure to take public positions. Target also has contended with protests and boycotts related to its decision to roll back some diversity, equity and inclusion initiatives, critics say.
Economic headwinds have also been cited, including a period of elevated consumer prices.
"Target is struggling to show up for customers in a consistent and compelling way. There are too many out of stocks, too little inspiration in ranges, too much muddle and mess in stores. And all these things are eroding sales, as evidenced by the 3.9% fall in store comparables over the period," Neil Saunders, managing director of GlobalData, told CBS News. "There is no way to sugarcoat it: Target underperformed over the holiday quarter."
Target noted that while the pace of inflation has cooled, consumer prices have risen about 25 percent over the past five years, and U.S. households are feeling strain. Executives also referenced broader policy shifts, including a White House push for a global tariff of 15 percent after the Supreme Court struck down some import taxes imposed over the past year.
Target has acknowledged customer frustration with store conditions and merchandise, saying that as nearly 2,000 locations have taken on roles as fulfillment hubs for online orders, in-store shopping experiences have suffered with staff focused on fulfilling digital orders rather than tending aisles. The retailer is also facing stiffer competition from Walmart, which has increased its focus on fashion and other goods.
Since taking the top job, Fiddelke has reshuffled Target's leadership team, increased spending on in-store staffing and taken steps to reduce costs at distribution facilities and regional offices, according to a memo sent to employees in February.
Financial results for the quarter ended Jan. 31 showed the company earned $2.30 per share, or $1.05 billion, compared with $2.41 per share, or $1.10 billion, in the year-earlier period. Adjusted earnings per share were $2.44. Sales fell 1.5 percent to $30.45 billion for the period, and full-year sales fell nearly 2 percent to $104.78 billion.
"As poor as the numbers are, Target gets something of a pass this quarter. Not because there are excuses for this performance, but because there has been a change at the top – and with it has come a change in tone," Saunders said. "Can Target turn things around? It won't be plain sailing, as issues like investment at a time of compressed profit will need to be squared. And customer trust will need to be rebuilt. However, goodwill for the Target brand remains, and if customers are presented with something better, they will, over time, respond positively."
Analysts polled by FactSet had expected $2.16 per share on sales of $30.46 billion. Comparable sales, which measure sales at established stores and online channels, fell 2.5 percent, following a 2.7 percent decline in the fiscal third quarter. The company has posted declines or flat growth in that metric in 11 of the past 13 quarters.
Target said sales and customer traffic accelerated in the final two months of the quarter, with sales growth in food and beverage, beauty and toys. For the year, the company expects net sales to increase about 2 percent, to $106.88 billion, slightly above analysts' expectations of $106.7 billion. Target also projected earnings per share in a range of $7.50 to $8.50, compared with analysts' expectations of $7.30 per share, according to FactSet.
Shares of Target rose 6.8% in afternoon trading while the broader market slipped, reflecting investor response to the outlook and the company's plans to increase investment in stores, staff and technology.