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Target rebounds in Q2

Traffic up; food sales stabilize as officials eye more convenient assortment

Target Corp. on Wednesday said sales during its fiscal second quarter were slightly better than expected as store traffic rebounded, internet sales soared and even its struggling food business stemmed comparable losses.

Comparable food sales in the period, which ended July 29, were flat, officials said, but included high-single-digit sales increases in produce, sparked by organic food sales, and double-digit growth in adult beverages.

Overall, Target said sales for the period totaled $16.4 billion, a 1.6% gain from the same period last year, while comparable-store sales increased by 1.3%, led by a 2.1% increase in traffic. Net earnings of $672 million decreased by 1.2% as gross margins declined by 40 basis points, driven by by increased fulfillment costs and the impact of reduced prices.

Officials said efforts to offer everyday low prices, rather than drive sales through promotion, was reflected in the highest percentage of “regular price” sales since 2012, “well before our credit card data breach that changed our promotional cadence and stance,” Mark Tritton, chief merchandising officer, explained in a conference call.

“Also encouraging was the fact that our unit share in key categories grew more quickly than dollar share, which is a key leading indicator of the impact of this work,” he added. “At a high level, our second quarter average ticket also reflects the impact of this work.

“At first glance reporting a slight decline in average ticket might not sound like good news but when it's more than offset by an increase in traffic the picture is more positive. As we dig into the drivers, the change in basket reflected two key factors. The first was a reduction in general incentive offers which were replaced with better daily-value pricing and more category-focused discounts. The second was a meaningful increase in the number quick trips and fill-in trips we saw from our guests.”

Tritton lauded the recently announced addition of executives Mark Kenny and Liz Nordlie, who are expected to join to Target’s food team later this month.  Kenny, a former Walmart food leader, will be looked to strengthen convenient meals and bakery, Tritton said.

“We know we need to enhance our assortment of convenient options for guests: food that's ready to eat, ready to heat or ready to cook and save families time and money,” he said. “In addition, we're focused on enhancing our exclusive brand assortment in food and beverage while ensuring we're priced right daily on key opening price point items.”

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