MINNEAPOLIS — Food and beverage delivered low double-digit growth at Target Corp. in the first quarter, spurred by strength across the retailer’s entire assortment of products.
“Over the last three years, first-quarter food and beverage sales have increased by nearly $1.8 billion, accounting for nearly one-fourth of our total sales growth over that time,” said A. Christina Hennington, executive vice president and chief growth officer, during a May 18 conference call to discuss first-quarter results. “Market share gains in this category are being driven by unit share growth, most notably in our owned brand offerings, as more of our guests turn to Good & Gather and Favorite Day for their meal solutions.”
Overall, net income at Target in the first quarter ended April 30 totaled $1.01 billion, equal to $2.17 per share on the common stock, down 52% from $2.1 billion, or $4.20 per share, in the same period a year ago. Net sales were $24.83 billion, up 4% from $23.88 billion.
“Our first-quarter gross margin rate was well below our expectations, reflecting a combination of factors that prove to be very different than expected, driven by a rapidly shifting macro backdrop and changing consumer behavior,” said Brian C. Cornell, chairman and chief executive officer. “More specifically, we saw much higher-than-expected rate and transportation costs and a more dramatic change in our sales mix than we anticipated. This resulted in excess inventory, much of it in bulky categories, which put additional strain on an already stretched supply chain.”
Despite overall first-quarter gross margin rates being below expectations, Michael J. Fiddelke, chief financial officer, said Target feels good about its gross margin performance in grocery.
“Food and beverage in general has been such a steady top-line grower, share gainer quarter after quarter,” he said. “And, so, the strength that we’ve built in that category, I think, makes the economics in food and beverage work in the right direction.“We've talked a lot, and I think it's important as we think about consumer looking for value, the strength of the owned brands in food and beverage — Good & Gather and Favorite Day — and the guest response we've seen to those two owned brands has just been incredible. And that's great from a guest preference perspective. It's also good for margin.”