Target Corp. announced Aug. 16 that digital sales declined 10.5% year over year in the fiscal second quarter ended July 29.

Meanwhile, comparable in-store sales declined 4.3% versus Q2 last year. Target’s total revenue in Q2 reached $24.8 billion. That’s down 4.9% year over year. Operating profit after taxes was $3.89 billion, down from $4.63 billion in the year-ago period.

Through the first fiscal half of 2023, Target’s total revenue was about 39% higher than in 2019, said CEO Brian Cornell. Target total revenue was about $50.1 billion in the first half of this year. It was about $36 billion in 2019’s first half. Cornell said the “growth reflects significant increases across our entire business in all five merchandising categories in both our stores and digital channels.”

Target ranks No. 5 in the Top 1000, Digital Commerce 360’s ranking of North America’s online retailers by web sales.

Target digital sales

Cornell said growth in the retailer’s Drive-Up service led Target digital sales. Still, Target digital sales in the first half of 2023 declined 7.0% year over year.

Target digital sales, or those that originated online, accounted for 16.9% of total sales in Q2. That’s down from 17.9% of Target sales originating digitally in Q2 2022. Similarly, Target digital sales in the first half of fiscal 2023 accounted for 17.2% of total sales. That’s down from 18.1% in the first half last year.

“Consistent with our ‘Stores as Hub’ strategy, more than 97% of our second quarter sales were fulfilled by our stores,” Cornell said.

Chief growth officer Christina Hennington said Target continues to invest in its in-store experience, starting with new stores and remodels, she said.

“And just like we remodel our stores to reflect our latest thinking and guest feedback into the shopping experience, will begin rolling out a remodel of our digital experience this quarter,” Hennington said. “Based on guest feedback, we’re investing to create a digital experience that enhances the love of discovery while balancing the ease of navigation. This will include different landing experiences, more personalized content, enhanced search functionality, ease of navigation and other updates to bring more joy and convenience to our digital guests.”

Fulfilling online orders

Chief operating officer John Mulligan said Target’s flow centers allow the retailer “to fulfill certain digital orders beyond their primary role in replenishing store inventories.”

Chief financial officer Michael Fiddelke said Target benefitted in terms of fulfillment costs and supply chain in Q2. Target digital sales were lower, and there was a “favorable mix of same-day services.” That meant fewer packages shipping to consumers’ homes.

“If you look at the first six months of this year compared to 2019, we’ve got almost well over 20% higher traffic coming to our business than we were pre-pandemic,” Fiddelke said.

Target sortation centers

Mulligan said Target’s new sortation centers “are delivering outstanding results.” Sortation centers are mini-warehouses the retailer uses to help increase the speed and efficiency of last-mile delivery, he said.

“Up to 70% of the packages processed by these facilities stay in the local market,” Mulligan said. That allows Target “to partner with Shipt to handle the last mile. This integration with Shipt allows us to achieve meaningful efficiency and cost savings while offering much greater speed of delivery to our guests.”

In markets where Target operates a sortation center, the average click-to-deliver time is nearly 1.5 days shorter than the network average, Mulligan said. About a third of the packages arrive in one day, he said. He added that Target expects such speed metrics to continue improving as the retailer opens new buildings and tests more operating model iterations.

Target already operates 10 sortation centers. It expects to open at least six more “over the next few years,” Mulligan said.

Target expects the 10 sortation centers it currently operates to process more than 35 million packages in 2023. That would represent more than a 20% increase from a year ago. It would also be a more than sixfold increase from 2021, Mulligan said.

New stores

Mulligan said Target plans to open about 20 new locations this year, ranging in size from 20,000 to 137,000 square feet. The mass merchant completed and opened five new stores in Q2. That brings the year-to-date total to 11, he said.

Target earnings

For the fiscal second quarter ended July 29, 2023, Target Corp. reported:

• Total sales declined to $24.38 billion. That’s down 4.9% from $25.65 billion in Q2 2022.
• Target digital sales declined 10.5% year over year. They represented 16.9% of total sales in Q2 this year, down from 17.9% last year.

For the fiscal first half ended July 29, 2023, Target reported:

• Total sales declined to $49.33 billion. That’s down 2.3% from $50.48 billion in first half of 2022.
• Target digital sales declined 7.0%  year over year. They represented 17.2% of total sales in the first half this year, down from 18.1% last year.

Percentage changes may not align exactly with dollar figures due to rounding.

Check back for more earnings reports. See Target’s previous earnings release story here.

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