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Target, Best Buy See Strong Q1 Growth Amid Significant Investments Across Channels

Target, Best Buy See Strong Q1 Growth Amid Significant Investments Across Channels

Target saw its strongest quarterly store traffic growth in 10 years, to the tune of 3.7% in Q1, helping boost the retailer’s comparable store sales 3%. Digital sales jumped 28% in another indication that Target is learning how to consistently master e-Commerce.

While sales also jumped yet again, by 3.4% to $16.8 billion, Target’s continued investments in both the store and digital experience — totaling nearly $7 billion — are holding down profits. The company's Q1 gross margin rate was 29.8%, down slightly from 30% last year, and operating income was $1.04 billion in the quarter, down 9.9% from last year.

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Overall, however, the results have to be considered a success for Target — particularly when those investments include the rollout of same-day delivery platform Shipt to 700 stores, the expansion of the Target Restock next-day delivery service to 60 markets, the testing of a new distribution model and continued remodeling of stores.

Best Buy, another company making massive across-the-board investments, saw comparable store sales jump 7.1% in Q1,withtotal sales increasing 6.3% to $8.41 billion. Best Buy has poured money into improved in-store customer service, Geek Squad services, a revamped e-Commerce site, price matching and smart home services to draw shoppers to its stores and web site, but these investments have weighed on profitability.

The retailer is in the process of shutting down all 250 of its small-format mobile stores in the U.S., which contributed just over 1% of overall revenue. U.S. online comparable sales rose 12% to $1.14 billion, a much slower growth rate than the 22.5% Best Buy achieved a year ago.

Even with the store closures, the company’s continued focus on consumer-facing initiatives bodes well for Best Buy's ongoing relevance to the customer. The retailer just expanded the functionalities of its Geek Squad service by introducing the Total Tech subscription, which boasts unlimited Geek Squad support and services for $199 annually.

New Lowe’s CEO, Activist Investor Could Sway New Direction

Lowe’s also recently released its Q1 results, but the retailer’s biggest news comes from what lies ahead. The home improvement retailer named Marvin Ellison President and CEO. He will begin filling the role of retiring CEO Robert Nieblock on July 2. Ellison presently holds the CEO spot at JCPenney, but he made his name as the EVP of U.S. Stores at The Home Depot. While Ellison had the unenviable challenge of turning around a JCPenney business that had suffered greatly from the elimination of discounts, his job at Lowe’s will focus more on closing the gap between his new company and his former company.

Lowe’s also may be influenced down the line by a new activist investor. Bill Ackman and his hedge fund, Pershing Square, have recently taken a $1 billion stake in the company. Ackman is not currently seeking a board seat, and says he fully supports Ellison in the role.

In 2018, Lowe’s is focusing on making services such as flooring consultations more accessible online. Additionally, the retailer is improving its in-store pickup process, rolling out more convenient pickup parking and a dedicated space within the store with clear signage.

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