Target (NYSE:TGT) reported first-quarter financial results on Wednesday. The transcript from the company's first-quarter earnings call has been provided below.

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Summary

Target Corp reported a strong first quarter with a 5.6% comp growth driven by increased traffic and strategic changes in offerings.

The company is focused on extensive product and category resets, with significant changes planned for 2026, marking the largest shift in over a decade.

Target Corp is enhancing inventory reliability, utilizing AI for demand forecasting, and opening new facilities to improve product availability.

Partnerships and limited-time offerings, such as collaborations with Roller Rabbit and Pokemon, have been successful in boosting traffic and brand engagement.

The company maintains an optimistic outlook, raising its EPS guidance to the high end of the range, emphasizing sustainable growth and margin expansion.

Full Transcript

Kara

Yeah. And I might just layer on as we think about the areas that we've touched so far. We've continued to see momentum in our Fund 101 business, which we've talked about, which really started last year. As we think about a business like toys, the resets that we've done so far this year, adding in newness to Food and beverage, adding space and new items to our wellness and health categories, adding newness to beauty as well as the changes that I talked about, baby. We, we're really pleased with what we're seeing as we think about the quarter ahead. We are focusing on continuing to execute well and driving some of the bigger changes. So right now as we speak, we are resetting our dry grocery area. It's our largest reset that we've had in this area in over a decade. We're pleased with what we're seeing but we're really right in the middle of it. And then we are in the beginning of our transformation in home. And so later this quarter we're going to add in really our threshold shop in shops in about 200 stores and start to really the beginning of that transformation when we think about our decorative accessories category. And then I would just have to also highlight really excited for the launch of the Target Beauty Studio. So the team is a multi month process to get ready for that reset. But we are heads down and really excited about what's to come. Great, thank you.

OPERATOR

Thank you. Our next question comes from Kate McShane with Goldman Sachs. Your line is open.

Kate McShane (Equity Analyst)

Hi, good morning. Thanks for taking our question. We wanted to ask a few questions around inventory. Thanks for the commentary so far. But we were wondering if you could speak specifically about in stocks and product availability on the shelf, how this is being addressed, what improvements have been made and how, how it's being measured.

Lisa

Yes. So as you mentioned in stocks are absolutely critical to our guest experience. And we have not been where we need to be, but we are making solid progress. We talked about how our in stocks improved year over year. One thing we are excited about is that the fastest improvement that we saw were in our most important items, the top items that our guests are shopping most frequently with Target. So think categories like food, essentials and beauty. And then we continue to invest to improve that further. And that investment spans how we are approaching intelligence, our team, our facilities and data. And so we are working to use AI to improve our demand forecasting, which helps reduce some of the volatility that can lead to some of those in stack issues. We talked about the team investment. We're really excited to have Jeff be joining the team with his breadth of experience across the industry. And then facilities. We shared a couple of new facility openings. One is our Colorado food distribution center. And so when you think about that investment in fresh food, again, that leads to better in stocks, better freshness in some of those most important, most frequently shopped categories. We also recently announced the opening of a new receive center in Houston. And what we like about that is that it gives us the flexibility to hold more long lead time, import seasonal inventory upstream, and then distribute that closer to the time when the guest needs. It's just one more lever that gives us the opportunity to have products where our guest needs it when they are looking for it. And so we've been able to couple that with the strong inventory position that Michael mentioned. We feel really good about being healthy and investing where we need to be investing for in stock. Thank you.

OPERATOR

Thank you. Our next question comes from Simeon Gutman with Morgan Stanley. Your line is open.

Simeon Gutman (Equity Analyst)

Hey, good morning, everyone. I think if I heard right, Kara mentioned 40% of merchandise will be revamped or is it reset or changed? Can you talk about what percentage of the overall merchandising overhaul is underway in Q1? What percentage will be by the end of the year and then if there's any into 2027?

Jim

Sure. And Simeon, to your point. Yeah, SG and A was higher. It was up 7% in Q1. That's indicative of the investments that we had outlined during the financial community meeting. So there's no, no surprises. We're making the right investments to drive sustainable long term growth. And I'll emphasize it is early in the year, we are one quarter down. There's still a lot of work ahead of us. So we've guided and flowed through the upside you saw in Q1 EPS to sort of the high end of the range that we provided earlier. And we'll continue to update as we go along. But it is early in the quarter. I mean, our recognition is we have more work to do through the balance of the year. And to Michael's point, driving sustainable growth is so critical for us. Getting productivity on a continuous basis and then having top line growth that drives leverage will fuel our margin expansion over time. Thank you.

OPERATOR

Thank you. Our next question comes from Rupesh Parikh with Oppenheimer. Your line is open.

Rupesh Parikh (Equity Analyst)

Good morning and thanks for taking my question. So just going back to the partnerships. A lot of success during Q1. Just curious how you feel about the lineup of partnerships as the year progresses and then any sense of whether these partnerships have led to a new customer acquisition. Thank you.

Kara

Yeah, I would just layer on. As we talked about at financial community meeting, we have had a ton of success over decades with our partnerships and we are working on increasing the cadence and not all of them have to be large and some can be small and drop. So as you think about what we did in Q1, really leaning into a couple of really fun, socially driven brands like park and like Roller Rabbit were really exciting. Then you think about Pokemon and what we did there. No other retailer is thinking about multi category and Pop Tarts to starter jackets to Caboodles. Really thinking about the power of fandom. We actually had one other line drop which was our K Pop BTS launch as well. So we actually had four launches in Q1 where we drew lines out of our store. So what we are working on is consistency. Those always on traffic driving, buzzworthy moments And I think Q1 is a great indication of what you can expect from us moving forward. Great, thank you.

Rupesh Parikh (Equity Analyst)

Then my follow up question, just on beauty, a lot of momentum in the quarter. It looks like the spring resets are going well. As you launch that beauty studio, what are you seeing so far from vendor interest? How is that progressing versus expectations?

OPERATOR

Thank you. Our next question comes from Michael Lesser with ubs. Your line is open.

Michael Lesser

Good morning. Thank you so much for taking my question. I think we're all trying to figure out how much of the first quarter performance was due to the action that Target has taken versus exogenous variables like tax refunds. So if we look at your first quarter performance at a 5.6% comp versus what your guidance implies for the rest of the year, it suggests around a 1% comp. Admittedly, you just flowed through the first quarter outperformance, but still, should we take the difference between those two 5.6 versus one is what you think was maybe some unique factors to the first quarter. And alternatively, maybe another way to get at this is you have great data. How much are you seeing longer lost guests come back? And that would be a sign that maybe some of the boycotts are diminishing and guests are giving you another shot. Thank you very much,

OPERATOR

Operator, I think we have time for one more question.

Chris Horvis (Equity Analyst)

Thank you. Our last question comes from Chris Horvis with JP Morgan. Your line is open.

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