Retail

Target CEO Brian Cornell says the winners and losers in retail are emerging

Key Points
  • Target's first-quarter earnings top Wall Street estimates.
  • Target shares are climbing.
  • "I think what you are just seeing is — you're seeing the emergence of winners who have been investing in their business that are adapting to this new omni-channel environment," CEO Brian Cornell says.
Brian Cornell, CEO of Target
Ashlee Espinal | CNBC

Target's CEO thinks the retail industry is shaking out to show clear winners and losers.

And Target, reporting first-quarter earnings results Wednesday morning that trounced analysts' estimates, despite a slew of dismal reports from department store chains a day earlier, would be declared a "winner."

"I think what you are just seeing is — you're seeing the emergence of winners who have been investing in their business, that are adapting to this new omnichannel environment," CEO Brian Cornell told analysts during a post-earnings conference call. "And unfortunately, those that are ceding share ... have not been able to invest and evolve to the new consumer environment."

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Target shares soared more than 9% Wednesday, on the heels of the retailer's upbeat results. Its stock is up over 8% so far this year, bringing its market cap to roughly $39.8 billion.

The big-box chain has poured money into adding more delivery options — including a same-day service for a flat $7 fee in certain metro areas like New York, and curbside pickup across 1,250 locations — launching in-house brands in categories ranging from apparel to cleaning supplies, and both remodeling existing stores and opening small-format shops. Target opened seven small-format locations during the latest quarter.

"If we turn to the overall retail environment, we're seeing a very consistent and healthy environment across the U.S.," Cornell said. "I think what we're seeing right now is the bifurcation of winners and losers, and I think our performance now speaks for itself. We're on eight consecutive quarters of growing [same-store sales]."

Rival Walmart also recently delivered strong first-quarter results. Its shares were climbing about 0.5% Wednesday morning, having jumped about 8.5% so far this year.

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It's U.S. department store chains, however, that seem to be ceding market share, as they've been called out for taking too long to make investments in their bricks-and-mortar stores and websites, with Amazon's presence looming. Conversely, Target and Walmart both have had more success growing awareness around their in-house brands, giving shoppers enough reason to seek them out.

When shoppers can just buy make-up and sneakers as easily — if not more easier — at places like Nike and Sephora today, they have less of a reason to take a trip to a department store at the mall.

"We are seeing those [retailers] that are closing stores ... fighting to get to the next quarter," Cornell added during a call with members of the media. That's as there's still a "very healthy consumer environment" across the country, he said, "certainly benefiting retailers like Target."

This is reflected in how department store stocks are trading. Kohl's shares are down about 10% over the past 12 months, while J.C. Penney shares have fallen 55%, Macy's shares are down 35%, and Nordstrom's stock has dropped roughly 25% from a year ago. The S&P 500 Retail ETF (XRT) has fallen just about 7% over the same period of time.

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