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Target CEO Brian Cornell Explains Q4 Earnings Results, Q1 Outlook

First On CNBC: CNBC Transcript: Target CEO Brian Cornell Speaks with CNBC’s Becky Quick & CNBC’s Courtney Reagan Today

Target CEO Brian Cornell
Image source: CNBC Video Screenshot

WHEN: Today, Tuesday, March 5, 2019

WHERE: CNBC’s “Squawk Box

The following is the unofficial transcript of a FIRST ON CNBC interview with Target CEO Brian Cornell and CNBC’s Becky Quick & CNBC’s Courtney Reagan on CNBC’s “Squawk Box” (M-F 6AM – 9AM) today, Tuesday, March 5th. The following is a link to video of the interview on CNBC.com:

Target CEO Brian Cornell Explains Q4 Earnings Results, Q1 Outlook

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BECKY QUICK: Welcome back everybody. Target CEO Brian Cornell made a bold call right here on "Squawk Box" last summer that he was seeing the healthiest consumer environment in years – I think you said in your career, didn’t you? The healthiest consumer—

BRIAN CORNELL: One of the healthiest in years.

BECKY QUICK: One of the healthiest in years. Let’s see where things stand today. The company just out with fourth quarter results and results for the full year. Also guidance for the current quarter and the current full year. Cornell’s going to be facing some questions from Wall Street analysts today, but first he joins us right now. Brian Cornell is Target’s Chairman and CEO. Courtney Reagan is also here. She covers retailers for us, and has been watching this very closely as well. Brian, thanks for being here today.

BRIAN CORNELL: Good morning.

BECKY QUICK: Let’s talk first about the numbers. You came out with numbers better than expected. 153 versus the 152 the street was looking for. Revenue a little better than expected. Comps were better than expected. And it was the guidance for the full year that I think a lot of people are watching now too. You’re saying for the full year, $5.75 to $6.05 versus the street’s expectations of $5.61. And the stock is up pretty sharply on all of this news. What’s happening in the company right now?

BRIAN CORNELL: Well, I think we’re building on the plan we put in place two years ago. And I think you see that in our 2018 results. We talked about the fourth quarter being our best fourth quarter in over a decade, and it builds on a strong year. So, 5% comps for the full year. Really strong market share growth across all of our categories. We continue to see great performance from both a store standpoint and a digital standpoint. And I think that’s the important message: both parts of our business performing well. In the fourth quarter, stores grew almost 3%. Digital is up over 30%. And we took market share over all of our categories. So, a really good year for the team, but we expect 2019 to be even better. And that was part of our guidance today.

BECKY QUICK: You are meeting with Wall Street analysts right after here.

BRIAN CORNELL: Yes, we are.

BECKY QUICK: And it was almost two years ago today that you were meeting with those analysts and they did not like what they heard. You were talking about reinvesting in the stores, spending a lot to try to catch up in terms of distribution and competing with the likes of an amazon. What do you think the reception will be today? Is this a little bit of a victory lap?

BRIAN CORNELL: Well, we don’t take victory laps, but I think today will be proof the strategy we put in place is working. That the guest is responding well. That the investments in stores are driving store comps that again in the fourth quarter were the strongest we’ve seen in years. Our new small formats in places like New York being well received. The investments in our own brands are driving market share gains in many important categories. But I think importantly the investments we made in fulfillment are connecting with the consumer. They’re taking advantage of ordering online and picking up in store. They’re driving into our parking lots. There are ship shoppers now taking advantage of same-day delivery. So, all of those elements are coming together. And we talked about this a few months ago our goal is to make Target America’s easiest place to shop, and I think that’s starting to happen. So we feel great about the progress, the investments we made in our stores, our brands, and importantly our team have paid off, and I think we saw that in our full year 2018 results. But more importantly, the guidance for next year, where we said, this is going to continue. We’ll deliver, you know, low single digit comps in 2019. Operating income, which everyone is focused on, we said you’re going to see margin stability and operating income will grow in the mid-single digits, and at the same time high single digit EPS growth in 2019. So all the key measures are coming together. It’s taken some time but those investments we made are now delivering really good returns for our investors.

COURTNEY REAGAN: Brian, for the holiday, which is November, December—

BRIAN CORNELL: Yes.

COURTNEY REAGAN: --Comps were up 5.7%. 5.3% for the full quarter with January. We know that’s not a holiday month, there’s a calendar shift in there, but in general, are you seeing any cadence change in the likes of traffic or sales? Are you seeing any weakness? Because those government numbers really throw a lot of us for a loop in December, and then we’ve heard from other retailers that January’s been a little spotty, too.

BRIAN CORNELL: Courtney, in Q4, traffic grew by 4.5%. So, that overall comp increase of 5.3%, it was driven by traffic. You know, more guests in our stores, visiting our sites. And we saw consistent performance in November, December, and again in January. And it was a few weeks ago when we announced our 5.7% results for November, December, we guided to a 5% comp for the full quarter. Well, we delivered a 5.3%. And that was just continued strength traffic growth in January across all of our major businesses.

BECKY QUICK: So, if this summer you were saying it was some of the healthiest consumer environment you had ever seen in your career, how would you gauge things now? How would you judge it?

BRIAN CORNELL: I think it’s still a very stable consumer environment. Consumers are shopping. You’re seeing strong consumer confidence still. And our outlook for next year is that we’ll see consistent results across 2019. So, certainly we’re going to watch it carefully, and it’s going to ebb and flow, but right now I think we’re seeing a pretty consistent consumer environment. And that’s certainly showed up in our January results.

COURTNEY REAGAN: Can you give a preview of what you’re going to tell the street today about the forward plan for Target? I’m know I’m very curious in Target Plus. The idea of a marketplace on Target.com, but a little different than the market places we’re seeing from a Walmart or an Amazon because you’re selecting the different brands and fulfillment could be a little different from the other players.

BRIAN CORNELL: Courtney, here’s the big headlines for today: The strategy that’s been in place from the last couple of years will continue into 2019. Will continue to invest in stores and remodel over 300 stores. We’ll continue to open up new small formats, in urban centers and on college campuses. We’ll invest in our brands. We’ll continue to scale and mature our fulfillment capabilities. And we’ll continue to invest in our team. And the results will be even better in 2019 than they were in 2018. So no major changes. We’ll continue to execute our plans, continue to scale and build a very durable financial model that’s going to be sustainable for years to come.

BECKY QUICK: Let’s talk about the operating margins. Because there were some estimates on the street that were higher than you came in with. You came in with 4.9% which is consistent with what you’ve seen the year before. I had seen some estimates as high as 5.4%. What was it that pressured some of the margins?

BRIAN CORNELL: Well, one, Becky, we’ve got the challenge of a 53rd week versus a 52nd week. There are some changes there. If you actually normalize the numbers, we feel good about operating income performance in the fourth quarter. And that will continue into 2019. So we feel like we’re on a path to stabilize operating income mar margins, continue to see operating income dollars grow. And all of the investments we’re making are going to start to scale and will get leveraged against that in 2019.

BECKY QUICK: You’re talking about the investments in terms of delivery at home from the website or people picking up in the stores, those investments that you’ve made?

BRIAN CORNELL: Absolutely. And you know, we look at full fulfillment as our friend. The investments we’re making in drive-up and pick-up. One, the consumer really prefers that. It’s really reliable. It’s easy. It’s convenient. And it’s more profitable for us. So, as we see that shift, and we saw that during the fourth quarter, and you’ve heard that from other retailers, order online, pick up in store, and maturing our drive-up capabilities. Well, one, it’s preferred by the consumer, but importantly for us, it’s more profitable. So that’s really going to help our margins going forward.

BECKY QUICK: People are watching your margins, not only for the fulfillment capabilities but also because you hired 12,000 part-time employees which is more than any other retailer for the holidays. And you’ve announced your plans to move towards $15 minimum wage. Has that had any impact on your operating margins?

BRIAN CORNELL: You know, one, we hired over 120,000 seasonal team members in the fourth quarter. And I know there was some question about could we did that, and we did. And I think that investment we made in wage has made us an employer of choice. So, we’re seeing a great reaction to our offering, we’re great response from team members -- they recognize we’re investing in their futures. And we’re getting great responses from communities across the country because they know we’re going to invest in our team.

COURTNEY REAGAN: You know, Brian, I have a question about tariffs. I know previously before you had said that you were able to sort of use our levers in other categories. So if there was pressure in tariff in one category, you could balance it out in another area. If we end up rolling back tariffs as the U.S. and China go through these negotiations, could that be even better for Target or have you already balanced that out so we’re not going to see material difference in the end?

BRIAN CORNELL: Yeah. Obviously, Courtney, we’re all watching it really carefully. And it seems like it ebbs and flows every day. Certainly, right now we’re hoping there’s going to be certainly a change in the tariff discussion and those will be minimized going forward. And if there is, that gives an opportunity to continue to invest in our business going forward.

BECKY QUICK: Alright. Brian, want to thank you for your time today.

BRIAN CORNELL: You bet. It’s great to be here. Thank you.

BECKY QUICK: It’s great to see you. Brian Cornell, again, the CEO of Target who’s going to be speaking with the street in just about an hour and a half.