Target again the star of DH show - Dayton Hudson

Discount Store News, June 3, 1996 by Richard Halverson

MINNEAPOLIS -- Dayton Hudson chairman & ceo Bob Ulrich had an ideal lead-in for the company's annual meeting May 26: the company's just-released first quarter report showed a strong gain in net income to 49 cents a share, up from 10 cents in the same period in'95.

Target lead the parade with a sizzling 9% gain in comp store sales. Its operating income rose 37% to $133 million from $97 million the year before.

"Overall, we're looking forward to a strong increase in earnings for the full year. Target's strong first quarter results underscore its success," Ulrich told shareholders. "One reason is that we've intensified our focus this year on expense reduction," totaling $170 million.

Target will generate an operating profit margin of 5% in 1996, boosted by 4% to 6% comp store sales gains for the year, cfo Doug Scovanner predicted after the meeting.

Ulrich emphasized the 47% gain in corporate operating profits for the first quarter of $200 million. Target accounted for $133 million of that.

DH now has begun quarterly reporting of operating profits by division in order to

meet the needs of large investors for more information, Scovanner said. In the past, DH has withheld those specifics to avoid giving information to the competition.

Ulrich glossed over the department store results, saying simply that they met company plan. Total department store sales were flat for the first quarter, comps dipped 1% and operating income declined to $28 million from $38 million a year ago.

The department store division has set a goal of reclaiming its "heritage as fine department stores" and regaining its position as a fashion leader, Ulrich said. DH will open two department stores in ,96, one of them the first Dayton's to open in 20 years, set for Minneapolis. The Mervyn's division, which enjoyed a strong first quarter, will open five new stores this year.

Overall, the department store division will expand its assortment of better merchandise, introduce more unique items, reduce promotional sales and improve customer service, Ulrich said.

That requires investment, he said, and the decline in first quarter operating income was planned.

"Dayton Hudson team members across the corporation have worked hard during the past two years to create a faster and more flexible organization," he said. "We have rid ourselves of the cumbersome barriers and boundaries that have made us slow. And today we are taking advantage of the best each division can offer."

Target's strategy for ,96 will be to match the competition on price, Ulrich said, while continuing to differentiate itself from "other discounters by being better on trends, merchandise quality, store ambiance and customer service."

Target will remain committed to the commodity businesses that add convenience to consumers, Ulrich said. Target is making no plans to change is basic mix of one-third apparel, one-third soft home and accessories (including CE) and one-third hard lines. Nor is it considering introducing into its discount stores some of the merchandising concepts it's testing in SuperTargets, such as floral shops, banks and optical services.

In other news:

* Ulrich confirmed reports that Target is scouting sites in Philadelphia, New Jersey and the Long Island section of metro New York City for openings within two or three years. Most will be newly built stores, he said, but Target is also looking into "a couple of existing opportunities" in New Jersey and on Long Island.

* The cost-cutting underway at Target and the other two divisions are behind the scenes at headquarters and will be invisible to customers, he said. They include consolidation of regional operations at headquarters, cutting marketing and advertising production expenses and renegotiating ocean freight tariff reductions.

* Ulrich described the recent buyout offer from JCPenney as "grossly inadequate" and said no other offers have been proposed.

* Shareholders voted to reelect four existing board members to another three-year term: Livo DeSimone, chairman and ceo of 3M; Roger Enrico, ceo of Pepsico; William George, ceo of Medtronic; and James Johnson chairman and ceo of the Federal National Mortgage Association.

RELATED ARTICLE: Target completes first SuperT conversion

MINNEAPOLIS--Target disclosed late last month that this past March it opened its fourth SuperTarget. The previously unannounced unit, which opened without fanfare, marks the company's first experience in converting a pre-existing discount store into the supercenter format.

Located in Mason City, Iowa, the 160,000-sq.-ft. SuperT was formerly a 100,OOO-sq.-ft. Greatland store. Target plans no more such conversations, said spokeswoman Carolyn Brookter. Four more SuperTs are officially slated to open this year, all in Utah.

"Target president Ken Woodrow emphasized that the concept is still very much a large-scale test and seemed to indicate that the company is not yet completely sold on the supercenter format.

"The supercenter isn't a winner for everyone," he said. "We're working hard on margin and expense formulas. It'll be a while before we have a strategy that can be rolled out. We're running the grocery business ourselves. It's a very large-scale learning process."