As the first-quarter financial results roll in, America’s retail giants are once again split among winners and losers.

The discount retailer will open 124 shops in Canada this financial year

Target is again in the winners’ enclosure, even though it remains in the early stages of implementing its turnaround strategy.

Target’s first-quarter performance is all the more remarkable when compared with its top competitor, Walmart, which recorded a 7% drop in profit in the period and has experienced substantial management turnover, struggled to reinvent the core business and jumpstart sales.

In the first quarter, Target’s sales increased 2.8% to $17.12bn, topping analyst estimates. Although sales growth slowed from the 3.8% pace set in Q4, growth in transactions (a proxy for traffic) and basket size contributed to a better-than-expected increase of 2.3%.

The sales data showed the focus on hero categories implemented by new boss Brian Cornell is working. The so-called signature categories – style, baby, kids and wellness – all generated comparable sales more than double the rate of the business average.

Digital sales rise

Target’s digital sales increased 37.8% in the quarter, contributing 0.8 percentage points to comparable sales growth.

Target has become engulfed in the shipping wars after it decided to halve its free shipping threshold from $50 to $25. This will have the same result as a price war in that it’s a race to the bottom.

As yet, Target has not responded to Walmart’s latest salvo, the introduction of an Amazon Prime-like shipping programme for a $50 annual fee. We suspect a similar initiative may be in the offing.

The lower threshold for free shipping has driven a “substantial increase” in conversions.

Likewise, Target’s iteration of the Amazon’s Subscribe and Save programme also is experiencing strong growth. Subscriptions increased 32% from quarter four to quarter one, and the active subscriber base was up 20% in the first quarter.

However, the strong performance in the first quarter didn’t extend to the food category. Cornell recently unveiled the much-anticipated strategy to reinvent its food department that will include more organic, natural, gluten-free and local foods.

Large FMCG suppliers have reportedly been advised that the retailer will invest less in promoting their goods in favour of fresher and healthier foods.

Following several new hires and extensive layoffs, Target’s management team appears to be functioning well and we are confident about the team’s ability to execute on the strategy set out earlier this year.

Still, many are looking even further ahead to the retailer’s nascent personalisation and localisation efforts, which were barely mentioned in the earnings call.