Target has excellent quarter due to online orders amid pandemic
The retailer’s shares jumped about 12% to a record high after it trounced estimates for quarterly profit and revenue
Bengaluru/New York — Target reported its best quarterly, comparable sales growth and online revenue on Wednesday, which nearly tripled as customers took advantage of the retailer’s quick and contact-free delivery to shop for clothes, video games and home décor.
Shares of the Minneapolis-based retailer jumped about 12% to a record high of $153.77 in morning trading after it handily trounced estimates for quarterly profit and revenue.
The surging demand seen at big-box chains at the height of the lockdown caused by the coronavirus pandemic has continued into the second quarter, even as restrictions ease, with some US shoppers using their stimulus cheques to shop for bigger-ticket, non-essentials, such as tablets and beauty products.
“The biggest change we saw from quarter one to quarter two ... was the exceptional growth in in-store shopping in an environment in which many Americans were turning to digital to fulfil their needs,” CEO Brian Cornell told reporters.
While foot traffic at Target stores rose 4.6%, Walmart said on Tuesday that it saw a 14% decline.
On the whole, shoppers are also generally shopping less frequently but purchasing more in one trip to the store.
“Target’s digital offer is working in tandem with its fleet of 1,900 stores and shows that the multi-channel mojo is a strategic positive in the battle against Amazon and Walmart,” Evercore analyst Greg Melich said.
In the second quarter ended August 1, Target’s apparel sales grew by double digits after a 20% first-quarter drop, with electronics sales up more than 70%.
The retailer also echoed bigger rival Walmart, as well as department store chain Kohl’s, in describing the start to the back-to-school season as slow because of uncertainty around when students would go back to classrooms. In response, it will extend back-to-school offerings, it said.
Cornell added that even as the effect of government support has waned, sales remained strong in June and July with August off to a “solid start”, recording low double-digit growth.
“As we move into quarter four we can expect a hard-fought election and a holiday season that, like so much of this year, is likely to be unprecedented,” Cornell said.
Through the pandemic-ridden first half of the year, in which numerous bankruptcies occurred among traditional brick-and-mortar retailers including JCPenney and Neiman Marcus, Target said it won about $5bn in market share across categories.
The group’s comparable sales, which include online and store sales, jumped 24.3% in the quarter, handily beating expectations of an 8.2% increase, according to IBES data from Refinitiv.
Comparable digital sales surged 195%, driven largely by the success of Target’s same-day services, such as in-store pick up, Drive Up and Shipt, which grew 273% in the quarter.
“Target’s second-quarter performance obliterated the bullseye, with every line item vastly exceeding our expectations,” Moody’s retail analyst Charlie O’Shea said.
Target said that nearly 90% of its online orders were fulfilled through stores, another sign investments in swifter delivery and remodeling stores were paying off.
Target’s net earnings jumped 80.3% to $1.69bn, with adjusted earnings per share of $3.38, well ahead of analysts’ $1.62 forecast. Total revenue rose about 25% to $22.98bn, also topping expectations of $20.87bn.
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