Target shoppers continue to flock to stores even as other retailers are just beginning to reopen their doors and vaccines continue to roll out across the nation.
The Minneapolis-based big-box retailer revealed quarterly earnings Wednesday morning, improving across all channels and logging more than $2 billion in profits during the last three months. The company’s stock jumped 6.49 percent Wednesday to $219.82 a share as a result.
“Our stores were the star of the show this quarter, with Q1 comp-store sales increasing by 18 percent, fueled almost entirely by traffic as guests ventured out more often,” Brian Cornell, chairman and chief executive officer of Target Corp., told reporters during a media call Tuesday evening. “Our stores also served as fulfillment hubs for our advancing digital sales, which grew 50 percent this quarter, on top of landmark 2020 growth.
“Importantly, market-share gains of more than $1 billion in the first quarter, on top of $1 billion in share gains a year ago, demonstrate Target’s continued relevance with our guests, even as they have many more shopping options compared with a year ago,” he added. “Our performance in the first quarter was outstanding on every measure and showcased the power of putting our stores at the center of our strategy.”
And as consumers continued to visit Target’s 1,909 stores around the country, same-day services — which include buy online, pick up in stores, drive-up and Target’s delivery service Shipt — also continued to rise, up more than 90 percent during the quarter. Drive-up services had the biggest growth, up 123 percent during the quarter, year-over-year.
In addition, Cornell said Target used its stores to fulfill the majority of its digital orders.
“In fact, this quarter alone, our stores accounted for over 95 percent of our total sales,” he said on the media call. “We’ve been investing in our stores as hubs and it served our guests well throughout the last few years. And upstream, we’re actually going to be adding capacity to make sure we can replenish the store requirements each and every day, as we continue to see strong growth in our system. We think we’ve made the right investments and we’ll continue to invest in stores as hubs. And upstream, you’ll actually see us add some more capacity to the growth in our overall business.”
That includes investing roughly $4 billion annually over the next several years to continue scaling the business, plans which Target revealed in March.
These are plans that seem feasible, given Target’s success over the last year. Most recently, the company’s total revenues topped $24.1 billion for the three-month period ending May 1, up from $19.6 billion a year earlier.
First quarter comparable sales grew 22.9 percent during the quarter, with store comparable sales up 18 percent, year-over-year. Digital comparable sales also continued to grow, up 50 percent in the last three month, compared with a year earlier. That’s on top of the 141 percent growth during 2020’s first quarter.
Target logged $2.09 billion in profits during the quarter as a result, compared with $284 million the same time last year.
“We continue to like how [Target] is positioned among big-box retailers with its more discretionary product mix and stronger operating margins, which should help it better navigate cost pressures,” Garrett Nelson, equity analyst at CFRA Research, wrote in a note.
By category, Cornell said there was comp sales growth in apparel, home and hardlines during the quarter.
“With five distinct core categories in our assortment, we’re able to minimize the risk of large fluctuations in one category,” he said. “As we saw with apparel, moving from a temporary dip of 20 percent [at the start of the pandemic] to comp growth in the low 60 percent rate in the span of one year, while capitalizing on trends that are driving guest spending.”
In the most recent quarter, apparel sales rose 60 percent, thanks to a mix of Target’s own brands — 10 of which have surpassed the billion-dollar annual sales mark, including activewear brand All in Motion and kids apparel brand Cat & Jack — and partnership with national brands, such as Levi’s Red Tab products, New Zealand beauty brand Monday Haircare, Thinx period panties, Priyanka Chopra’s new hair care brand Anomaly and Disney, which opened about a dozen shops-in-shop in select markets in late 2019.
Target has also collaborated with brands and designers such as Hunter, Lilly Pulitzer, Zac Posen, Anna Sui, Missoni, Phillip Lim, Rodarte, Jason Wu and LoveShackFancy for its design partnership program. In April, the retailer tapped Christopher John Rogers, Alexis and Rixo for its 2021 Designer Dress Collection.
“Within apparel, not surprisingly, guests are venturing out and about more,” Michael Fiddelke, Target’s chief financial officer and executive vice president, said on the media call. “Some of the categories that go along with being out and about, like denim and so on, saw some real pickup in the first quarter. Parts of beauty, similar themes there as well. So you can see some of the guests’ preferences [have] changed. We see the guests responding to newness anywhere it exists all over our assortment.
“We’re equally excited about some of those [national brand] partnerships, partnerships with Levi’s, Apple,” he continued. “We’re excited to open the first 100 Ulta [Beauty] stores with our stores later this summer. We know that when we get that curated assortment right across our own brands and national brands that the guests will turn to Target with their share of wallet and you see that preference show up.”
Target ended the quarter with approximately $7.8 billion in cash and cash equivalents and $11.5 billion in long-term debt. The retailer also said earlier this month that it is updating its in-store mask policies, now relying on an honor system for vaccinations.
“Based on the CDC recommendation, we’ll no longer require guests [who] have been vaccinated and team members to wear face coverings when they’re in our stores,” Cornell said. “We’ll certainly alter that based on local direction. But, we’re going to continue to follow the science.”
Although the company expects some headwinds from higher mark-down rates, it also expects current quarter comparable sales growth in the mid-to-high single digits, as well as positive single-digit comparable sales growth in the back half of the year. Target is anticipating a full-year operating margin rate to be above 2020’s rate of 7 percent.
“Given the trust we’ve built with our guests quarter after quarter and our commitment to adjusting along with them to the ongoing shifts in the macro environment, we’re confident in continued comp growth in the second quarter and through the remainder of the year, as well as a healthy full-year operating margin rate,” Cornell said.
Target’s stock is up nearly 84 percent, year-over-year.