The big-box retailer reported one of its strongest quarters yet, with profits surging about 81 percent year-over-year, causing the stock to close up 12.67 percent to $154.25 a share on Wednesday.
“Our second-quarter comparable sales growth of 24.3 percent is the strongest we have ever reported, which is a true testament to the resilience of our team and the durability of our business model,” Brian Cornell, chairman and chief executive officer of the Target Corp., said in a statement. “Our stores were the key to this unprecedented growth, with in-store comp sales growing 10.9 percent and stores enabling more than three quarters of Target’s digital sales, which rose nearly 200 percent. We also generated outstanding profitability in the quarter, even as we made significant investments in pay and benefits for our team.
“We remain steadfast in our focus on investing in a safe and convenient shopping experience for our guests and their trust has resulted in market share gains of $5 billion in the first six months of the year,” Cornell continued. “With our differentiated merchandising assortment, a comprehensive set of convenient fulfillment options, a strong balance sheet and our deeply dedicated team, we are well-equipped to navigate the ongoing challenges of the pandemic and continue to grow profitably in the years ahead.”
For the three-month period ending Aug. 1, Target’s total revenues were $22.6 billion, compared with $18.1 billion last year. The company earned $1.7 billion in profits, up from $938 million a year ago.
“Target’s Q2 performance obliterated the bull’s-eye, with every line item vastly exceeding our expectations, resulting in first-half performance actually improving from 2019 despite Q1’s very rocky start,” Moody’s retail analyst Charlie O’Shea wrote in a note. “All in all, Q2 performance results in significant improvement to Target’s credit profile, both over Q1 2020 and Q2 2019 and we expect favorable results to continue for the balance of 2020.”
Deemed an essential retailer, Target was able to remain open during the pandemic and subsequent lockdown Stateside. Even so, many consumers, fearful of getting sick, turned to online shopping earlier this year, causing profits to suffer. That’s because the sudden surge in e-commerce orders was proving to be expensive and many of the items purchased at target.com were low-margin categories, such as food and essentials.
But Target’s growing pains seem to be dissipating. During the most recent quarter, stores fulfilled more than 90 percent of sales.
“The real star of our performance was the performance we saw in-stores where our store comps were up 10.9 percent despite an environment where we’ve seen unprecedented digital shopping,” Cornell told analysts on Wednesday morning’s conference call. He added that in-store traffic began to rebound in April and has accelerated each month since.
But same-day services — including BOPIS, drive-up and shipping services — also had impressive gains during the quarter, growing a combined 273 percent year-over-year. Out of those services, drive-up had the biggest increase, rising 734 percent, followed by Target Shipt, up 350 percent, and a 60-percent increase of in-store pick-ups.
And as it turns out, same-day options — which are growing faster than Target’s overall digital business — are cheaper to fill than traditional e-commerce orders, according to John Mulligan, executive vice president and chief operating officer of Target.
“Our most recent data indicates that a multichannel guest spends four times as much as a store-only guest and 10 times as much as a digital-only guest,” Mulligan said on the call. “Our research also continues to validate that after a guest tries drive-up for the first time, we see a nearly 30 percent increase in their overall spending, including an increase in their conventional store shopping. It’s particularly notable that this increase in store shopping is occurring despite the unusual environment in which consumers are minimizing time spent in public places.”
Comparable digital sales increased 195 percent during the quarter, helping secure 10 million new digital guests in the first half of the year.
Even apparel was making a comeback: A 20 percent dip in the first quarter rebounded with double-digit growth during the second quarter.
“It was only in January that we launched our new activewear brand, All in Motion, and the timing couldn’t have been better,” Cornell said. “As guests across the country have moved to working from home, they’ve embraced the quality, comfort and value provided by this new brand, driving sales well beyond our original expectations.”
Meanwhile, the Minneapolis-based retailer continues to invest in both its workforce and retail fleet. On July 5, all hourly associates in the U.S. were guaranteed a $15 minimum hourly rate. Target, which currently has about 1,900 stores nationwide, is also on track to open 27 new brick-and-mortar locations this year, nine this month.
The company ended the quarter with $7.2 billion in cash and equivalents and $14.1 billion in long-term debt. The company is not providing forward-looking guidance, but Cornell said he expects the back-to-school and holiday-shopping seasons to be longer than in previous years as consumers adjust to a new normal.
Target’s shares are up nearly 50 percent year-over-year.