Target Corp. might be one of retail’s best-positioned companies, able to stay open during the coronavirus crisis, but it’s still getting walloped as the company spends more to support its employees and consumers rush to spend more on low-margin essentials and pass by the fashion offering.
That’s forced the company to write down the value of its fashion inventory.
Investors pushed shares of Target down 2.7 percent to $103.97 in midday trading on Wall Street on Thursday. Still, the company is largely open for business, which is more than many can say in retail.
Brian Cornell, chairman and chief executive officer of Target, said the company was seeing “record-setting digital growth” and “strong demand for our same-day fulfillment services.”
“While this crisis will certainly put near-term pressure on our profitability, that pressure is far outweighed by doing right by our team and our guests,” the ceo said. “We’re confident the actions we’re taking today will drive growth and greater guest affinity over the long-term.”
So far in the first quarter, Target’s comparable sales are up more than 7 percent, with a slight decline at stores and better than 100 percent growth online. The essentials and food and beverage category comped up by more than 20 percent, but apparel and accessories declined by more than 20 percent.
For March, comps in essentials and food and beverage increased 40 percent while apparel and accessories fell by more than 30 percent.
Trends in early April were similar to late March, but started to improve after mid-month. So far this month, Target’s comps increased more than 5 percent with web sales up over 275 percent and apparel and accessories down more than 40 percent.
Charlie O’Shea, lead Target analyst at Moody’s Investors Service, said, “The mix of sales, specifically the significant softness in apparel, indicates that consumers, once they decide to go to the store or hit the website, are focused on efficiency and ‘needs vs wants’ as necessities are driving the significant increase in comp store sales, as well as the explosive growth online.”
While Target’s essentials business is up strongly, it’s come at additional risks for its employees and costs for the company.
Cornell said Target’s improved wages and benefits would be extended through May 30. The retailer is paying workers an extra $2 an hour and also providing backup care for employees and a 30-day paid leave for employees who are 65 or older, pregnant or who have underlying medical conditions.
This all comes on top of the $300 million Target has already put into wages, bonuses, paid leave and benefits for its frontline team members.
“We have deep gratitude for the remarkable effort our team has put into supporting guests across the country,” Cornell said. “We remain committed to prioritizing our efforts to provide for their well-being so they can take care of themselves and their families during this unprecedented time.”
Seth Sigman, a stock analyst at Credit Suisse, said the spending would ultimately help Target build its business, even it is currently weighing on the bottom line.
“We view the current margin pressure as an investment, one that is driving new customer acquisition, market share gains, and serving the customer during a time of need,” Sigman said. “We get the negative argument here – best of sales with declining profitability. Yet, the payback will be significant over time.”