Target’s sales soar ahead of crucial holiday shopping period

Target’s sales soar ahead of crucial holiday shopping period
Target reported sales are strong leading into the 2020 holiday shopping season. (Daniel Acker/Bloomberg)

Target Corp.’s third-quarter sales show that pandemic-driven shopping is still surging heading into the holidays.

Comparable sales including e-commerce, a critical gauge of success for retailers, jumped 20.7% from a year earlier, the retailer said Wednesday in a statement. That’s almost double the estimate of 11.6% growth from Consensus Metrix, although down from 24.3% in the second quarter. Profit and gross margin also exceeded estimates compiled by Bloomberg.

Target owns Birmingham-based Shipt and has more than a dozen stores in Alabama.

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The results were “exceptionally strong,” said Chuck Grom, an analyst with Gordon Haskett. “It’s clear that Target is not only gaining new customers but also retaining them, which will be critical as we move into 2021.”

Chief Executive Officer Brian Cornell said Target is capturing market share as more shoppers use the company’s website and in-store pickup options. The Minneapolis-based retailer is seeing growth in categories such as electronics, home decor, apparel, and food and beverages, and executives said they see shopping continuing right through the end of the holiday season.

“Home continues to be a focal point,” Cornell said. “With all that time at home, guests are cooking more and replacing home decor.”

The shares rose 2.8% to $167.64 at 9:44 a.m. in New York, reaching new all-time highs. Target climbed 27% this year through Tuesday.

Echoing what fellow big-box retailers Walmart and Home Depot reported on Tuesday, Target said customers are buying more when they’re shopping, with basket size up 15.6% in the quarter. Unlike Walmart and Home Depot, which reported higher spending on fewer visits, Target said store traffic actually grew in the three months ending Oct. 31.

Margins were helped by fewer price markdowns, although that was partially offset by costs related to the company’s push into e-commerce. The cost of sales, meanwhile, jumped 20% in the period – a reflection of the price that companies are paying in 2020 for protective gear and more frequent store cleanings.

Like other retailers upended by COVID-19, Target has been using its stores more as mini distribution centers for its booming digital business to better fulfill online orders. The company remains bullish on its small-format store strategy, and said during an earnings call that it has room to boost sales per square foot: The average is in the high-$300 range, but some locations do more than $500.

Target is preparing for the holiday shopping season. (Kevin Wolf/AP Images for Target)

Holiday preparations

As the critically important holiday period hits the U.S., the industry is bracing for a shopping season that looks drastically different than previous years.

Target, which will be closed on Thanksgiving Day, is relying more on e-commerce this year. Retailers have started advertisements earlier than ever to limit store crowds, while taking additional measures like limiting customers who shop in person, and adding pickup parking spots. Target began its holiday sales more than a month ago – but it doesn’t believe the drawn-out shopping season will leave December barren.

Cornell said he expects holiday sales to be strong, especially in categories like toys and electronics.

“It’s important to be able to celebrate the holidays in some way,” Cornell said. Consumers “have started to shop earlier, but they still have a very long shopping list they have to fulfill.”

Target still isn’t back to its pre-COVID inventory levels, and may face in-stock pressure as consumers continue to stock pantry shelves. As for 2021, the retailer is unable to provide a forecast. Next year “doesn’t get any clearer” because of the pandemic, Chief Financial Officer Michael Fiddelke said.

(With assistance from Matt Townsend.)

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