MINNEAPOLIS, United States — 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 percent from a year earlier, the retailer said Wednesday in a statement. That’s almost double the estimate of 11.6 percent growth from Consensus Metrix, although down from 24.3 percent in the second quarter. Profit and gross margin also exceeded estimates compiled by Bloomberg.
The results were “exceptionally strong,” Chuck Grom, an analyst with Gordon Haskett, said in a note. “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 Brian Cornell said that 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 during a call with media. “With all that time at home, guests are cooking more and replacing home decor.”
The shares rose 2.8 percent to $167.64 at 9:44 am in New York, reaching new all-time highs. Target climbed 27 percent this year through Tuesday.
Echoing what fellow big-box retailers Walmart Inc. and Home Depot Inc. reported on Tuesday, Target said customers are buying more when they’re shopping with basket size up 15.6 percent 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 ended October 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 percent 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 centres for its booming digital business to better fulfil online orders. The company also remains bullish on its small-format store strategy, and says 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.
As the critically important holiday period hits the US, 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 fulfil.”
Target still isn’t back to it’s 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 on the earnings call.
By Leslie Patton.