Target drives growth during Covid-19 pandemic, at the expense of rivals

Comparable sales, that of stores and digital channels operating for at least 12 months, increased by nearly 21% in the fiscal quarter ended January 30, driven by strong demand for online services, including order pick-up and delivery on the same day. For the full fiscal year, sales were $ 93.6 billion, up 20%.

“After years of investing to build a sustainable, scalable and sustainable business model, we saw record growth in 2020,” said Chief Executive Brian Cornell.

In recent years, Target has ramped up investment in online services. Rather than spend a lot of money to set up a huge network of online fulfillment warehouses, Target has used stores as hubs to ship orders online or to allow customers to pick up their orders from retail parking lots.

In the past fiscal year, about 95% of sales came from store fulfillment, including products purchased in stores and online orders fulfilled in stores, the company said. Digital comparable sales – orders online or through the Target app – more than doubled in the most recent quarter.

That model, as well as sales of products that were in high demand during the pandemic, such as home furnishings, food, and toilet paper, helped Target capture market share over the past year. Target, along with many big-box retailers, remained open in the early days of the pandemic, while department stores and clothing retailers needed to be close to shoppers. Target said Tuesday it estimates it has gained about $ 9 billion in revenue from competitors.

Target’s earnings rose last year despite an increase in Covid-19-related costs that remain high, executives said. As sales grew rapidly, “our gross margin also increased and we saw overwhelming leverage on spending,” said Michael Fiddelke, the company’s chief finance officer, during a meeting with analysts. That growth “more than offset investments in team and guest safety,” he said.

In the most recent quarter, net income was $ 1.38 billion, an increase of 66% from the same period last year. Earnings per share were $ 2.67, compared to $ 1.69 a year earlier.

Target said it plans to ramp up store remodels and other investments this year after hitting some of those operations early in the pandemic. It said it would spend about $ 4 billion a year for the next few years. Plans include remodeling 150 stores before the holidays this year and 200 a year in the coming years, as well as building about 35 new small-scale stores per year, mainly in urban areas and college campuses.

Target’s retail brands grew rapidly last year, executives said, accounting for about a third of sales and a higher percentage of gross margin.

Like other retailers who have thrived in the pandemic, the disruption made Target more reliant on e-commerce. For the full fiscal year, 18% of sales came from digital channels, up from 8.8% a year earlier. Last week Best Buy Co.

said online sales were up nearly 90% in the most recent quarter to $ 6.7 billion and accounted for 43% of total US sales, nearly double the share a year earlier.

Retailers have reported mixed results over the past year. Last week Home Depot Inc.

said revenues were up 20% in the last fiscal year as Americans spent heavily on renovating homes. Annual sales at Macy’s Inc.

fell by nearly 30% due to weak demand for outdoor clothing.

Some retailers say pandemic-induced buying trends will persist over the longer term, while other industry executives say shoppers will return to earlier patterns later this year as more people get vaccinated and start spending on eating out or traveling again.

Goalkeepers said they expect some consumer demand to pick up, such as buying clothes to wear outdoors or luggage for travel. But germ sensitivity and preference for social distance may persist in the longer term, Mr. Cornell said during a phone call with reporters.

Target said Tuesday it would not share its financial outlook for the current year, citing “the very fluid and uncertain outlook for consumer shopping patterns and the impact of Covid-19.” Many companies stopped providing financial guidance last year, citing pandemic-related uncertainty.

Write to Sarah Nassauer at [email protected]