Target (TGT) Q1 2021 profit beats estimates, sales jump by 23%

Target said Wednesday that sales rose 23% in its fiscal first quarter as investments in exclusive brands and services like curbside pickup have strengthened customer loyalty and kept them coming back.

The retailer also said it is benefiting from rising vaccination rates, a reopening of the economy and busier social calendars: Shoppers have been drawn to new goods, particularly clothing. Some returned to browse the stores.

“We’re seeing a much more optimistic consumer looking forward to returning to the life they haven’t been living for the last year,” CEO Brian Cornell said in an interview with CNBC’s “Squawk Box.”

Buoyed by that confidence, Target provided guidance for the second quarter that came in well ahead of Wall Street’s expectations, despite difficult year-over-year comparisons.

Other retailers, including Walmart, Home Depot, and Macy’s, also released surprisingly strong first-quarter results. Firms have attributed sales gains in part to stimulus checks leaving customers with more cash in their pockets. Walmart and Macy’s said customers buy items like luggage and teeth whiteners when they travel and party again. But they haven’t stopped investing in their homes just yet, which was a trend that started last year.

However, Target had unique advantages prior to the pandemic that kept its business afloat during the health crisis. It fulfills almost all of its online orders in stores, which improved the company’s profits. It has launched and expanded numerous own brands that set it apart from its competitors. And it’s been ahead of other retailers in raising employee wages, which has staved off a labor shortage and kept stores clean.

Shares hit a 52-week high of $219.82 on Wednesday. They ended the day up about 6% to $219.01.

Here’s what Target reported for the fiscal first quarter ended May 1, compared to Refinitiv’s consensus estimates:

  • Earnings per share: $3.69 adjusted versus $2.25 exp
  • Revenue: $24.20 billion versus $21.81 billion expected

Net income increased to $2.1 billion, or $4.17 per share, from $284 million, or 56 cents a share, in the prior year. Excluding items, the retailer earned $3.69 per share, more than the $2.25 per share expected by analysts polled by Refinitiv.

The more than seven-fold year-over-year increase in net income was driven by several factors. In the early days of the pandemic, Target saw profits plummet and labor costs soar as customers skipped high-margin goods like apparel and accessories and employees took on new responsibilities, from extra store cleaning to picking online orders.

Shoppers are spending more on apparel and home goods again, and Target has increased its own private label sales.

Total revenue rose 23% from the year-ago period to $24.2 billion, beating analysts’ expectations of $21.81 billion.

gain market share

The retailer said it continued to attract new customers and enticed them to spend more. It said it lost weight $1 billion market share for the three-month period, adding to approximately $9 billion market share last fiscal year. It cites internal and external research.

At Target’s stores and website, traffic grew 17% and basket size grew 5% in the three months compared to a year ago.

Comparable sales, a key metric that captures sales in stores open 13 months or more and online, rose 22.9% year over year. That was significantly higher than the 10.7% analysts were expecting in a StreetAccount survey. Comparable store sales were up 18%, while comparable digital sales were up 50%.

Curbside and in-store pickup and home delivery have been popular options during the pandemic for safety reasons, but are still in demand for their convenience. Sales through same-day services increased more than 90% for the three-month period, led by a 123% growth in drive-up sales. In-store pickup sales were up 52%, while sales through Shipt were up 86%.

Apparel was Target’s top-performing merchandise category during the quarter, with sales up more than 60% from the year-ago period. Hardlines, a category that includes items like consumer electronics and sports equipment, grew at the high end of 30% and home sales grew at the mid-range of 30%. Sales of beauty products rose by a high teens percentage. Food and beverages and staple foods — two categories that were particularly strong at the height of the pandemic — posted low- to mid-single-digit growth.

Apparel’s strength was partly due to its weakness a year earlier, when shoppers focused on stocking up on groceries and cleaning supplies rather than buying a new outfit.

A key part of Target’s strategy was to offer products that are unique to its stores. In February, Target announced that its activewear brand, All in Motion, was its latest private label, which grossed $1 billion. In the first quarter, private label sales rose 36% year-over-year – the biggest jump in the company’s history.

Ready to party

Cornell evoked other bright spots: He said Mother’s Day inspired buying and was one of the strongest in years. He expects customers to show a similar enthusiasm as they prepare for summer vacations like Memorial Day and as they prepare to return to classrooms or college campuses.

The discounter shared guidance for modest growth for the fiscal year, though it faced difficult year-to-year comparisons due to unusually high sales during the pandemic. The company expects comparable sales to grow in the mid to high single digits for the second quarter and in the single digits for the last two quarters of the year.

Target’s chief financial officer, Michael Fiddelke, said the retailer is on track to invest about $4 billion this year to improve customer experiences and expand its store presence. Among those investments, he said it will increase its hours to ensure its stores’ shelves are stocked, open 30 to 40 new stores, remodel about 150 stores and allow customers to pick up wine or beer through curbside pickup in most of its shops.

Read the company’s press release here.

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