- Heading into the holiday season, Target looks unstoppable as it continues posting banner sales growth and expansion in its omnichannel services.
- The retailer reported third-quarter comparable sales growth of 20.7%, driven by growth in both store traffic (up 4.5%) and ticket size (up 15.6%).
- Digital comp sales increased 155%, with sales in Target's same-day channels (Order Pick Up, Drive Up and Shipt) growing 217% in Q3. Target's top-line sales for the quarter were up 21.3% year-over-year to $22.3 billion.
Target isn't just growing; it's eating other retailers' lunch. On a call with analysts, CEO Brian Cornell said his company made "meaningful share gains across every one of our core categories as guests increasingly rely on Target to reliably and safely serve their wants and needs."
Moreover, while the retailer grew, and operated in a volatile pandemic environment, Target added to its bottom line. Its operating income nearly doubled year-over-year, coming to $1.9 billion in Q3, and net earnings grew by 41.9%.
In emailed comments, Moody's retail analyst Charlie O'Shea said that "[p]ast and continuing strategic investments are paying off in a big way, which combined with Target's superior execution resulted in significantly improved operating margin." He added that, "Target has built up sufficient margin cushion such that it can absorb the meaningful levels of promotions which will be necessary to compete effectively with the likes of Walmart and Amazon."
Indeed, Target posted stronger growth in Q3 than its larger peer, Walmart, which posted strong but slowing sales gains for the quarter. Notably, while Walmart relied on growing ticket values to make up for traffic declines — a beneficial byproduct for mass merchants as consumers consolidate trips in the pandemic era — Target saw both ticket value and traffic growth during the same period.
Telsey Advisory Group analysts led by Joseph Feldman attributed Target's sales and share growth to "the success of its omni-channel strategies, loyal customer base, and superior execution."
"Longer term, we believe Target is well positioned to continue to gain market share, supported by ongoing strategies— price investments, private brands, remodels, small format stores (opened 29 stores in 2020 YTD), fulfillment/supply chain enhancements, loyalty programs, and Target+ marketplace — and retail consolidation," the analysts said in an emailed note.
Target's growth in the quarter, however, did slow compared to the retailer's blowout Q2, noted GlobalData Retail Managing Director Neil Saunders. He pointed to the end of federal economic stimulus for households; the back-to-school and Halloween seasons, which Saunders described as "muted affairs" amid the pandemic; and to the full reopening of retail stores across the country.
Saunders noted the importance of Target's rising traffic. "This is a testament to the strength of Target's offer and, in the case of physical destinations, the pleasantness of its stores," he said, adding that his firm's data shows 34% of Americans said they visited Target during the pandemic to browse and to get out of the house — the highest percentage in retail.
Cornell noted that Target's customers are concerned about store safety with COVID-19 continuing its spread. To that end, the retailer has undertaken numerous safety measures, and recently added digital features to encourage contactless shopping and discourage crowds and lines. "We are committed to being the safest place to shop," he said.
Going into the holiday season, executives said on the call that Target has expanded its gifting assortment and unveiled its largest-ever list of hot toys, along with merchandising partnerships such as that with toy brand FAO Schwarz. Cornell said that customers have "reacted very positively" to Target's efforts to pull Black Friday discounts earlier into the season as well as to closing for Thanksgiving.
Saunders said that "Target will be one of the winners" of the holiday retail blitz. "All our surveys show it is one of the top gifting destinations and is also performing well for holiday home décor," he said. "In essence, all the fundamentals are aligned for Target to do well."