Purpose (TGT) Q3 2021 to hit a revenue

Target stocks fell Wednesday as the big box retailer chose to emphasize its focus on value as prices of food, fuel and other goods rise.

The stock lost more than 5% early Wednesday, although earnings expectations for the third quarter of the fiscal year were exceeded.

Brian Cornell, CEO of Target, said on the phone with reporters that the company is paying some of the higher costs instead of passing them on to customers. This strategy could depress margins.

“We protect prices,” he said. “It is just as important to our guests this year as safety during the entire pandemic.”

Christina Hennington, Target’s Chief Growth Officer, admitted pressure on the retailer’s margins as the company tries to move inventory quickly despite challenges in the supply chain. She described this as “a reasonable long-term investment in our guest relationship”.

Sees higher Christmas sales

Target beat analysts’ projections when sales rose 13% after shoppers bought Halloween costumes, stocked up on school supplies and started looking for Christmas gifts early.

It also raised its forecast for the fourth quarter, forecasting that like-for-like sales could soar between high single-digit and low double-digit pace during the holiday season. Previously, it estimated a high single-digit increase.

Compared to Refinitiv’s consensus estimates, Target reported the following for the third fiscal quarter ended October 30:

  • Earnings per share: $ 3.03 adjusted versus $ 2.83 expected
  • Revenue: $ 25.65 billion versus $ 24.78 billion

Net income rose to $ 1.49 billion, or $ 3.04 per share, from $ 1.01 billion, or $ 2.01 per share last year. Without items, the retailer made $ 3.03 per share, more than the $ 2.83 per share that Refinitiv polled analysts had expected.

Total revenue rose 13% year over year to $ 25.65 billion, slightly above analysts’ expectations of $ 24.78 billion.

Comparable sales for the third quarter rose 12.7% as shoppers walked into Target stores and visited the website more frequently. That exceeded the 8.2% increase expected by analysts, according to a StreetAccount survey.

The strongest month of the quarter for Target was August, when parents and students bought pencils, notebooks and more in preparation for a return to personal learning, CFO Michael Fiddelke said on the call. Comparable sales dropped to about 10% in September and accelerated back to the low teens in October, he said.

In-store like-for-like sales increased 9.7% while digital like-for-like sales increased 29%. (These key figures rose by 9.9% and 155% respectively in the same quarter of the previous year.)

Target said revenue from its same-day services – which include Roadside Pickup, Drive Up, In-Store Order Pickup, and Shipt Home Delivery – grew nearly 60% in the quarter. That is a growth of more than 200% in the same period of the previous year.

In preparing for vacation shoppers, Chief Operating Officer John Mulligan said the company is making long-term investments to prepare for a surge in demand and to adapt to new consumer shopping opportunities.

Target processes almost all online orders through its stores, including those that are called up in the parking lot and delivered to customers’ homes. More than 95% of sales in the third quarter were realized in its branches.

Mulligan said on the conference call that the retailer is expanding storage capacity in more than 200 high volume stores, adding temporary storage space to support seasonal peaks, and doubling the number of roadside pick-up spaces compared to last year. It also identifies parking spaces with numbers so that employees can place online orders in customers’ cars more quickly.

“Key moments of the season”

Cornell said sales were strong year-round but were “interrupted” at key seasonal moments. He said he expected this pattern to play out again during the holidays when consumers shop for toys, decorations and groceries.

Target is ready for the holidays, Cornell said. He explained that the retailer had got creative to make sure items get to stores and warehouses on time despite clogged ports. It has contracted some of its own ships, unloading about 60% of its containers off-peak, and shipping more of its goods to less-frequented ports in Georgia, Virginia or the Pacific Northwest.

This has resulted in inventory increases by nearly 20%, or $ 2 billion, year over year, he said.

Hennington said Target has new attractions that will attract shoppers. It has opened additional Disney and Apple stores in its stores. Plus, she said, it now plays beauty – a popular vacation category – with around 100 Ulta Beauty in Target stores in its stores and on its website. Also, a limited-time collection of Lego with colorful hoodies, housewares and more will be launched in early December.

Target launched its first vacation offers at the beginning of October and has agreed to price adjustments for early bookers. He said the company is expanding its operations by hiring 100,000 seasonal workers, filling 30,000 new positions in the supply chain, and giving current employees about 5 million additional hours.

“The holiday season has started well, but we have many weeks ahead of us and we think we will continue to see that strength during the holiday season through to Christmas Eve,” said Cornell.

At the close of trading on Tuesday, Target’s shares were up about 51% this year. The stock closed at $ 266.39 on Tuesday, bringing the retailer’s market value to $ 130.01 billion.

Read the company’s press release here.

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