Target Corp. built on strong prior-year growth with double-digit net and comparable sales gains in its fiscal 2021 third quarter, generating earnings per share well above Wall Street’s forecast.
For the quarter ended Oct. 30, net sales rose 13.2% to $25.29 billion from $22.34 billion billion a year earlier, when sales climbed 21.3%. Total revenue came in at $25.65 billion, up 13.3% year over year, Minneapolis-based Target said Wednesday.
Third-quarter comparable sales advanced 12.7%, including growth of 9.7% for stores and 28.9% for e-commerce, Target reported. That compared with overall comp-sales growth of 20.7% (9.9% in stores and 155% in digital channels) in the fiscal 2020 quarter.
Transaction count surged 12.9% in the 2021 quarter, up from 4.5% a year ago, but the average ticket size dipped 0.2% versus a prior-year gain of 15.6%.
“Consistent with recent quarters, traffic was the primary driver of this year’s growth, as our guests increasingly turn to Target to serve their wants and needs,” Chairman and CEO Brian Cornell told analysts in a conference call on Wednesday. “Across our sales channels, store sales were the primary growth driver this quarter, while same-day services propelled our digital growth. Since the third quarter of 2019, prior to the pandemic, Q3 store sales have expanded by $3.8 billion, while digital sales have increased another $3.1 billion. This provides a vivid demonstration of the flexibility of our operating model to serve our guests no matter how they choose to shop. All of these results reflect a level of guest engagement far beyond what many would have imagined a few years ago.”
Cornell noted that all five of Target’s core merchandise categories — apparel and accessories, beauty and household staples, food and beverages, hardlines, and home furnishings and decor — garnered more market share in the quarter with double-digit comp-sales growth, ranging from the low double digits to the mid-teens.
“While growth came from all categories, third-quarter performance was led by our essentials, beauty, and food and beverage categories, all of which delivered comp growth in the mid-teens,” said Chief Growth Officer Christina Hennington. “These businesses continue to deliver substantial share gains on top of last year’s gains, through both trip frequency and basket growth. In essentials, growth was led by baby care, pets and over-the-counter health care categories. Strength in food and beverage was most notable in our fresh and frozen categories, as well as in snacks and candy.”
Digital sales through same-day services Order Pick Up (in-store pickup), Drive Up (curbside pickup) and Shipt (home delivery) were up almost 60% in the third quarter, atop growth of 217% a year earlier, according to Target. Stores accounted for 82.4% of sales and fulfilled 96.7% of orders in the quarter, compared with 17.6% and 3.3%, respectively, from digital.
“More and more of our guests are trying and embracing our industry-leading same-day services. Third-quarter sales through these services have expanded by nearly 400%, or $2 billion, over the last two years,” Cornell said. “Through the first three quarters of the year, sales through these services have grown by more than $6 billion since 2019, a number larger than the total sales of many prominent retailers.”
Curbside pickup led same-day services sales growth, as Drive Up sales jumped more than 80% in the third quarter atop a 500% increase in the year-ago period. Order Pick Up and Shipt sales each rose over 30%. “Put another way, since 2019, sales through Drive Up have expanded more than 10 times, or about $1.4 billion, in the third quarter alone,” Chief Financial Officer Michael Fiddelke said in the call.
In addition to rolling out a new point-of-sale system across more than 90% of stores, including at checkout and customer service counters, Target is adapting stores to accommodate rising click-and-collect volume.
“To continue building on our industry-leading Store Pick Up and Drive Up experiences, we’ve been rolling out new capabilities all year,” Chief Operating Officer John Mulligan told analysts. “These efforts include capital projects to add permanent storage capacity in more than 200 high-volume stores, investing in flexible fixtures to provide temporary storage area to support seasonal peak, adding thousands of new items to the list available for [Order] Pick Up and Drive Up, doubling the number of Drive Up parking stalls compared with last year, and designating stall numbers to help our teams deliver Drive Up orders more efficiently.”
On the earnings side, Target recorded third-quarter net income of $1.49 billion, or $3.04 per diluted share, compared $1.01 billion, or $2.02 per diluted share, a year ago. Adjusted EPS came in at $3.03 per diluted share versus $2.79 per diluted share in the prior-year period.
Analysts, on average, projected Target’s third-quarter adjusted EPS at $2.83, with estimates ranging from a low of $2.29 to a high of $3.23, according to Refinitiv.
“Our third-quarter GAAP EPS of $3.04 was 52% higher than last year, when we recorded more than $500 million of interest expense on early debt retirement,” Fiddelke said. “On the adjusted EPS line, where we excluded early debt retirement expense, we earned $3.03 in the quarter, representing an 8.7% increase from a year ago. Compared with two years ago, both GAAP and adjusted EPS have increased more than 120%.”
Target totaled $2.5 billion in capital expenditures through the 2021 third quarter and expects to reach about $3.3 billion for the full year. The retailer is slated to finish about 145 remodels in 2021, including more than 40 projects completed before the end of the third quarter and another 100-plus remodels slated to wrap up before the holiday.
Also in the third quarter, Target opened 15 new stores, for a year-to-date total of 29.
“Among those projects, we’ve opened new stores ranging from 11,000 to 160,000 square feet, which demonstrates the flexibility we’ve developed to design the optimal store size for an individual neighborhood, based on their local needs and available real estate in the market,” Mulligan said. “To increase the capacity and efficiency of our supply chain, our team has also opened two new distribution centers this year. In addition, we have two new sortation centers set to open in the fourth quarter, with two more on track to open early next year.”
As of Oct. 30, Target had 1,924 stores overall, compared with 1,897 a year ago and 1,909 at the end of the 2021 second quarter. Of the retailer’s brick-and-mortar base, 1,515 stores are 50,000 to 169,999 square feet, 274 locations are 170,000 square feet or more, and 135 stores are 49,999 square feet or less. Twenty of the 27 net-new locations were small-format stores of less than 50,000 square feet.
“It’s amazing to pause and look back at how much our network needs have grown in a short time,” added Mulligan. “For the entire fiscal year in 2018, our business generated $74 billion in sales. Less than three years later, our business had already delivered $74 billion in sales through the third quarter, with the biggest quarter of the year still ahead of us. Our team and supply chain infrastructure have done an outstanding job in supporting that growth. And given that we don’t expect it to end anytime soon, we are committed to growing our physical footprint and our team so they can continue to deliver on behalf of all of our stakeholders in Q4 and beyond.”