Target Corp. could reach $100 billion in sales this year as the Minneapolis retailer continues to grow faster than it did before the pandemic, according to quarterly results the company reported Wednesday.
Target could become Minnesota's third company in the $100 billion sales club
The Minneapolis-based retailer continues to grow faster than it did before the pandemic. Its board authorized $15 billion in share buybacks even at record-high prices.
August 18, 2021 at 8:19PM
Sales grew 8.9% in May, June and July, which is the second quarter of Target's fiscal year, on top of record growth of more than 24% during the same time last year.
More people returned to shopping in stores at the beginning of the summer, and back-to-school shopping has been healthy, Target executives said.
"Our theme for this quarter was growth on top of growth," Brian Cornell, the company's chief executive, said in a call with analysts. "But you should expect that theme to continue going forward."
Same-store sales grew 8.7% as store visits and digital sales rose 10% while traffic overall rose nearly 13%. Target's profit rose 7.4%.
"Traffic has been very consistent and it's been consistently strong and we're very excited about the early momentum in back-to-school and back-to-college as well," said Christina Hennington, Target's chief growth officer.
The company's board decided to begin a new share-repurchase effort, even with Target shares trading at record highs and nearly twice as expensive as a year ago. It agreed to $15 billion in share repurchases that will start after the company finishes the current share purchase authorization, which still had $1.8 billion to go at the end of the quarter.
The company paused stock buybacks in spring 2020 when the pandemic spawned economic uncertainty, and resumed them later in the year. Target bought about $1.5 billion worth of its shares in this latest quarter.
The new share repurchase plan "reflects our confidence in the sustained, strong performance of our business," chief financial officer Michael Fiddelke said.
Target beat Wall Street earnings expectations with total revenue of $25.2 billion. It earned $1.82 billion, or $3.65 a diluted share, which beat the Zacks consensus estimate of $3.48. A year ago, Target earned $1.69 billion, or $3.35 a diluted share.
Target's stock fell about 3% Wednesday to $247.58 a share after closing at a high around $264 a week ago.
Though Target has done a good job lapping record quarters from last year, the level of high growth will likely not be sustainable as the spending power of consumers begins to normalize, said Brian Yarbrough, an analyst at Edward Jones.
"There have been a couple things going on with the consumer that have been a positive tailwind … that will not be a positive tailwind as we move throughout 2021 and into 2022," Yarbrough said. "Number one, you had the government stimulus and that kind of dried up, and all of a sudden the government started sending out these child tax credit checks."
This back-to-school season will also be an outlier because of pent-up demand for items like children's clothes that weren't bought last year when school was mostly digital, he said.
Apparel has rebounded since the beginning of the pandemic, with customers snatching up swimwear, kidswear and young contemporary clothing to lead product categories with double-digit growth. It was followed by food and beverage that had low double-digit growth.
Target said sales of its own brands, which it calls "owned brands," grew in the midteens. This week Target launched a pet food brand called Kindfull. "Our commitment is to continue to accelerate our owned brands at a faster rate than our base," Hennington said.
As part of plans to spend $4 billion a year on initiatives such as opening small and midsize stores and store remodels, Target opened two new "flow centers," which send small shipments to stores more frequently, in the quarter. More than 100 full-store remodels are also underway and 19 new stores have opened.
For the second half of the year, Target leadership expects high single-digit percentage growth in comparable sales, which is near the high end of the guidance range it estimated in the first quarter.
With $48.7 billion in sales through the first half of its fiscal year, Target could surpass $100 billion for the full year if it has strong back-to-school and holiday seasons. Last year, full-year sales amounted to $92.4 billion. Only two other Minnesota-based companies — UnitedHealth and Cargill — have surpassed the $100 billion annual revenue threshold.
The delta variant of COVID-19 added more uncertainty to what the second half of the year will look like for retailers.
"We continue to see a very optimistic consumer that's certainly shopping with caution, and they're wearing masks more and more across the country, but we're seeing tremendous resilience in the consumer today, and our traffic patterns I think represent that," Cornell said.
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