Target's quarterly sales rise 23% as people return to shop

Target shoppers eager to venture out of their homes are beginning to flock back to stores for clothes, luggage and other items as they start to return to their normal buying habits after a year of uncertainty during the pandemic.

Consumer confidence can be seen in Target's first quarter results, released Wednesday morning. Target saw first quarter revenue grow more than 23% to $24.2 billion compared with last year, beating Wall Street expectations. Net profits grew from $284 million to $2.1 billion. Target's adjusted earnings per share reached an all-time high of $3.69, well above analysts' expectations .

"The first quarter felt like a first step towards a post-pandemic world," said CEO Brian Cornell, as he opened a Wednesday call with analysts.

Cornell told reporters in an earlier call that more consumers are beginning to "return to those normal activities, getting out of their homes, shopping in our stores, beginning to plan for celebrations." For example, recent Mother's Day sales were among Target's strongest in years.

"With vaccinations rolling out across the country and consumers increasingly comfortable venturing out, we've seen an enthusiastic return to in-store shopping," Cornell told analysts.

Target shares closed up more than 6% Wednesday.

Comparable sales grew nearly 23%, with digital sales still going strong at growth of 50% and store sales up 18% in the quarter. Cornell attributed the rise in consumer confidence to federal stimulus checks and the rising number of COVID-19 vaccines that have been distributed.

Around this time last year, Target experienced the largest increase in sales it had seen in 15 years as consumers rushed to the retailer for everyday necessities during the onset of the COVID-19 pandemic. But profits took a dip since much of what people were buying were lower-margin items like groceries.

In the quarter this year that ended May 1, Target's revenue growth was led by apparel sales that increased by about 60%, after dipping around 20% in the same quarter a year ago. Home products grew more than 30%. The hardlines category, which includes sporting goods and toys, also grew by more than 30%. Target's sales of owned brands, which includes its activewear line All in Motion and Cat & Jack children's clothing, jumped 36%, a new record for Target.

As consumers feel more safe in public spaces, demand has heightened for dresses and cosmetics as well as luggage and other products that allow customers to be active, said Christina Hennington, Target's chief growth officer.

Target continued to make market-share progress with more than $1 billion in market-share gains in the quarter. Store and digital traffic grew 17%, according to Target's numbers.

In the first quarter of 2020, Target withdrew its financial guidance because of the uncertain impact that COVID-19 could have on buyer shopping patterns. On Wednesday, the company joined many other firms in providing financial guidance again, saying it expected mid- to high-single-digit growth in comparable sales in the second quarter and positive single-digit comparable sales growth in the last two quarters of the year.

"We see a consumer that's on a macro level seeing the benefit of vaccine rollout and a strengthening economy and the benefit of federal stimulus," said Michael Fiddelke, Target's chief financial officer, in a call with media.

Edward Jones Senior Analyst Brian Yarbrough warned that Target might be "over bullish" with its predictions for the second half of the year, especially without another round of stimulus aid and with there being more competition for consumers' dollars whether from other retailers or spending on activities like travel and entertainment.

"I think we are a little bit concerned that eventually the business starts to slow," Yarbrough said.

Analysts have been concerned that Target and other big-box retailers like Walmart and Home Depot, which also posted strong sales, could be victims of their own success and not be able to keep up with the unprecedented sales they saw last year.

"The comparisons get much more difficult, and I do think as people continue to get out and do more things some of that spending is going to shift," Yarbrough said.

Retail analytics firm Placer.ai said visits to Target increased 21.7% in March and 49.5% in April compared with the same months last year. Traffic numbers also were above the same period in 2019, before the pandemic.

Ethan Chernofsky, vice president of marketing at Placer.ai, said Walmart also posted improving traffic numbers.

"What makes this recovery all the more impressive is that it is happening as behavior normalizes," Chernofsky wrote. "Essentially, Walmart and Target are so strong that they excel regardless of the situation or wider consumer behavior shifts."

The shift in the way people shop continued in the first quarter as more Target customers continued to use same-day services that don't require them to shop in stores. Overall same-day services increased more than 90% compared with last year. Drive-up, where employees bring an order out to someone's car, jumped 123% compared to this time last year when usage surged more than 600%.

This week, Target also announced it would expand its same-day pickup and drive-up to include alcoholic beverages at more than 1,200 stores across the country. By the end of the month, Shipt will offer same-day delivery of alcohol at more than 600 stores. Last year, Target piloted the adult beverage service at stores in Florida, California and South Dakota.

In another nod to the changing retail atmosphere, this week Target announced it would no longer require customers and employees who are vaccinated to wear masks in stores unless required by local law. The move by Target and other retailers came after the CDC said mask wearing by vaccinated people was not necessary in most instances.

Target also has recently introduced new brands and partnerships including a collaboration with plant enthusiast Hilton Carter to sell live and artificial plants and accessories as well as Good & Gather Plant Based, an assortment of more than 30 food products offering meat alternatives and plant-based food.

In March, as it announced its fiscal year-end report, Target said it would spend $4 billion a year on initiatives such as opening small and midsize stores and store remodels. The company said it would open 30 to 40 new stores a year and increase the number of remodels with about 150 expected to be completed this year by the holiday season.