Target Hits The Bull's Eye With Q4 Earnings Results

Some of its biggest peers such as Macy's Inc M and Best Buy Co Inc BBY came out with improved fourth-quarter sales and profit outlook as a tiny bit of normalcy begins to return to consumer spending, but now it's Target Corporation's TGT turn in the spotlight. Earnings topped estimates as sales rose 21%, boosted by a surge of post-holiday shoppers that cashed in stimulus checks during an unusually strong period for the industry as a government report revealed sales increased 5.3% in January. As of Monday's close, Target shares have risen nearly 81% over the past year, bringing the company's market value to $93.19 billion.

Q4

For the fiscal fourth-quarter ending on January 30^th, revenue rose 21% to $28.34 billion from $23.4 billion last year, higher than analysts' expectations of $27.48 billion. Comparable sales, a key metric that tracks sales at stores open at least 13 months and online, went up 20.5% compared to the prior year as digital comparable sales rose by 118% YoY. After strong holiday sales, online sales gained even more momentum as Americans cashed in their $600 stimulus checks in January. As impressive as they are, both metrics show a deceleration in terms of growth rates versus the third quarter. In mid-January, Target reported that sales grew 17% during the holidays, which is a slight slowdown from the third quarter's 21% spike, but it is still a lot better compared to the 9% that Walmart Inc WMT experienced.

See also: How to Invest Your $1,400 Stimulus Check

Profit margin was 26.80% and the operating margin amounted to 6.50%. Net income rose 66% to $1.38 billion, or $2.73 per share, increasing from last year's quarter $834 million or $1.63 per share. Excluding items, Target earned $2.67 per share, exceeding Refinitiv's average expectation of $2.54.

New Customers And More Purchases

Target has attracted new customers and inspired more purchases with its e-commerce offerings and wide range of merchandise, from cereal to workout pants, as competitors like Kohl's Corporation KSS were forced to temporarily close stores due to the pandemic. Citing internal and third-party research, Target estimates it gained about $9 billion in market share during the fiscal year. Customers shopped more frequently with Target and bought more when they did during the holiday quarter thanks to its e-commerce offerings and wide range of merchandise.

A Variety Of Approaches To Shopping

By offering different multiple channels, Target is strengthening customer loyalty. Same-day services saw sales grow by 212% and curbside pickup service sales grew by more than 500% during the quarter. On average, customers who shop both in stores and online spend nearly four times more than those who shop only in stores and nearly ten times more than those who only shop online.

Fiscal 2020

2020 sales grew by more than $15 billion which is greater than Target's combined sales growth of the last 11 years. Comparable sales grew 19.3%, reflecting a 7.2% growth in store comparable sales, and a 145% growth in digital comparable sales.

Target's 2020 stock price rally is largely owed to improved margins. While the competitive holiday season usually pressures this figure, this wasn't so much of an issue this year as shoppers happily paid the full price for more convenient and faster fulfillment options, including premium merchandise.

Another quarter in which Target hit the bull's eye is in the books ended a record year which is not a pandemic-related blip but the payoff of its long-term business strategy. Record growth in 2020 was a result of many years of investment to build a durable, scalable, and sustainable business model that enabled the big-box retailer to capitalize on the opportunity that was provided by the pandemic.

Outlook

Target remains extra cautious in the face of continued uncertainty as the pandemic has made it too difficult to predict consumer patterns. No sales or EPS guidance for fiscal 2021 was provided. Although shoppers are still cautious, Target is also seeing hopeful consumers who are looking forward to a post-pandemic life, expecting to see shoppers browsing aisles and returning to buying items such as apparel for work or going out as well as new luggage. To find a way to hold on to customer's wallets after vaccines kick in, the big-box retailer plans to invest about $4 billion per year over the next several years to open new stores, upgrade existing ones and enhance its ability to quickly fulfill online orders.

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