Retailers

Target Comp Sales Up 20.5% in Q4, Powered by 118% Digital Growth

Stores fulfilled 95% of sales in 2020 as retailer doubles down on store-fulfillment model
Target store exterior
Photograph courtesy of Target

Target comparable-store sales grew 20.5% in fourth-quarter 2020 and 19.3% for the fiscal year ending Jan. 30, driven by continued robust digital sales, the Minneapolis-based retail reported. 

Across all stores, including those open less than a year, Target recorded $92.4 billion in sales in fiscal 2020, up 19.8% from $77.1 billion in fiscal 2019. That more-than-$15 billion in sales growth exceeds the company's total sales growth in the previous 11 years, Target noted in a news release.

Adjusted earnings per share of $2.67 beat analysts' estimates of about $2.54 per share. 

Target leadership credited store teams' agility and the retailer's commitment to a stores-as-fulfillment centers model with managing triple-digit percentage growth in online sales during the year while keeping fulfillment costs in check. In Target's fourth quarter, digital comp sales were up 118% year over year; that follows a year-over-year increase of 155% in the third quarter

"We've built a business model that is working as intended," Target Chairman and CEO Brian Cornell said in an presentation. Bucking some other large retailers' moves to focus on building new fulfillmentcenters to handle growing digital traffic, Target will double down on store-based fulfillment—95% of orders were fulfilled by stores in 2020, Target executives noted. And if a given store nears its fulfillment capacity, CFO Michael Fiddelke said, Target would prefer to seize on nearby real-estate opportunities and open an additional store rather than turn to an alternative fulfillment option.

"Everything's cheaper when it comes from the store," Fiddelke said. 

Target does plan to open two new distribution centers in 2021: one in Chicago's Little Village neighborhood and another in New Jersey. Two additional distribution centers, one on each coast, are planned for 2022. On the stores front, Cornell noted the strong growth potential the company sees in its small-format stores and said Target plans to open 30 to 40 of these smaller-footprint stores a year for the next several years (29 opened in 2020).  

Growth in same-day services—up 212% in the fourth quarter, including a 500% year-over-year increase in Drive Up sales (matching Drive Up growth in the third quarter)—was helped in part by an expanded assortment of fresh, refrigerated and frozen items available for pickup, the company noted.

Continuing to expand that assortment of foods and beverages offered for in-store or Drive Up pickup is a valuable way to deepen engagement with guests, said Fiddelke. One significant development on the same-day pickup front: Later this year, same-day pickup of adult beverages is expected to expand to more than 800 stores.   

Target customers who try Drive Up spend about 30% more than they did before, including on groceries and other household essentials. Fiddelke said. And same-day services overall, whether picked up by customers or delivered via Shipt, "drive guest affinity," he added. 

Ensuring that in-store and online shopping experiences are easy, convenient and enjoyable helps drive multichannel loyalty, executives emphasized. Fiddelke noted that multichannel customers spend four times more than store-only customers and 10 times more than digital-only customers.   

While the company declined to provide specific financial guidance for 2021, Fiddelke said Target expects to see "moderate dollar growth" in 2021, with an operating margin rate somewhere between the 6% recorded in 2019 and the 7% recorded in 2020. The actual rate is likely to be at the lower end of that range, Fiddelke added.

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