Target sees biggest sales jump in 15 years, but profits take a big hit

©Star Tribune (Minneapolis)

Target's sales have taken a huge jump during the pandemic, though its overall profits are down. - Jerry Holt/Minneapolis Star Tribune/TNS

MINNEAPOLIS — Target saw its biggest quarterly sales jump in 15 years as the pandemic spurred millions of consumers to order items online and to use its curbside pickup service for the first time.

The pandemic also took a bigger-than-expected toll on its profits as sales of higher-margin apparel declined 20% and it had to write down mountains of unsold clothing as consumers dramatically shifted spending to groceries and household supplies.

But CEO Brian Cornell said the Minneapolis-based retailer saw a big uptick in apparel sales in mid-April as consumers received stimulus checks.

“Apparel certainly bounced back in the latter half of April,” he said on a call with reporters. “And we expect we’ll continue to see strength in apparel as we go into the second quarter and beyond.”

Target also said it spent about $500 million in the quarter on a temporary $2-an-hour pay increase for its frontline workers, which it has extended until July 4, and other pandemic-related benefits as well as on safety measures such as more rigorous cleanings of stores and face masks for employees.

Those factors, along with the huge spike in online sales, which are less profitable, led to a 64.3% drop in net earnings to $284 million. When adjusted for one-time losses, Target earned 59 cents a share, which was less than the 68 cents analysts had forecast.

After an extremely “volatile” and “stressful” first quarter, Cornell said Target will have to be flexible and ready to adjust on a weekly basis as consumer shopping behaviors will continue to be unpredictable the rest of the year.

“There’s just so much uncertainty as I think about the balance of the year,” he said. “We’re still trying to figure out if children are going back to school, what’s going to happen with colleges and universities, how is the guest is going to celebrate different holidays.”

Target’s 10.8% spike in comparable sales from February to April comes on the heels of strong sales reported by other companies such as Walmart and Amazon. But it also magnified the chasm between these “essential” retailers that remained open during the pandemic and the department stores and clothing stores that saw massive sales declines as they had to shutter stores and consumers put discretionary purchases on hold.

The pandemic has already pushed several struggling retailers including JCPenney, Neiman Marcus, J. Crew, and Stage Stores into bankruptcy. Analysts expect more to follow. Overall U.S. retail sales in April plunged 16.4%, the largest drop ever recorded.

Most of Target’s growth in the quarter came from online, including its DriveUp and delivery through Shipt services. Digital sales soared 141%.

Target said it fulfilled a higher online order volume on many days in April than it did on last year’s Cyber Monday.

Five million customers used Target.com for the first time in the quarter, said Cornell. And two million used its DriveUp service for the first time.

While Target said in March that it was putting planes on hold to add fresh groceries to its DriveUp and order pickup services because of the pandemic, Cornell said the company is putting plans back in place to roll that out this year.

Target, which earlier withdrew its full-year guidance given the uncertainty amid the pandemic, did not provide a forecast for the second quarter.

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©2020 Star Tribune (Minneapolis)