Target sees plenty of uncertainty ahead
American retailers are discovering that the coronavirus consumer is a tough nut to crack.
Target Corp. chief executive Brian Cornell admitted as much Wednesday, making clear that he can’t get a read on ever- changing shopping patterns amid the pandemic.
“There’s so much uncertainty, we don’t have that crystal ball,” he said on a call with reporters. “It’s really hard to gauge the mindset of the American consumer.”
That confusion sent Target’s shares see- sawing on Wednesday, as investors tried to balance the retailer’s best comparable sales growth in 15 years with weakening profitability as more of its sales are coming from lower-margin food and household essentials, rather than the cheap-chic apparel and home decor it’s famous for.
Gross margins narrowed in the first quarter to 25.1 per cent, missing the average analyst estimate and well below the 29.6 per cent turned in the same quarter a year ago. Other discounters like Walmart Inc. face the same concerns, but apparel makes up a bigger slice of Target’s total revenue than it does for Walmart.
Cornell said sales of apparel declined about 20 per cent in the quarter, but improved after mid- April once Americans received government stimulus cheques. Still, it’s not clear how long that temporary stimulus boost will last — a point that was also stressed by Walmart Chief Financial Officer Brett Biggs when his company reported its results Tuesday.
“It’s hard to parse out what is stimulus and what is not,” Biggs said in an interview. “How long that lasts is a variable that no one knows for sure.”
Target fell as much as 2.8 per cent in New York trading.
Overall, Target’s online comparable sales jumped 141 per cent, benefiting from investments in same-day delivery services such as in- store pick up, Drive-up and Shipt, and accounted for almost all of its same- store sales growth for the first quarter ended May 2.
Net profit, however, fell 64.3 per cent in the quarter as operating costs rose 11 per cent.
Target, which has already pulled its financial targets for the year, is setting aside nearly US$ 500 million to spend on maintaining safety standards at stores and pay employees higher wages.
Despite the uncertainty, both Walmart and Target are faring better than most retailers not named Amazon. com Inc. Sales are robust and they both have plenty of cash to invest in new initiatives, such as Walmart’s recent move to merge its two shopping apps into one so that customers ordering groceries on their smartphone are encouraged to grab some higher-margin items as well.
Target, meanwhile, is adding fresh food to its drivethru order pickup service, which it had to postpone to cope with the surge in demand for household staples when the virus hit the U. S. Rival Walmart offers free curbside grocery pickup at 3,600 locations, which has been key to its success of late in battling Amazon.
“In this volatile retail environment, we are encouraged to see Target managing its business by focusing on sales, customers, and associates, although we would have hoped for better profitability,” Telsey Advisory Group analyst Joe Feldman said in a research note.