Target’s online sales increase 29% in Q3, but rising costs impact margins

Target Corp. increased comparable digital sales by 29% year-on-year in the third quarter ended Oct. 30, following growth of 155% in the third quarter of 2020, when the raging pandemic prompted many shoppers to buy more online.

In its earnings release, Target said digital sales continued to be dominated by same-day services, including online shopping for in-store pickup, curbside pickup and its paid day delivery service. same Shipt. Same-day sales from these services increased 60% in the quarter, following growth of over 200% a year earlier.

“The two in-shop To recover and Shipping grew up Following than 30% in the trimester,Michael Fiddelke, executive vice president and chief financial officer, said during the company’s earnings call with analysts, noting that curbside sales, which Target calls Drive Up, were particularly strong. Up increased by over 80% om High of Following than 500% a year since. To put another manner, since 2019 Sales through DU sidep grew more than ten times for In regards to $ 1.4 billion in the third trimester alone.”

Target is # 6 in the 2021 Top 1000 for 360 digital commerce.

Comparable sales increased 12.7% in the third quarter, reflecting same-store sales growth of 9.7% year-over-year in physical locations, in addition to 9.9% growth last year and digital sales growth of 29%. Total revenue of $ 25.7 billion increased by 13.3% year over year, thanks to 13.2% sales growth and 22.3% increase in other income, including $ 184 million in profit sharing income under an agreement of credit card program with TD Bank.

The mass merchant has increased his forecast for the holiday season. For the fourth quarter of 2021, Target expects high single-digit to low-double-digit comparable sales growth, compared to previous forecasts of a high single-digit increase. The retailer had previously planned a single-digit expansion for the second half of the year. The company continues to expect its full year operating margin to be 8% or more.

Online sales as a share of total sales edged up to 17.6% in the third quarter, from 15.7% digital penetration in the third quarter of last year. But physical stores have played a crucial role even here. A whopping 96.7% of total sales were made by stores, whether through in-store purchases, online purchases, in-store pickup, or shipping.

The supply chain continues to push

On a negative note, Target warned it was facing increasing cost pressures, especially in the workforce and its supply chain. Gross margin, which is widely viewed by analysts as a measure of pricing power, fell to 28.0% in the third quarter from 30.6% a year earlier, due to higher costs associated with freight. and merchandise, increased inventory depletion and increased pay and staffing at the retailer’s distribution centers. Analysts expected 29.9%, based on the average of analyst estimates compiled by Bloomberg.

” We have certainly seen supply chain challenges Go all the manner To the start of the pandemic like demand in the USA keep on going To build, ”said Brian Cornell, CEO of Target, during the earnings call. “Oyou are beautiful teams have show Great agility. they have adjusted To the Marlet To Make Of course this we have summer able To meet the demand in our system, corn we not wait those supply chain challenges To go a way like we go in the start of Following year.”

Target has taken steps to alleviate the problems caused by the global supply chain crisis, including by unpacking containers in disabled-Peak hours and reroute shipments away from the congested ports of Los Angeles and Long Beach.

” There is always uncertainty like we think In regards to supply of Asia like different factories of time To time are closed, ”said Cornell.Wbefore only Go To have To spectacle Great flexibility and agility To to receive the some products this our guests are looking at for and our system requires.”

Supply chain uncertainty put pressure on Target’s pricing. But the retailer says it is working to limit the impact on buyers. “We are definitely protecting the price,” Fiddelke said during the call for the results. “We are seeing higher cost increases than our retail sales. “

Target inventory

The retailer said inventory rose 18% in the third quarter, noting that it had managed to secure enough product for the holiday season and expects to be able to meet buyers’ expectations. Industry watchers say this will prove crucial to the mass merchant’s ability to retain customer base.

“Target proves to its clients that it is attentive to their needs and preferences,” said Gregory Ng, CEO of Brooks Bell, a digital analysis and optimization consultancy. “Providing reliable inventory with limited price increase may affect their short-term margins, but the long-term effects on customer retention will be worth it. “

For its third quarter ended October 30, 2021, Target said:

  • Total sales rose 13.3% to $ 25.29 billion, from $ 22.33 billion last year.
  • Net income reached $ 1.49 billion, up 47.5% from $ 1.01 billion a year earlier.
  • Digital sales accounted for 17.6% of total sales, up from 15.7% a year earlier.

For the first nine months of 2021, Target said:

  • Total sales rose 15.8% to $ 48.71 billion, from $ 42.10 billion a year earlier.
  • Net income rose 80.8% to $ 5.40 billion, from $ 2.99 billion a year earlier.
  • Digital sales accounted for 17.7% of total sales, up from 16.1% a year earlier.

Percentage changes may not exactly add up to dollar figures due to rounding.

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David A. Albanese