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Target stock dives as retailer reveals new $4 billion spending spree

Brian Sozzi
·Editor-at-Large
·3-min read
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Target (TGT) is slamming its foot on the accelerator to position its business for the post COVID-19 pandemic spending environment. Investors think Target needs to settle down just a touch, however.

The discounter said Tuesday at its investor day it will spend $4 billion annually the next several years to invest in various initiatives. The amount is a material step up from the $2.7 billion Target spent on capital expenditures in 2020, and the $3 billion spent in 2019.

Target's spending spree is mostly focused on accelerating new store growth to 30 to 40 stores annually from 30 new openings in 2020. It will remodel 150 stores this year, and then push that to 200 remodels a year thereafter. The company plans to open five merchandise sortation centers this year, which will serve as hubs to help speed up deliveries to customers ordering more online.

"The bold investments planned for the next few years are designed to scale key capabilities across stores, fulfillment, and supply chain to drive deeper engagement with new and loyal guests, continued market share gains, and long-term, profitable growth," said Target CFO Michael Fiddelke.

Target shares fell close to 5% on the news.

The retailer has a history of surprising investors with spending plans on its investor day.

Back on Feb. 28, 2017, Target said it would spend $7 billion over a three-year span to upgrade its stores and on other initiatives. The stock crashed 12.2% as the amount caught the Street by surprise. The sell-off marked a record one-day plunge for the retailer at the time.

A Target employee returns shopping carts from the parking lot, in Omaha, Neb., Tuesday, June 16, 2020. American shoppers ramped up their spending on store purchases by a record 17.7% from April to May, delivering a dose of energy for retailers that have been reeling since the coronavirus shut down businesses, flattened the economy and paralyzed consumers during the previous two months. (AP Photo/Nati Harnik)
A Target employee returns shopping carts from the parking lot, in Omaha, Neb., Tuesday, June 16, 2020. American shoppers ramped up their spending on store purchases by a record 17.7% from April to May, delivering a dose of energy for retailers that have been reeling since the coronavirus shut down businesses, flattened the economy and paralyzed consumers during the previous two months. (AP Photo/Nati Harnik)

An argument could be made that Target was ultimately proven right by investing that much.

The company saw its total sales surge 19.8% to $93.6 billion last year as the retailer became among the go-to places to shop during the pandemic. Target has gained high marks with pandemic-weary shoppers for its same-day pickup services, expanded food and cosmetics assortments and same-day delivery via Shipt (which it owns).

Target shares have gained 209% since that Feb. 28 sell-off.

One source on the Street tells Yahoo Finance it makes sense for Target to step on the gas with investment spending, even if the market doesn't like it in the short-term.

"When you are leading vs. lagging on omni-channel [shopping], press the accelerator," the source said.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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