Target on a Strong Footing Courtesy of Digitization Efforts

The coronavirus outbreak highlighted a paradigm shift in consumer buying behavior. People are still shopping for essential items and deferring their discretionary purchases. Further, as social distancing becomes the norm of the day, retailers have been focusing on bolstering omni-channel operations and ramping up delivery services to meet customers’ needs. Target Corporation TGT being fully aware of the prevailing circumstances is well equipped to serve shoppers be it curbside pickup or delivery at home.

Target registered a sharp rise in comparable sales during first-quarter fiscal 2020, courtesy of booming digital sales as consumers shifted to online shopping amid coronavirus outbreak. Digital sales started to shoot up in the later part of the March month. The trend continued in April as well but accelerated significantly from the middle of the month. Digital comparable sales accelerated every month in the quarter, from 33% in February to 282% in April.

The company witnessed higher demand for same-day fulfillment services and market-share gains across core merchandising categories. We note that comparable sales rose 10.8% during the quarter. Impressively, comparable digital channel sales soared 141%, and added 9.9 percentage points to comparable sales. Store originated comparable sales inched up 0.9%.

Notably, the company has been deploying resources to enhance omni-channel capacities, come up with new brands and remodel or refurbish stores. It has also adopted cost reduction strategy, rationalization of supply chain with same-day delivery of in-store purchases and technology and process improvements. To sum it up, the company has been aggressively adopting strategies to enhance the shopping experience through miscellaneous channels. During first-quarter fiscal 2020, same-day fulfillment services grew 278%.

From quite some time, Target has been ramping up investments in the wake of rising competition from retailers such as Amazon AMZN, Kroger KR and Walmart WMT.

The company made significant headway in the same-day delivery race by acquiring Internet-based grocery delivery service, Shipt, to provide same-day delivery of groceries, essentials, home, electronics, toys and other products. Drive Up, an app-based service, is another initiative to expedite the shopping process. The service enables customers to place orders utilizing the Target app and have them delivered to their cars. Sales fulfilled by Shipt were up more than 300% year over year and sales through Drive-Up were up more than 600% during the quarter under review.

Bottom Line

Target is leaving no stone unturned to improve top-line performance and expand customer base. It remains committed to addressing the challenges related to the pandemic and position itself for future success. In this respect, it has been directing resources toward digital platforms in order to better engage with customers, augmenting supply chain and concentrating on improving financial flexibility. While these raise optimism, we cannot overlook margins. Certainly, investments in pay and benefits, shift in channel mix toward digital fulfillment and decline in the sales of higher-margin discretionary items are likely to keep margins under pressure.

We note that shares of this Zacks Rank #3 (Hold) stock have surged 21.7% in the past three months compared with industry’s rally of 18.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

These Stocks Are Poised to Soar Past the Pandemic

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