Target beats profit estimates as same-day delivery drives online demand

(Reuters) – Target Corp blew past Wall Street expectations for quarterly profit and sales on Wednesday as more Americans used the big-box retailer’s quick delivery services to buy everything from electronics to home goods during the COVID-19 pandemic.

A newly constructed Target store is shown in San Diego, California May 17, 2016. REUTERS/Mike Blake/File Photo

Shares were up nearly 3% in premarket trading.

Comparable digital sales rose 155% in the third quarter, the company said, driven largely by same-day services like Drive up, Shipt or straight in-store pick ups, with more than 95% of sales being fulfilled through stores.

Target has emerged as one of the big winners from the disruption caused by the coronavirus health crisis as investments in its private label and online business, including faster shipments, have paid off.

“Those investments turned out to be crucial. Without them, we would not have been able to meet the extraordinary demand driven by the pandemic,” Chief Executive Officer Brian Cornell said on a media call.

While people were making fewer trips outdoors, many who did venture out visited Target, raising its store traffic during the quarter. Bigger rival Walmart on Monday said it saw foot traffic fall, though U.S. e-commerce sales surged 79%.

“The investments we’ve made in safety and our team are being recognized, and they’re rewarding us even during the pandemic with more and more trips to our stores,” said Cornell.

The retailer was also winning the loyalty of fresh customers, analysts said.

“It’s clear that Target is not only gaining new customers but also retaining them, which will be critical as we move into 2021,” said Gordon Haskett analyst Chuck Grom.

Comparable sales, which include online and store sales, rose 20.7% in the third quarter ended Oct.31, trouncing expectations for an 11.31% increase, according to IBES data from Refinitiv.

Electronics sales jumped more than 50%, while comparable sales for the home category were up in the mid-20% range.

Target also lifted the suspension of its share buyback program and expects to restart it in 2021.

The pandemic has forced retailers to bring forward their holiday promotions, casting a shadow over the traditional holiday shopping season from Thanksgiving to Christmas day.

“Many have started to shop earlier and we do expect it (shopping) to be spread out during the holiday season, but they are looking to celebrate and … we expect a lot of gift giving,” Cornell said.

Target’s net earnings rose to $1.01 billion, from $714 million a year earlier. On an adjusted basis, the company earned $2.79 per share, beating estimates for $1.60.

Total revenue surged 21.3% to $22.63 billion, beating estimates for $20.93 billion.

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