After Walmart's pandemic hit Tuesday, Target also exceeded Wall Street's expectations today for a record quarter for a number of key metrics. The retailer announced on Wednesday its strongest quarter to date for like-for-like sales, up 24.3% in the second quarter and driving Target & # 39; s Profit increased 80.3% year over year to $ 1.69 billion. Online ordering was particularly popular, according to Target. Digital sales increased 195%. Same day services such as Drive Up, Order Pick Up and Shipt also increased by 273%.
For the quarter, Target exceeded estimates for revenue, same store revenue, adjusted EPS, and gross margin. Revenue was $ 23 billion versus an estimate of $ 19.82 billion. The record-breaking increase in comparable sales of 24.3% was well above the expected 5.8%. Earnings per share were $ 3.38 versus the forecast of $ 1.58. And his GM was 30.9% instead of the expected 28.98%.
The company attributed its revenue growth to a number of factors including its ability to stay open as an essential business in the face of the pandemic, its customers' overall confidence in the Target brand, and its ability to get customers to shop across their product categories for services and most importantly, the return of customers to their stores in the second quarter.
However, the latter does not necessarily mean that target customers have entered the aisles.
Instead, it speaks of the investments Target made before the pandemic to bridge the gap between online ordering and its physical stores. In the second quarter, Target's store pickup increased more than 60% as shoppers picked up their web orders from within Target, for example.
Target's drive-up service, which lets customers shop online and then pull up to designated parking lots to get orders for their car, grew more than 700% in the quarter.
And Target's same-day Shipt delivery service increased 350% year over year.
This means that for much of what Target customers consider "online shopping", their sales were actually made from Target stores. According to Target, the stores accounted for more than 90% of sales in the second quarter.
In order to expand its digital fulfillment services, Target took a tech company-like approach by using internal engineering teams that are able to implement new ideas quickly. For example, a team of eight, including four engineers, originally built Drive Up from April 2017. Drive Up was tested internally until summer 2017. It was introduced to Target's home market by autumn. As of August 2019, Target's Drive Up service was available nationwide.
The retailer has also made major acquisitions to support its e-commerce operations, including the $ 550 million deal for Shipt in 2017 and, more recently, the same-day delivery technology acquisition from Deliv in May. It also built the same day Shipt service right into its own website and app instead of just relying on Shipt's brand to reach the target customers.
The results of those efforts are now paying off in a pandemic where customers don't necessarily want to browse the aisles of stores in person to shop. And that has resulted in Target seizing what Yahoo Finance now calls “tech company-like growth” for its retail business.
Brian Cornell, Chairman and CEO of Target, also noted that the company had a market share of $ 5 billion in the first six months of 2020. During this time, 10 million new digital customers were added.
“Our like-for-like revenue growth of 24.3 percent in the second quarter is the strongest we've ever reported. This is real proof of the resilience of our team and the longevity of our business model. Our branches were key to this unprecedented growth. In-store sales rose 10.9 percent and the stores enabled more than three-quarters of Target's digital sales, which grew nearly 200 percent, ”he said. “We also had excellent profitability for the quarter, despite having made significant investments in compensation and benefits for our team. We remain steadfast in our focus on investing in a safe and convenient shopping experience for our guests, and their trust has resulted in market share gains of $ 5 billion in the first six months of the year, ”continued Cornell.
“With our differentiated merchandising range, a comprehensive range of practical fulfillment options, a strong balance sheet and our dedicated team, we are well equipped to master the ongoing challenges of the pandemic and to continue to grow profitably in the years to come. " he said.
The pandemic has also played a role with customers. According to Target, sales increased in all five core product categories. This was due to the strongest sales in electronics, a category that grew 70% year-over-year as people stayed at home, work, school, and entertainment, leading to more computer or gaming system purchases. Electronics followed household products, which grew by 30% and in the categories Beauty, Food & Beverage and Essentials by 20%. Apparel actually shifted from a 20% decline in the first quarter to double-digit growth in the second quarter. The customer basket size also increased by 18.8% as customers searched for more items on their target runs.
Like Walmart, Target saw a boost from government stimulus measures that are expected to ease in the next quarter. However, Target declined to offer further guidance for 2020 as the COVID-19 crisis makes consumer purchasing patterns and government policies unpredictable.