Take notes investors in retail stocks (if there are any of you left) — you are about to see earnings reports from the industry in May like you have never, ever seen before in your investing lifetime.
Good ole’ Target (TGT) continues to chart the path in terms of expectations for retail sector investors, dropping another business update Thursday morning. This follows one offered late last month.
In both instances, Target revealed a business experiencing wild swings in sales by major shopping departments and a serious fundamental shift in how goods and services are consumed during a nationwide health pandemic. The shopping shifts from stores and online to primarily online only has made Target a less profitable business — which is causing uncertainty on profits to persist beyond the first quarter.
What Target just shared
First quarter to date comparable sales up 7%. Digital sales up 100%; sales in stores down slightly.
First quarter comparable sales by department: essentials and food (+20%); hardlines (+16%); home (up slightly); apparel and accessories (-20%). The pace of sales mark a slowdown from Target’s business update on March 25. At the time, March to date comparable sales were said to be up 20%.
April to date comparable sales are up 5%. Store sales have plunged by a high-teens percentage. Digital sales have surged 275%.
April comparable sales by department: essentials and food (+12%); hardlines (+30%); home (up high-teens); apparel and accessories (-40%).
Target declined to provide specific financial guidance. The company withdrew its financial guidance on March 25. But it did offer some clues this time around. “While the Company withdrew its first-quarter guidance on March 25, today it provided additional detail on a number of factors that will reduce its first quarter profitability, including investments in pay and benefits to support team members during the COVID-19 crisis, the shift in category mix towards lower-margin categories, the shift in channel mix towards digital fulfillment, and inventory write-downs in Apparel & Accessories to reflect the rapid deceleration in sales trends. Together, these factors are expected to reduce the Company’s first-quarter operating margin rate by more than 5 percentage points,” Target said in a statement.
Target will extend its temporary $2 an hour wage increase until May 30.
Company is adding 80,000 Shipt workers (Target’s same-day delivery service) to support an increase in home-delivery orders.
The final take
Predicting how Target’s stock trades into its likely late May earnings release — and after — is a true dart throw. The market is staking out a view, however. Target’s stock is up 10.3% this past month, lagging the S&P 500’s 21% gain. Walmart’s stock has tacked on 16% during that same stretch.
Amid two intra-quarter business updates, it’s clear Target lacks visibility into weekly sales as a worried nation — in many cases dealing with job loss — stays home. The U.S. is in a severe recession, and households have now begun to cut back after panic loading pantries in March. Those trends alone means it could be hard for Target to serve up financial guidance again anytime soon to regain investor confidence.
Meanwhile, the strong shift to lower margin online sales also has to be factored into investor expectations.
All in, Wall Street likely has further to go in marking down their full-year profit projections on Target. Look for the market to probably key in on weak in-store sales at Target, uncertainty when traffic to stores will return in earnest and the shift to lower margin online shopping. That could keep Target’s stock under wraps, for now.
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