Target Revises Outlook Due to the Coronavirus

Target Corp. has seen sharp upticks in traffic with increased sales for essential items such as food, medicine, cleaning products, office supplies and pantry stock-up items while sales of higher margin items such as clothing and accessories have tanked in the wake of the coronavirus pandemic. As a result, the Minneapolis-based mass retailer has withdrawn the business guidance it released earlier this month.

As part of the business update, plans for new stores and remodels are being scuttled. Existing store remodels already underway, about 130, are still slated for completion, with the remaining 170 planned remodels tabled until 2021. Similarly, the opening of new small-format stores that are underway, about 15-20 of the 36 planned, will be completed, while the others also will shift to opening next year.

Also on hold is Target’s plan to incorporate fresh grocery and adult beverages into the company’s Drive Up and Order Pickup service.

“We are prioritizing the work that’s in front of us to support our team, store operations and supply chain as families across the country rely on Target for everything they need in this challenging environment. I want to thank our entire team for their efforts, which have been nothing short of heroic,” said Brian Cornell, chairman and CEO. “Over the past few weeks we’ve experienced an unprecedented surge in traffic and sales, as guests rely on our stores and same-day services. Ensuring we can take care of our team and deliver for the millions of guests who are counting on us remains our top priority.”

To help combat the pandemic, the retailer has implemented new safety measures for staff and customers in store. Staff is stationed at each check lane to ensure customers remain the six feet apart that is dictated by current social distancing standards, and each lane is wiped down between customers to help stop the spread of the virus. The stores also have restricted the use of reusable bags (staff are not allowed to touch them but customers can bag their own items in them) and halted all product returns. Store and warehouse associates also received a temporary pay bump of an additional $2 per hour.

Company Balance Sheet

In an interview with CNBC, Cornell noted that the first quarter, which began Feb. 2, has had three distinct chapters.

For the first three weeks of the first quarter, total company comparable sales and category mix were in line with expectations and prior financial guidance.

Beginning with the fourth week of February and into the first part of March, the retailer saw an increase in traffic and comparable sales across its multi-category portfolio. For the month of February, total company comparable sales increased 3.8%.

Beginning in mid-March, Target experienced an even stronger surge in traffic and sales, with category mix heavily concentrated in the essentials and food and beverage categories. Around that time, strength also emerged within the portions of hard lines that support in-home activities, including home office and entertainment, while performance softened meaningfully in apparel and accessories. 

Month to date in March, overall comparable sales are more than 20% above last year, with comparable sales in essentials and food and beverage up more than 50%. During that same period, comps in apparel and accessories are down more than 20% compared with last year.

“I don’t expect 50% increases in certain categories to go on forever, but we don’t know if that’s going to continue for four weeks, eight weeks or 24 weeks,” Cornell told CNBC. “So we’ve got to be flexible and adaptable and literally, we’re making adjustments and decisions every day as we try to cope with the challenges in the system.”

While Target has maintained its low everyday prices during this period, stronger-than-anticipated sales have led to gross margin dollar growth ahead of prior expectations. However, continued sales declines in higher-margin discretionary categories could result in lower-than-expected gross margin dollar performance for the remainder of the quarter.