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Target's (TGT) Q2 Earnings Beat, Comparable Sales Up 8.9% Y/Y
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Target Corporation (TGT - Free Report) continued with its decent performance in second-quarter fiscal 2021, wherein both the top and the bottom lines not only surpassed the Zacks Consensus Estimate but also grew year over year. The quarter marked sixth straight sales and earnings beat. Notably, comparable sales increased for the 17th successive quarter. The metric gained from growth in both store and digital channels.
However, digital comparable sales grew at a lower rate compared with the year-ago period, when the pandemic was at its peak and consumers made bulk of their purchases online. Moreover, margins remained under pressure during the quarter, thanks to higher freight costs.
Without a doubt, Target has been focusing on store refurbishments, enhancing digital capabilities and expanding same-day fulfillment options, keeping in mind speed and convenience. We note that all five core merchandise categories registered positive comparable sales during the reported quarter. Markedly, this general merchandise retailer has kicked-off back-to-school season on a promising note.
We note that shares of this Minneapolis, MN-based company have increased 35.7% in the past six months compared with the industry’s gain of 20.9%.
Sales & Earnings Picture
Target reported adjusted earnings of $3.64 per share that outshone the Zacks Consensus Estimate of $3.48, and rose 7.9% from the year-ago period.
The big-box retailer generated total revenues of $25,160 million that increased 9.5% year over year and outpaced the Zacks Consensus Estimate of $25,066 million. We note that sales jumped 9.4% to $24,826 million, while other revenues rose 20% to $334 million. Markedly, the company’s owned brand sales grew in the mid-teens.
Target Corporation Price, Consensus and EPS Surprise
Rise in sales was led by Apparel, Food & Beverage, Essentials & Beauty, Home and Hardlines categories. While Apparel witnessed double-digit growth in sales, Home category saw low-single-digit increase. Hardlines grew in mid-single-digits, while Essentials & Beauty registered high-single-digit growth. Food & Beverage delivered low-double-digit growth.
Stores fulfilled more than 95% of the company’s sales in the quarter. Same-day services (Order Pick Up, Drive Up and Shipt) grew approximately 55%. Sales fulfilled by Shipt were up nearly 20% year over year and sales through Drive-Up were up more than 80% during the quarter. We note that Order Pickup rose more than 30%.
Meanwhile, comparable sales for the quarter increased 8.9%, backed by 12.7% jump in number of transactions. However, average transaction amount dropped 3.4%. Again, digital comparable sales grew 10%, while comparable stores sales rose 8.7% during the quarter.
Target’s debit card penetration contracted 20 basis points to 11.6%, while credit card penetration remained flat at 8.7%. Total REDcard penetration declined to 20.3% from the year-ago quarter’s 20.5%.
Margins
Gross margin shrunk 50 basis points to 30.4% during the quarter owing to higher merchandise and freight costs, partly offset by the benefit of low markdowns, favorable category mix, and a shift in fulfillment mix into lower-cost same-day fulfillment options. Meanwhile, operating margin shriveled 20 basis points to 9.8%.
Other Financial Details
During the second quarter, Target paid dividends of $336 million. This reflected an increase of 3% in the dividend per share. The company repurchased shares worth $1.5 billion, thereby retiring 6.6 million shares at an average price of $233.81. At the end of the quarter, the company had roughly $1.8 billion remaining under its share-buyback program approved in September 2019. The company’s board of directors unveiled a new $15 billion share buyback program.
This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $7,368 million, long-term debt and other borrowings of $11,589 million and shareholders’ investment of $14,860 million.
Outlook
Management now envisions high single digit growth in comparable sales for the second half of fiscal 2021. Target had earlier guided positive single-digit comparable sales growth for the last two quarters of the fiscal year. It currently expects full-year operating margin rate to be 8% or higher.
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Target's (TGT) Q2 Earnings Beat, Comparable Sales Up 8.9% Y/Y
Target Corporation (TGT - Free Report) continued with its decent performance in second-quarter fiscal 2021, wherein both the top and the bottom lines not only surpassed the Zacks Consensus Estimate but also grew year over year. The quarter marked sixth straight sales and earnings beat. Notably, comparable sales increased for the 17th successive quarter. The metric gained from growth in both store and digital channels.
However, digital comparable sales grew at a lower rate compared with the year-ago period, when the pandemic was at its peak and consumers made bulk of their purchases online. Moreover, margins remained under pressure during the quarter, thanks to higher freight costs.
Without a doubt, Target has been focusing on store refurbishments, enhancing digital capabilities and expanding same-day fulfillment options, keeping in mind speed and convenience. We note that all five core merchandise categories registered positive comparable sales during the reported quarter. Markedly, this general merchandise retailer has kicked-off back-to-school season on a promising note.
We note that shares of this Minneapolis, MN-based company have increased 35.7% in the past six months compared with the industry’s gain of 20.9%.
Sales & Earnings Picture
Target reported adjusted earnings of $3.64 per share that outshone the Zacks Consensus Estimate of $3.48, and rose 7.9% from the year-ago period.
The big-box retailer generated total revenues of $25,160 million that increased 9.5% year over year and outpaced the Zacks Consensus Estimate of $25,066 million. We note that sales jumped 9.4% to $24,826 million, while other revenues rose 20% to $334 million. Markedly, the company’s owned brand sales grew in the mid-teens.
Target Corporation Price, Consensus and EPS Surprise
Target Corporation price-consensus-eps-surprise-chart | Target Corporation Quote
Let’s Delve Deeper
Rise in sales was led by Apparel, Food & Beverage, Essentials & Beauty, Home and Hardlines categories. While Apparel witnessed double-digit growth in sales, Home category saw low-single-digit increase. Hardlines grew in mid-single-digits, while Essentials & Beauty registered high-single-digit growth. Food & Beverage delivered low-double-digit growth.
Stores fulfilled more than 95% of the company’s sales in the quarter. Same-day services (Order Pick Up, Drive Up and Shipt) grew approximately 55%. Sales fulfilled by Shipt were up nearly 20% year over year and sales through Drive-Up were up more than 80% during the quarter. We note that Order Pickup rose more than 30%.
Meanwhile, comparable sales for the quarter increased 8.9%, backed by 12.7% jump in number of transactions. However, average transaction amount dropped 3.4%. Again, digital comparable sales grew 10%, while comparable stores sales rose 8.7% during the quarter.
Target’s debit card penetration contracted 20 basis points to 11.6%, while credit card penetration remained flat at 8.7%. Total REDcard penetration declined to 20.3% from the year-ago quarter’s 20.5%.
Margins
Gross margin shrunk 50 basis points to 30.4% during the quarter owing to higher merchandise and freight costs, partly offset by the benefit of low markdowns, favorable category mix, and a shift in fulfillment mix into lower-cost same-day fulfillment options. Meanwhile, operating margin shriveled 20 basis points to 9.8%.
Other Financial Details
During the second quarter, Target paid dividends of $336 million. This reflected an increase of 3% in the dividend per share. The company repurchased shares worth $1.5 billion, thereby retiring 6.6 million shares at an average price of $233.81. At the end of the quarter, the company had roughly $1.8 billion remaining under its share-buyback program approved in September 2019. The company’s board of directors unveiled a new $15 billion share buyback program.
This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $7,368 million, long-term debt and other borrowings of $11,589 million and shareholders’ investment of $14,860 million.
Outlook
Management now envisions high single digit growth in comparable sales for the second half of fiscal 2021. Target had earlier guided positive single-digit comparable sales growth for the last two quarters of the fiscal year. It currently expects full-year operating margin rate to be 8% or higher.
3 Stocks Hogging the Limelight
Burlington Stores (BURL - Free Report) , a Zacks Rank #1 (Strong Buy) stock, has a trailing four-quarter earnings surprise of 74.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
Dollar General (DG - Free Report) has a long-term earnings growth rate of 11.3%. Currently, it carries a Zacks Rank #2 (Buy).
Ross Stores (ROST - Free Report) has a long-term earnings growth rate of 10%. The stock carries a Zacks Rank #2.