Shopping Shifts Squeeze Target Profit in Q1

Target reported strong sales for the first quarter but its profit was squeezed as consumers shifted to online shopping and avoided higher-margin items such as apparel.

Amid the coronavirus pandemic, Target’s revenue rose 11.3{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} to $19.62 billion, with same-store sales increasing 10.8{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} and digital sales jumping by 141{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}. Analysts’ had expected $19.04 billion in revenue.

But first-quarter net income fell to $284 million, or 56 cents per share, from $795 million, or $1.53 per share, a year earlier. Excluding some items, Target earned 59 cents per share.

The company said its operating income margin rate declined to 2.4{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} from 6.4{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}, reflecting, among other things, “unfavorable category mix as guests stocked up on lower-margin categories like Essentials and Food & Beverage, and higher digital and supply chain costs, driven by unusually strong digital volume as well as investments in team member wages and benefits.”

As CNBC reports, the coronavirus crisis “has underscored the challenge of making money from e-commerce.”

“As retailers sell more online, they’re also taking on more work, such as picking items, packing them and shipping them,” CNBC said. “That typically squeezes their profits — whether retailers fill an order for curbside pickup, mail it or deliver it to customers’ doors.”

In addition, Target expects to spend about $500 million from th e beginning of March through July 4 on higher wages and other operational changes related to the coronavirus.

Despite the higher costs, Target is attracting new customers and inspiring loyalty that will pay off for the long term, CEO Brian Cornell told analysts, noting that five million new customers shopped at Target.com for the first time in the first quarter.

Target’s strongest merchandise category was what it calls hardlines, which includes durables like appliances and grew by more than 20{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} from the previous year, fueled by electronics sales. Food and beverage grew by more than 20{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} but apparel declined by about 20{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca}.

Cornell said demand for discretionary item picked up toward the end of the quarter, in part because of stimulus checks and more customers leaving their homes as lockdowns lifted.

Braulio Jatar/SOPA Images/LightRocket via Getty Images

apparel, Brian Cornell, Bu, coronarivus, e-commerce, earnings, Profit margin, Target