Target’s Fourth Quarter and Full Year 2020 Results Exceed Expectations

Target’s Fourth Quarter and Full Year 2020 Results Exceed Expectations

30
0
SHARE


It is fair to say that Target
TGT
is on a roll. And today’s 90-minute long Fourth Quarter and Full year 2020 earnings webcast certainly ratified that, in spades. Suffice it to say that being an essential retailer like brethren Walmart
WMT
certainly played into their winning hand during the pandemic. However, its easy to forget that the Minneapolis based retailer has been making significant investments over the course of the last four years that positioned them for success during this unprecedented pandemic period.

Back in 2017, with sluggish sales Target debuted its “next-Gen” retail concept that in my opinion helped position them as the new “default department store.” However, running parallel with that industry changing effort, they also introduced a “drive-up” service, which became the forerunner of curbside pick-up. And even that came four years after Target’s first same-day pick-up service with first launched in 2013.

With the attention Target was giving to being a truly channel-agnostic retailer in 2017, they also began experimenting with in-store fulfillment of online orders. That service grew in 2018 and 2019, and drive-up sales increased 500 percent in the third quarter of 2020. It is also important to note that the new prototype store layout had already accounted for the need for micro fulfillment. And as has been reported, over 95 percent of Target’s third-quarter sales were fulfilled by its stores. So, it is fair to say that Target popularizes both BOPUS and BOPAC.

Capturing Market Share

Tuesday’s investors call was a celebration of a company that was firing on all cylinders through a most unprecedented period. Not only did they meet the demands, but they changed the game. The tendency for shoppers to want to consolidate the number of places they wanted to shop during the pandemic translated into guests shopping across more Target categories. This resulted in a $15 billion revenue increase in 2020 along with a market share capture of an additional $9 billion. And that capture came because of increases in apparel, home, beauty and essentials, food and beverages, and hardlines.

Incomparable Comp Sales

Comparable sales were stunning with combined, total comparable sales growth of 19.3 percent. Store comp sales were up 7.2 percent and digital comp sales up 145 percent. This sent digital sales penetration to 18 percent, twice 2019’s penetration of 9 percent. As a result, Target has now cracked the eMarketer’s top-ten Ecommerce provider list ranking #7, with a net promoter score of 80.

In analyzing what levers were most responsible for some of the increases, two that stood out were the 300 percent increase in Shipt, and 600% growth in drive-up, which led many shoppers to request that Target keep the feature beyond the pandemic response period, which of-course they will.

John Mulligan, Target’s chief operating officer noted in a recent Minneapolis Star Tribune interview “We designed our stores for ease, and that’s why we had drive-up, that’s why we had pickup, that’s why we had Shipt … and we found a lot of those things we designed for ease were very applicable to safety.” The numbers certainly support that, as third-quarter same-day service, including those by Shipt grew an eye-popping 217 percent.

Common Theme

If there was one theme that dominated the investor presentation it was Target’s ability to meet their guests unprecedented needs for timely and safe delivery of the goods over the most unusual year. Executing same-day delivery, order pick-up, drive-up, and ship to home helped deepen the trust and dependency on their offering. In the aggregate, the efficient and effective execution of these programs brought 12 million new omnichannel guests, into the fold.

That combined with the best in both national and private label offerings translated into broadening the shoppers cross-category shopping trips. There are now ten store brands that exceed $1 billion in annual sales. Equally impressive is the fact that Target owned brands now account for one-third of their sales.

The Store as the Hub

The hero in all of this, besides the store teams which demonstrated heroics throughout the year, was the store itself. It is unequivocal that four years ago, when many other retailers took their eyes off the store in favor of e-commerce, Target remained steadfast with the “store as the hub” of all things. And today, besides having created a shopping environment second to none, the stores acting as micro-fulfillment centers result in 40 percent savings over shipping from warehouses.

And sales per square foot still matters even at a time of omnichannel, and 2020 showed strong growth in that metric. Over the past two years, chain-wide average sales jumped from $306 per-square-foot in 2018 to $372 per-square-foot in 2020. Meanwhile Target’s top quartile sales moved from $434 per-square-foot in 2018 to $499 per-square-foot in 2020. Earnings per share in 2020 were $9.42, up from $6.39 in 2019.

So, What’s in Store?

Already 2021 is already looking very promising. The unique store-in-store agreements with both Apple
AAPL
and Ulta hold tremendous promise, as does the exclusive agreement with Levi’s to market their brand across a whole new range of categories, with the aid of Target’s in-house designers.

And beyond the 29 new small-format stores that Target managed to open in 2020, they plan to open between 30 and 40 new locations annually, many in college towns. Additionally, Target expects to remodel another 150 stores in 2021, and approximately 200 per year after that.

The merchandising team is also very upbeat and believe that their guests have had it with the yoga pants and are ready to re-enter society, and dress for the occasion. This should bode well for Target’s fashions to be very much in fashion.



Source link

LEAVE A REPLY