Goal (TGT) Q2 2021 earnings beat projections

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Target said fiscal second quarter sales rose on Wednesday in every merchandise category from apparel to groceries – even compared to the pandemic-induced record pace of last year, helping the retailer to top profit estimates.

After a promising start to back-to-school spending, the wholesaler raised its forecast for the year. In pre-trading hours, however, stocks fell 1.4%.

Target expects like-for-like sales, a key retail metric that tracks sales online and in stores that have been open for at least a year, to see high single-digit growth in the second half of the year. Previously, single-digit growth was expected.

CEO Brian Cornell said on a call with reporters that parents are grabbing backpacks, lunch boxes and school uniforms and preparing to have their children learn in person again. He said college students have also shown willingness to spend after the pandemic delayed moving out of children’s rooms.

CFO Michael Fiddelke said the forecast “reflects our confidence in Target’s ability to continue to rely on profitable growth even in a volatile environment.”

Compared to Refinitiv’s consensus estimates, Target reported the following for the fiscal second quarter ended July 31:

  • Earnings per share: $ 3.64 adjusted versus $ 3.49 expected
  • Revenue: $ 25.16 billion versus $ 25.08 billion expected

Net income rose to $ 1.82 billion, or $ 3.65 per share, from $ 1.7 billion or $ 3.35 per share last year. Without items, the retailer made $ 3.64 per share, more than the $ 3.49 per share that Refinitiv polled analysts had expected.

Total revenue rose 9.5% year over year to $ 25.16 billion, slightly above analysts’ expectations of $ 25.08 billion.

Target’s profits were nearly double what it was in the same quarter of 2019 before the pandemic accelerated sales.

Last year’s sales surpassed Wall Street estimates, with like-for-like sales up 24.3% as digital sales nearly tripled.

Comparable sales in the final second quarter were more modest with growth of 8.9%. This was roughly equivalent to the 8.8% growth forecast by analysts, according to a StreetAccount survey.

Like-for-like store sales increased by 8.7%, while like-for-like digital sales increased by 10%. (These key figures rose by 10.9% and 195% respectively in the same quarter of the previous year.)

Target said its roadside pick-up service, Drive Up, and Shipt home delivery service – two contactless options – haven’t lost popularity. Same-day service revenue grew 55% in the second quarter, on top of growth of more than 270% a year ago.

Apparel sales grew by double digits, followed by Essentials and Beauty in the high single digits.

While the discounter was still producing large numbers, Cornell and Fiddelke pointed to the possibility of expansion. For example, Fiddelke said the company has remodeled more than half of its stores, opened two new distribution centers, and added 5,000 more items for roadside pickup in the past four years.

He said it has signed leases for four more “sorting centers” that will open in late 2021 and early 2022. The facilities help clear the back room of stores that pack a lot of online purchases and get them to customers faster.

Target opened the first of its Mini-Ulta Beauty areas earlier this month. It recently launched an exclusive pet food brand, Kindfull. It has an upcoming designer clothing line for the fall and has teamed up with children’s book illustrator and author Christian Robinson to create a colorful line of housewares for children.

The company also said its board of directors has agreed to buy back $ 15 billion of its own shares once it completes its previous share buyback plan.

Rival Walmart is also benefiting from higher consumer spending. It raised its forecast for the year on Tuesday and noted a good start to school.

That should not be the case with all retailers. Retail sales in July were worse than expected, raising new questions about whether the Delta variant cuts spending or whether consumers are spending more on services like airline tickets, concerts, and restaurant meals and less on goods.

At Target, Cornell said retail traffic and spending patterns have not changed despite rising Covid cases. He said consumers are still “optimistic” and “resilient”.

“We’ll be watching it carefully, but at the moment we’re not seeing any changes in consumer behavior from the new variant,” he said.

In the meantime, retailers are preparing for a strong Christmas shopping season and trying to stay ahead of stocks.

Target inventories rose $ 2.5 billion last quarter year over year. The company bought goods early – aware of port delays, increased transportation costs and other shipping restrictions that have raised concerns that items could sell out quickly.

“We’ll be ready for the holidays,” Cornell said in an interview with CNBC’s Becky Quick in the Squawk Box. “We have a lot of inventory in flux at the moment.”

– CNBC’s Lauren Thomas contributed to this report.