Target posts strong growth, the online sales slowdown

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Target

One-liner: Target’s streak of strong results extended into its latest quarter but its skyrocketing online sales growth has lost some steam.

Relevance: The growth of any business during the pandemic will be invariably characterized by some degree of volatility.

Growth: The Minneapolis retailer reported that sales at its stores that have been open for at least a year rose 8.7% in the three-month period that ended July 31. That was on top of a 10.9% growth in the same 2020 span.

Pandemic vagaries: Like Walmart, Target saw a slowdown from last year’s blistering online sales growth as more shoppers emerged from their pandemic-induced isolation.

Tapering growth: Target’s online sales rose 10% in Q2, compared to a 195% surge in the year-ago period. It was also a slowdown from the first three months of the year when online sales soared 50% from a year ago.

Adjusted targets: The company said on Wednesday that it expects high single-digit percentage growth in comparable sales, near the high end of its previous guidance range.

New reality: Major retailers are putting up quarterly earnings numbers this week and at Target, like Walmart and Home Depot, there is data that points to near normalcy for American shoppers.

  • At this point last year, millions were stocking up on food and preparing for a long stay at home. This year, the same crowd has emerged from hibernation (to an extent), buying clothes, eating out and traveling

Changing trends: The same trends are playing out at Home Depot and Lowe’s, which also reported earnings this week. Sales are still strong, but the do-it-yourself craze that began with homeowners at the start of the pandemic has cooled.

Compounding factors: Retailers are wary of the recovery as the delta variant of Covid surges across the US and mask mandates are reinstated. They’re also grappling with higher prices just as the temporary govt stimulus and other benefits, are being retracted and supply is waning.

Unchanged spending: “We have a very resilient consumer, we are not seeing any adjustment in consumer behavior.” - Brian Cornell, Target CEO

Expected targets: Analysts were expecting adjusted earnings of $3.51 per share on revenue of $24.99bn, according to FactSet.

Changing composition: Target’s online sales growth was driven by same-day services like order pickup and drive-up. Such services were up 55% in the latest quarter, but down from 270% growth last year. More than 95% of Target’s Q2 sales were fulfilled by its stores.

Diversified sales: Sales grew across all five major product categories tracked by Target, led by clothing, whose sales saw a double-digit percentage growth.

  • Cornell told reporters that many traditional back-to-school items like backpacks, lunch boxes and school uniforms are selling well

Beauty shops: Earlier this month, Target launched the first mini Ulta Beauty shops. The shops are about 1,000 square feet and carry makeup, skincare, and fragrance, operate beside existing beauty sections in Target stores.

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