Shares of Target (NYSE:TGT) fell this morning, down by as much as 6%, after the retailer provided investors with a financial update regarding COVID-19. The stock has started to recover and was only down by 1% as of 12:40 p.m. EDT.
The novel coronavirus pandemic is affecting Target's business in several ways. The retailer is extending a temporary wage increase of $2 per hour through the end of May to recognize the work its front-line employees are doing to help manage the crisis. Target is also extending other benefits -- like paid sick leave -- for certain workers. The pay bump is in addition to a $300 million program for worker pay and benefits that was announced last month.
"We have deep gratitude for the remarkable effort our team has put into supporting guests across the country," CEO Brian Cornell said in a statement. "We remain committed to prioritizing our efforts to provide for their well-being so they can take care of themselves and their families during this unprecedented time."
Target also said that comparable-store sales have increased 7% quarter to date, which includes a decline at physical stores but a more-than-doubling of online orders. As one might expect, consumers are shifting their shopping patterns, with comps for apparel declining by over 20% while comps for essential items (like food) increase more than 20%.
Profitability in the first quarter will be pressured as the company makes the appropriate investments in supporting workers, and the mix shifts toward lower-margin categories. Target will also write down some of its apparel inventory due to decreased demand. Operating margin in the first quarter will take a hit of over 5 percentage points as a result of these factors, the company said.
"While this crisis will certainly put near-term pressure on our profitability, that pressure is far outweighed by doing right by our team and our guests," Cornell said.