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Target's Digital Sales Soar, but Earnings Get Bogged Down in Pandemic Costs

By Jennifer Saibil – May 20, 2020 at 11:51AM

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The "cheap chic" retailer became a lifeline as customers were under lockdown.

Target (TGT -2.24%) has been the go-to resource for millions of Americans throughout the COVID-19 pandemic, spurring a 141% increase in digital sales for the bullseye.

A model for digital success

Deemed an essential retailer by regulators, Target has been able to keep its doors open and serve customers, growing comps for the quarter by 10.8% year over year. However, store comps increased 0.9% while digital increased overall 141% and every month, from 33% in February to 282% in April. Store locations fulfilled almost 80% of digital orders, a system that Target has developed and implemented with success.

Target and Shipt worker preparing an order.

Image source: Target.

Same-day services, another area where Target has gained prominence, and which includes order pickup, drive-up, and Shipt delivery, grew 278% to account for 5% of the comps growth.

Total revenue grew 11.3% to $19.6 billion. Gross margin was 25.1% compared with 29.6% in 2019, reflecting the changing product mix between higher numbers of low-margin goods and less high-margin merchandise, as well as higher costs related to the uptick in digital fulfillment.

Taking serious precautions

Earnings suffered as the company spent millions of dollars on employee safety, wage increases and bonuses, and disinfecting the stores for customers. Earnings per share were $0.06, compared with $1.53 in 2019.

CEO Brian Cornell said, "With the dedication of our team, the benefit of a sustainable business model and a strong balance sheet, we are confident Target will emerge from this crisis an even stronger retailer, with higher affinity and trust from our guests."

Target did not offer a second-quarter outlook due to continued uncertainty as the economy remains in flux.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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