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How Target Shares Gained 20% in August

By Anders Bylund – Sep 7, 2020 at 1:58PM

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The retail giant crushed Wall Street's expectations in the second quarter.

What happened

Shares of Target (TGT -2.24%) rose 20.1% in August 2020, according to data from S&P Global Market Intelligence. The retail chain's muscular second-quarter report showed investors that Target is doing more than fine in the era of COVID-19.

So what

Target's sales rose 25% year over year to $22.7 billion, and adjusted earnings nearly doubled from $1.82 to $3.38 per share. Your average analyst would have settled for earnings of approximately $1.62 per share on revenue near $20.1 billion. Comparable store sales increased by 10.9%, and online sales tripled compared to the year-ago period. Management declined to set up guidance for the next quarter or the full fiscal year, citing uncertainty based on the coronavirus pandemic.

A young woman smiles at the camera, carrying several shopping bags.

Image source: Getty Images.

Now what

CEO Brian Cornell gave investors a high-level overview of current shopping trends in the earnings call.

"As our guests reacted to the implications of the emerging pandemic, we encountered multiple abrupt changes in shopping patterns throughout the first quarter, both across categories and channels," Cornell said. "Near the end of [the first] quarter, we returned to growth in our store sales and once again saw growth in categories like apparel."

Most of Target's online shoppers are buying pretty much the same things online as they would pick up at a local store, and that dynamic lets Target use its store network as an efficient source of e-commerce shipments. This company is marrying its online and in-store experiences better than most retailers right now.

Target's stock rose 13% on the day of this report and has now gained 34% over the last 52 weeks. Shares are now trading at 21 times trailing earnings, which looks fairly affordable for this high-quality retail stock.

Anders Bylund 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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