Wednesday was another winner for investors in the three mass market retailers that are killing it in the new normal. Target (TGT -0.36%) posted another jaw-dropping quarterly update in the morning, highlighted by a huge 20.7% surge in comparable-store sales. Target's performance follows a blowout report out of larger rival Walmart (WMT -1.75%) earlier this week. Costco Wholesale (COST 1.01%) came through with a strong financial update earlier this month.
Target, Walmart, and Costco were retail winners during the early months of the COVID-19 crisis. They remained open as essential retailers, and were magnetic havens for folks stocking up on food, safety supplies, and stay-at-home wares. However, with most retailers now open and seeing pent-up demand for pre-pandemic pursuits we still see Target, Walmart, and Costco performing at a high level. Shoppers know this, and investors apparently now know this, too.
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Right on Target
Wednesday morning's report out of Target was a thing of beauty. Revenue rose 21.3% to hit $22.6 billion, and the increase consisted almost entirely of a 20.7% surge in comparable-store sales. The boom in digital sales -- up 155% at Target over the past year -- is playing the starring role here, but it's not as if foot traffic is phoning it in these days. Sales being fulfilled at the store level still account for 95% of the business.
Comparable in-store traffic has risen 4.5%, but more importantly the average register transaction is clocking in 15.6% higher. This would be spectacular in any scenario, but consider that we are comparing Target now -- waist-deep in a pandemic and thigh-deep in a recession -- to the chain a year ago when the economy was still humming along and the COVID-19 outbreak had yet to materialize.
Target's bottom line is growing even faster. Reported earnings from continuing operations and adjusted earnings soared 46% and 105%, respectively, for the chain's fiscal third quarter.
Walmart's growth wasn't as impressive on Tuesday, but the results still clocked in better than what analysts were expecting. The world's largest retailer saw its revenue climb by a little better than 5% for the same three-month period, fueled by a 6.4% increase for Walmart's U.S. comps and an even heartier 11.1% spike at its Sam's Club warehouse club concept.
Costco won't post its quarterly results until next month, but the warehouse club bellwether puts out monthly updates -- and its latest report was really strong. Adjusted comps rose 14.% for October, and upticks in the low teens have been the norm through the past few months.
Investors taking a risk-averse approach to investing in retail stocks are naturally flocking to what I'll just tag as the MM3 -- the mass market three -- and it's easy to see why. Walmart, Target, and Costco were resilient before the pandemic, and now they're thriving in the current climate. They are growing their sales nicely, and they also offer a little dividend love for income investors.
Target and Walmart are yielding 1.7% and 1.4%, respectively. Costco brings up the rear with its 0.7% yield, but the $10 a share dividend it announced on Monday means it will pay its shareholders more this year than the other two members of the MM3.
Target, Walmart, and Costco have become the new all-weather stocks. Investors are doing well by shopping for stocks where they also happen to be shopping for just about everything else.
