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Target's Monster Quarter: Revenue Grows by 23%

By Parkev Tatevosian - May 24, 2021 at 11:18AM

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Target reported first-quarter results that crushed Wall Street expectations.

Target (TGT 1.70%) reported first-quarter earnings results last week. The numbers were fantastic and crushed analysts' expectations. The retailer is benefiting from consumers ready to go out and spend after being cooped up at home for over a year. 

That consumer willingness was supplemented by an increasing ability to spend due to stimulus checks hitting bank accounts in March and April. Overall revenue increased by nearly 23% year over year, making it the fourth quarter in a row with revenue growth exceeding 20%.

A Target storefront.

Image source: Target.

Maintaining pandemic habits 

Estimates on Wall Street were calling for Target to increase revenue by 14%. That makes Target's first-quarter revenue growth of 23% even more impressive. Interestingly, more than $1 billion of revenue in the current quarter came at the expense of competitors. In other words, Target gained more than $1 billion in market share. Folks continue to choose Target for their shopping needs, and that's a good sign for long-term shareholders.

In a pleasant surprise, as consumers felt comfortable leaving their homes, they still went to Target to shop in person. In fact, traffic growth increased by 17% year over year in the first quarter. This could alleviate investor concerns that as folks adjust to life after the pandemic, they will return to pre-pandemic habits.

Sales have surged at Target during the pandemic, as it was deemed an essential retailer and remained open while many businesses had to shut down. It became one of the few places consumers could go shopping in person. Now, as pandemic restrictions are easing in nearly every state, consumers have maintained and even accelerated the habit of going to Target to shop.

What changed was the mix of products people were buying. Here's what Chief Growth Officer Christina Hennington had to say in the company's first-quarter conference call on how folks are adjusting to life as they feel comfortable leaving their homes: 

And when we talk to our guests today, they tell us they want to maintain some of the new habits and routines they formed during the pandemic, including an enhanced focus on the joy of home and health and well-being of their family. At the same time, there's a rapidly emerging emphasis on style and mobility, as guests feel increasingly safe in public spaces. That trend is playing out in an explosive demand for dresses and cosmetics, as well as luggage and categories based on being active like sporting goods and performance activewear.

What this could mean for the rest of 2021

Based on the better-than-expected results in the first quarter, management updated its guidance for the second quarter. It now expects comparable-store sales, which excludes the effect of new store openings and closings, to increase mid- to high single-digit percentages in the second quarter. And for the third and fourth quarter of 2021, Target expects to produce positive single-digit comps. Impressively, it expects to achieve this growth on top of a spectacular year in 2020 and report a full-year operating margin of close to 8%, which would be above the 7% of last year.

While the pandemic course will continue to cause uncertainty for Target, robust consumer spending remains a tailwind. And while consumers have spent a good part of their stimulus checks, they still have ample savings to fuel spending for at least a little while longer. All this bodes well for Target and its shareholders. 

Parkev Tatevosian 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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