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Target's Q3 Earnings Show Same-Day Services Are Driving Sales Growth

By Parkev Tatevosian, CFA – Nov 19, 2021 at 9:12AM

Key Points

  • Target grows comparable-store sales by double-digit percentages.
  • Target's same-day services segment has grown nearly 400% over the past two years.
  • Target's stock price fell after the Q3 earnings release, but it is still up 42.8% on the year.

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The latest results suggest Target customers like shopping online but want their orders fast, too.

The retail environment is evolving rapidly, especially after the coronavirus pandemic caused significant changes in consumer behavior. With folks looking to avoid crowded stores and shopping more online, retailers are scrambling to accommodate and some are managing that change better than others. 

One issue that has arisen is consumers ordering online but wanting to get their products as soon as possible. Target (TGT -2.35%) has been making changes to meet that demand for same-day services, giving consumers the option to shop online and yet have access to their orders on the same day.

The feature has been driving increased sales for Target since the pandemic onset, and the retail giant's third-quarter results show it's working far better than expected.

Two people shopping in a store.

Image source: Getty Images.

Target is sustaining sales momentum 

Target reported financial results for its fiscal third quarter (which ended Oct. 30) before markets opened on Nov. 17. Comparable-store sales, which compare sales within stores open at least the last 12 months, increased by 12.7% in Q3. The metric excludes the impact of new store openings and closings and gives a more informative look into customer shopping trends at Target.

Making the figure look even more impressive is that it follows comparable-store sales growth of 20.7% in the third quarter of last year. Recall, economies were restricted this time last year, with fewer businesses allowed to open. That scenario favored Target because it was considered an essential business and allowed to stay open. And with folks having fewer places to spend their money, Target captured a larger share of consumer spending. That Target grew sales by 12.7% on top of the favorable scenario it had last year could be evidence that the new shoppers that came to Target are sticking around long term.

Its convenient same-day services are playing a large part in that, no doubt. Customers shopping online have three choices on how to get their items on the same day: They could pick them up inside the store, they could drive up to a Target parking lot and have them delivered to their car, or they could have the items delivered to their home for a small fee. 

Here's Target CEO Brian Cornell talking about how much consumers have appreciated these offerings:

As I mentioned, within our digital capabilities, more and more of our guests are trying and embracing our industry-leading same-day services. Third-quarter sales through these services have expanded by nearly 400% or $2 billion over the last 2 years. Through the first 3 quarters of the year, sales through these services have grown by more than $6 billion since 2019, a number larger than the total sales of many prominent retailers.

Target's stock is having an excellent year 

Notably, online sales fulfilled through Target's same-day services are more profitable transactions for the retailer compared to the standard delivery methods. It costs less to have a customer come and pick up the item from your store than to pay a third-party delivery service to ship it to their home. Further, it boosts Target's competitive advantage against Amazon. The e-commerce giant is getting fast at shipping items to customers' homes, offering next-day shipping in some cities, but it is still far from rolling out same-day delivery more broadly.

Target's stock price is down 5.4% since the company reported third-quarter earnings, but it is still up 42.8% for the year. Its excellent omnichannel capabilities are one of the top reasons to own Target stock.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Parkev Tatevosian owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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