The pandemic has been an extremely complicated time for many retailers -- and their stock prices. Yet the worst moments of the pandemic brought big business to others. And one of those companies is Target (TGT 0.06%). The retailer's sales soared as customers stayed home and strayed from the usual contents of their shopping lists.
Today, the pandemic isn't over. In fact, we're now heading into the third year of the coronavirus health crisis. So now, you might be wondering: How has Target done through the entire crisis so far? And what does the future look like for this retailer? Let's find out.
Ready to handle the pandemic
Target entered the pandemic with a structure ready to handle such an event. And as a result, Target's 2020 earnings were actually "years in the making," according to the retailer.
Target already had been offering order pickup for the previous five years, for example. With shoppers now preferring contactless experiences, Target had the opportunity to grow all of its same-day services. These include order pickup, drive up and Shipt. These services grew 212% last year -- with drive up alone surging 500%. And Target had been investing in its digital platform and the use of its stores to fulfill online orders for years.
The early days of the pandemic presented some challenges for Target. Consumers stocked up on essentials instead of higher margin items like clothing and accessories. Like other retailers, Target also had to invest in coronavirus health and safety measures. And Target faced higher digital costs as more and more business came in through its e-commerce platform.
But once lockdowns eased and people returned to their routines, higher margin items returned to growth. In the fourth quarter of 2020, all five of Target's core business areas gained market share. And the strength of Target's digital platform and same-day services compensated for factors that may have weighed on Target's earnings. At the same time, shoppers returned to physical stores. And in many cases, shoppers visited Target online and in store. In 2020, 12 million more guests became multi-channel Target shoppers. This is great because over time these shoppers spend four times more than in-store only customers and 10 times more than people who just shop at Target online.
More than $15 billion in growth
So Target ended the year with more than $15 billion in sales growth. That's more than the company's sales growth over the previous 11 years combined. And earnings per share on a generally accepted accounting principles (GAAP) basis climbed more than 36% to $8.64. Target's share price rose more than 37% last year.
But, even with the idea that the pandemic may ease, Target didn't lose momentum this year. In the most recent earnings report, quarterly sales rose -- in store and online. Same-day services increased almost 60%. And sales in all five merchandise categories climbed in the double digits. Meanwhile, Target has made extra efforts to keep shoppers happy. The company pledged to invest $4 billion annually to revamp stores and boost fulfillment and the supply chain. Target also has opened new sortation centers to improve efficiency.
The share price is following. This year, the stock is heading for about a 20% gain. Still, Target is trading at only 15 times trailing 12-month earnings. That's around its lowest level this year.
TGT PE Ratio data by YCharts
Looking ahead to the third year of the pandemic -- and beyond -- it's likely Target will keep its status as a retail winner. The company knew how to serve customers during the worst of the pandemic. And Target's plan to invest in key areas as mentioned above will help it serve the customer well over the long term.