Target (TGT 1.03%) is scheduled to report fourth-quarter and fiscal year 2021 earnings on Tuesday, March 1. It is widely expected that Target will have generated its highest operating income in the last decade.
Since the pandemic's onset, the company has been thriving as folks appreciated the omnichannel shopping experience. Investors can look for more of the same when it reports on March 1.
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Same-day fulfillment options are driving revenue
In its most recent quarter ended Oct. 30, Target's sales increased 13.3% from the previous year to reach $25.6 billion. It benefited early in the pandemic when it was deemed an essential retailer and allowed to stay open when many businesses had to close temporarily. Surprisingly, it has maintained that momentum even as economies reopen and folks have more options for their time and money.
The excellent performance can partly be explained by quick and effective adjustments to accommodate consumer preferences. Early in the pandemic, Target enhanced its omnichannel shopping experience to include the option to buy online and have orders delivered to your car in a Target parking lot. The move leveraged its nearly 2,000 locations and took advantage of consumers' desire to avoid going into crowded stores.
The drive-up feature grew 500% in third-quarter 2020 and then another 80% on top of that in Q3 2021. It was by far Target's most popular same-day service. Target expanded its availability by adding 18,000 more parking spaces to capitalize on its popularity.
The option is also one of Target's most profitable fulfillment modes. Ordering online reduces the need for cashiers at Target. And picking up at the parking lot reduces Target's shipping expense. Consumers love it because they can order online and have the items in their hands within a couple of hours. That's a significant improvement to ordering online and waiting several days for at-home delivery.
That is undoubtedly fueling Target's record profitability. In the nine months ended Oct. 30, Target has earned an operating income of $6.8 billion. That's 45.7% higher than the same time a year ago. More impressively, the $6.8 billion would be Target's highest operating income reported in the past decade, and it still has another quarter left in the year.
Investors will want to see continued growth in the service when Target announces earnings on March 1. Look for management to also discuss enhancements and expansions to the program planned for 2022.
What this could mean for Target investors
Analysts on Wall Street expect Target to report revenue of $31.43 billion and earnings per share (EPS) of $2.86 in Q4. If the company meets those projections, it would represent increases of 10.90% and 7.11%, respectively, from the same period a year ago.
Target's stock is down 15% year to date. The market is concerned that perhaps 2022 will be when Target's pandemic tailwind fades and sales stop growing robustly -- or even decrease. If Target's management takes an optimistic tone on its expectations for 2022, it could be the catalyst that reverses its stock's fall.
