MINNEAPOLIS — Target is still growing faster than it did before the pandemic, and executives last week signaled they expect no letup in the months ahead.
Sales grew 8.9% in May, June and July, which is the second quarter of Target’s fiscal year, on top of record growth of more than 24% during the same time last year.
More people returned to shopping in stores at the beginning of the summer and back-to-school shopping has been healthy, executives of the Minneapolis-based retailer said.
“Our theme for this quarter was growth on top of growth,” Brian Cornell, the company’s chief executive, said in a call with analysts. “But you should expect that theme to continue going forward.”
Same-store sales grew 8.7% as store visits, or traffic, rose 13%. Digital sales rose 10%. Target’s profit rose 7.4%.
“Traffic has been very consistent and it has been consistently strong and we are very excited about the early momentum in back-to-school and back-to-college as well,” said Christina Hennington, Target’s chief growth officer.
The company’s board decided to begin a new share repurchase effort, even with Target shares trading at all-time highs and nearly twice as expensive as a year ago. It agreed to $15 billion in share repurchases that will start after the company finishes the current share purchase authorization, which still has $1.8 billion to go.
The company paused stock buybacks in spring 2020 when the pandemic spawned economic uncertainty, and it resumed them later in the year. Target bought about $1.5 billion worth of its shares in this latest quarter.
The new share repurchase plan “reflects our confidence in the sustained, strong performance of our business,” chief financial officer Michael Fiddelke said.
Target beat Wall Street earnings expectations with total revenue of $25.2 billion. It earned $1.82 billion, or $3.65 a diluted share, which beat the Zacks consensus estimate of $3.48. A year ago, Target earned $1.69 billion, or $3.35 a diluted share.
Though Target has done a good job lapping record quarters from last year, the level of growth will likely not be sustainable as the spending power of consumers becomes more normal, said Brian Yarbrough, an analyst at Edward Jones.
“There have been a couple things going on with the consumer that have been a positive tailwind ... that will not be a positive tailwind as we move throughout 2021 and into 2022,” Yarbrough said. “Number one, you had the government stimulus right and that kind of dried up and all of a sudden the government started sending out these child tax credit checks.”
Apparel has rebounded since the beginning of the pandemic with customers snatching up swimwear, kidswear and young contemporary clothing to lead product categories with double-digit growth. It was followed by food and beverage that had low double-digit growth.
Target said its own branded products grew in the mid-teens. This week Target launched its own cat and dog food brand Kindfull as well as a limited-edition collection of children’s clothing, home goods and books by children’s author and illustrator Christian Robinson. Select Target stores are also opening mini Ulta Beauty sections this week.
”Our commitment is to continue to accelerate our owned brands at a faster rate than our base,” Hennington said.
Even as more people began to return to more normalized routines as people across the country became vaccinated, customers chose to use same-day services like drive-up and order pickup for more than half of digital sales. But the growth in such was more tempered at about 55% compared to the triple-digit percentage growth last year when the pandemic changed shopping habits for many.
Target continues to expand the categories of what can be picked up via drive-up and there is potential to grow into other capabilities like people being to drop off their returns via drive-up, said John Mulligan, Target’s chief operating officer.
As part of plans to spend $4 billion a year on initiatives such as opening small and midsize stores and store remodels, Target opened two new “flow centers,” which send small shipments to stores more frequently, in the quarter. More than 100 full-store remodels are also currently underway and 19 new stores have opened.
For the second half of the year, Target leadership expects high single-digit percentage growth in comparable sales, which is near the high end of the guidance range it estimated in the first quarter. Already sales in the back-to-school season are off to a good start, the company said.
With $48.7 billion in sales through the first half of its fiscal year, Target is on pace to surpass $100 billion for the full year. Only two other Minnesota-based companies — UnitedHealth and Cargill — have surpassed the $100 billion annual revenue threshold.
Growing concern about the delta variant has added more uncertainty to what the second half of the year will look like for retailers. Last week, the U.S. Department of Commerce reported retail sales fell about 1% nationally in July.
“We continue to see a very optimistic consumer that’s certainly shopping with caution wearing masks more and more across the country but we are seeing tremendous resilience in the consumer today and our traffic patterns I think represent that,” Cornell said.