Target (TGT): The peak holiday season is yet to come but digital sales have marched way ahead of prior-year levels

Target Corp. (NYSE: TGT) delivered strong performance for the second quarter of 2020, with an increase of nearly 25% in total revenue and an 80% jump in net profits. The company also saw strong growth in digital sales and in its same-day services. The stock has gained 28% over the past three months.

Store performance and digital growth

During the second quarter, Target reported its strongest ever comparable sales growth of 24.3%. Store comparable sales increased 10.9%. The company benefited from its store-based fulfillment strategy as stores enabled the majority of its digital sales and drove a vast portion of its sales growth during the quarter. Digital comparable sales grew 195% during the quarter.

Conventional store sales have grown nearly $2 billion so far this year while digital sales increased over $4 billion. Year-to-date digital sales of around $7 billion have surpassed full-year 2019 digital sales levels despite the fact that the peak holiday shopping season is yet to come.

Target saw strong comp growth of over 270% in its same day services – Order Pick Up, Drive Up and Shipt, with Drive Up registering the highest increase of 734%. Sales fulfilled by Shipt increased over 350% while in-store pickup sales rose over 60% in the quarter. Sales from Pick Up and Drive Up have grown more than $1.6 billion year-to-date with Drive Up comprising more than $1 billion of this growth.   

The Food and Beverage and Essentials categories each saw comp sales growth of about 20% in the quarter while apparel witnessed double-digit growth. Electronics saw over 70% growth due to higher demand for office equipment, home electronics and gaming.

Target is progressing with the construction of its new stores and the company is on track to open around 27 more stores this year. Nine of these locations are slated to open in August while another 16-18 are expected in October.

Outlook

Looking ahead into the third quarter, Target plans on extending its back-to-school assortment this year for the convenience of parents facing uncertainty over school re-openings. The company is also planning to roll out the third and final phase of its Good & Gather assortment this fall, with the addition of over 600 items bringing the total number of items to around 2,000. The Good & Gather brand has already generated over $1 billion in sales.

Looking towards the fourth quarter, Target will close its stores for Thanksgiving but the company will make thousands of additional items available through same-day services this holiday season including gifts and essentials.

Target is both gaining new digital customers and seeing higher levels of engagements from these customers. The company added 10 million new digital guests in the first half of the year and is optimistic about the prospects of building on these engagement levels over time.  

Click here to read the full transcript of Target Q2 2020 earnings call