MINNEAPOLIS — It has been quite a month at Target Corp.
First, the retailer announced a blockbuster long-term partnership with Ulta Beauty to open store-within-a-store Ulta Beauty shops in selected Target locations and make available Ulta’s prestige brands through Target.com. The collaboration represents a brilliant combination of two retailers who both excel in providing curated, customer-centric engagement through a range of omnichannel options.
Significantly, it also shatters the barrier between mass and prestige that has characterized the beauty business.
Eight days after announcing the Ulta Beauty partnership, Target issued breath-taking third quarter financial results that emphatically validate the company’s strategy, one that has enabled it to flourish despite the chaos of the COVID-19 pandemic and political and social unrest.
“With a deepening level of trust our guests are placing in our team and our brand, we’ve continued to see very strong business results,” chairman and chief executive officer Brian Cornell told analysts during a conference call. “Third quarter sales grew nearly $4 billion over last year, bring our year-to-date growth to more than $10 billion. This unprecedented growth, in both the quarter and the year, has been driven by meaningful share gains across every one of our core categories.”
Both sales and earnings per share for the quarter blew past Wall Street’s estimates. Sales leapt 21.3% to $22.34 billion, well ahead of the $20.93 billion projected by analysts surveyed by Thomson Reuters. The explosive top-line growth was propelled by a 20.7% surge in comparable sales that was fueled primarily by a 155% increase in digital comparable sales, which accounted for 10.9 percentage points of the overall comp-sales gain. Store comparable sales expanded a robust 9.9%.
E-commerce accounted for 15.7% of total sales, doubling its share of the sales mix year over year. More than 95% of the quarter’s sales were fulfilled by Target’s stores, vindicating management’s decision to transform the stores to serve as both e-commerce fulfillment hubs and traditional in-store shopping venues.
The powerful top-line performance drove impressive bottom-line results, despite ongoing investments in employees’ pay and benefits and safety measures to protect store personnel and customers as the pandemic continues to intensify in much of the country. Net income from continuing operations vaulted 43.6% to $1.01 billion, or $2.01 per diluted share.
Excluding a 75-cent loss on early debt retirement and two minor items, adjusted earnings per share of $2.79 crushed analysts’ consensus forecast of $1.60 per share.
Cornell also expressed his excitement over the partnership with Ulta Beauty.
“The beauty category is ideally suited to our strategy, and it’s one of our strongest growing categories over the last few years,” he told analysts. “This new partnership will help us to build on that success, providing our guests access to dozens of new beauty brands nationwide with elevated service and presentation in select store locations. We plan to open the first 100 Ulta Beauty shop-in-shops later in 2021 with the potential to open hundreds more in the years beyond.”
The store-within-a-store departments will mirror Ulta Beauty’s own store environment in a space of about 1,000 square feet located next to Target’s existing beauty sections. They will be staffed by newly hired Target team members who will be trained to serve as prestige beauty experts.
Not only will the Ulta Beauty product assortment be available on Target.com, but the online experience at Target.com and the Target app will be modified to reflect the look and feel of the elevated Ulta Beauty online experience.
“Ulta Beauty at Target reflects further evolution in our omnichannel strategy, rooted in unlocking the potential of our physical and digital footprints, creating more seamless shopping opportunities for our loyal guests and continuing to lead the beauty industry,” said Mary Dillon, CEO of Ulta Beauty. “Now is the time for innovation in retail. We are thrilled to bring our beauty expertise, unparalleled assortment and digital innovation to life in a new channel.”