Higher merchandise and freight costs hurt margins

MINNEAPOLIS — Target Corp. reported comparable sales growth of 12.7% in the third quarter, reflecting comparable store sales growth of 9.7% and comparable digital sales growth of 29%.

Total revenue for the three-month period ended  October 30 was $25.7 billion, an increase of 13.3% compared with the same quarter last year, driven by total sales growth of 13.2% and a 22.3% increase in other revenue. Operating income was $2.0 billion in the third-quarter 2021, up 3.9% from the $1.9 billion recorded in 2020.

Same-day services (Order Pickup, Drive Up and Shipt) grew nearly 60% this year, on top of  200% increase last year.

Target also noted that the 12.7% comp store sales gain came on top of 20.7% growth last year. This year’s quarterly gain was driven entirely by store traffic. The 9.7% comp store sales growth came on top of a 9.9% comp store sales gain last year. The digital comp increase of 29% came on top of a 155% increase last year. Same-day services (Order Pickup, Drive Up and Shipt) grew nearly 60% this year, on top of  200% increase last year. Target said more than 95% of its third-quarter sales were fulfilled by its stores.

“The consistently strong growth we’re seeing in our business, quarter after quarter, is a testament to the passion and commitment our team brings to serving our guests, and the trust we’ve built with them as a result,” Target chairman and CEO Brian Cornell said.

“Following comp growth of nearly 21% a year ago, our third quarter comp increase of 12.7% was driven entirely by traffic, and reflects continued strength in our store sales, same-day digital fulfillment services and double-digit growth in all five of our core merchandising categories. With a strong inventory position heading into the peak of the holiday season, our team and our business are ready to serve our guests and poised to deliver continued, strong growth, through the holiday season and beyond.”

For the fourth quarter of 2021, the Company expects high-single-digit to low-double-digit growth in comparable sales, compared with the previous guidance for a high-single-digit increase.

The Company continues to expect its full-year operating income margin rate will be 8% or higher.

Target’s third-quarter operating income margin rate was 7.8% in 2021, down from 8.5% in 2020. The third-quarter gross margin rate was 28% percent, compared with 30.6% in 2020. The company attributed the change to pressure from higher merchandise and freight costs, increased inventory shrink, and increased supply chain costs from increased compensation and headcount in the company’s distribution centers.  These pressures were partially offset by a slight benefit from a favorable category mix. The third-quarter SG&A expense rate was 18.9% in 2021, compared with 20.5% in 2020, driven by leverage on strong revenue growth.