MINNEAPOLIS — Target Corp. experienced record sales and profit growth in 2020, and it is gearing up its investments to build on that success this year and beyond.
As executives pointed out during the company’s financial community meeting earlier this month, the COVID-19 pandemic created unprecedented and unimagined challenges for Target and other retailers. But they added that the company’s stunning success in surmounting those challenges and converting them into opportunities was attributable to strategic decisions and investments that were made as much as four and five years ago.
“Even before the dramatic challenges of last year took hold, our team had been busy building the retail platform of tomorrow,” said chairman and chief executive officer Brian Cornell. “But 2020 accelerated everything and, as such, our guests are already benefiting from and loving that platform today.
“When we began this journey, we didn’t know we would be facing a global pandemic, mass quarantines, rapid unemployment and the need to limit the number of people in public spaces. And yet, when those threats emerged in 2020, we were ready. Millions of American families turned to Target like never before. That happened because of decisions we made four and five years ago.”
Massive investments made over that period in supply chain, store operations, technology, and employee compensation and training, Cornell explained, had laid the basis for the exponential growth in e-commerce that Target has experienced.
Being prepared to meet the skyrocketing and highly volatile demand of consumers whose lives were suddenly being transformed enabled Target to report financial results that blew past Wall Street’s forecasts. Full-year net income from continuing operations soared 33.6% to $4.37 billion, as sales gained 19.8% to $92.4 billion.
The scale of the achievement is best illustrated by the $15.27 billion year-over-year increase in sales — an increase that exceeded Target’s combined sales growth over the previous 11 years.
The top-line expansion was driven by a 19.3% surge in comparable sales that included 7.2% growth in comparable-store sales and digital comp sales that exploded by 145%. In fact, Target’s digital sales rose nearly $10 billion during the year, driven by a 235% increase in same-day services, which include Order Pick Up, Drive Up and delivery by Shipt.
The full-year performance reflected a particularly strong fourth quarter that was buoyed by a solid holiday season and strength that continued into January. Net earnings from ongoing lines leapt 65.8% to $1.38 billion, or $2.73 per diluted share. Adjusted earnings, which exclude an income tax benefit and a gain on investment, totaled $2.67 per share, well beyond the average estimate of $2.54 among analysts surveyed by Refinitiv (formerly Thomson Reuters).
Sales for the final quarter rose 21% to $28 billion (beating analysts’ forecast of $27.48 billion), as comp sales advanced 20.5%, including a 6.9% improvement in comp-store sales. Same-day services escalated 212%, propelled by growth in Drive Up that exceeded 500%.
More than 95% of fourth quarter sales were fulfilled by stores.
Looking ahead, management plans to invest in the growth opportunities that lie before it. “This year our focus is to lock in last year’s gains, build on that foundation, continue to deepen guest engagement and drive long-term growth,” said chief financial officer Michael Fiddelke. “We’re entering 2021 as a much larger company with a host of opportunities to build on last year’s success.”
One focus will be technology enhancements to make Order Pick Up and Drive Up easier for customers and to expand the assortment of fresh, refrigerated and frozen food items available to customers who choose those fulfillment options.
Target will also rev up its store expansion program and expand its supply chain infrastructure. Last year the retailer opened 30 stores, including a record 29 small-format locations.
According to chief operating officer John Mulligan, beginning this year and continuing into the “foreseeable future,” Target will open 30 to 40 stores a year, with continued deployment of its small format in urban markets, supplemented by a number of mid-size stores in dense suburban neighborhoods — a move that will take advantage of the numerous retail vacancies across the country.
In addition, 150 remodels are slated for this year, increasing to more than 200 annually beginning in 2022.
To support ongoing sales growth and increase its supply chain efficiency, Target will also open two distribution centers with plans for two more in 2022. Moreover, the company has developed a new type of facility it calls a sortation center and will open five in urban markets this year.
“Unlike in recent years, when we needed to shore up our foundations or create new capabilities, today’s investments will build on an omnichannel Target platform that is already working incredibly well,” Cornell concluded. “A platform that has raised expectations, not just among Target guests, but for consumers across U.S. retail. Few can meet those expectations like we can, because what we’ve created is based on a unique combination of differentiated assets.”
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