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Mohamed Mohamoud

Author and the owner of idman news

April 21, 2021

Idman news

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Target to spend $4 billion annually over the next several years to build on ‘record breaking’ 2020


Target Corp.
TGT,
-4.55%

plans to spend $4 billion each year over the coming several years on things like store remodels, technology improvements and order fulfillment services to further enhance and grow its business.

Target said 2020 sales growth was $15 billion, more than the total sales growth for the past 11 years, with comparable sales up 19.3%. Market share gains totaled about $9 billion. Michael Fiddelke, chief financial officer at Target, called the year “record breaking.”

For the fourth quarter, Target reported adjusted earnings per share of $2.67, ahead of the FactSet consensus for $2.54, and revenue of $28.34 billion, above the FactSet consensus of $27.41 billion. Same-store sales were up 20.5%, and digital sales were up 118%.

Target plans to open 30-to-40 new stores each year, focused on urban centers, college campuses and dense suburban areas. In 2020, the retailer opened 30 stores, including 29 small-format locations.

There will be 150 store remodels by this year’s holiday season.

Target’s holiday sales show the importance of stores even as COVID-19 drives business online

The company will upgrade its app to provide Drive Up store fulfillment customers with more personalization.

And the retailer plans to open five more “sortation centers” this year after opening the first in Minneapolis as a test for this new kind of facility.

Target has talked up the efficiencies associated with using its stores to fulfill online orders. Sortation centers take orders from local stores to organize carrier routes, removing this responsibility from store locations to make room for more store fulfillment, greater speed and lower costs.

Two new distribution centers are coming to Delaware and Chicago in 2021, with another two planned for 2022.

Target has already announced a new store format for its Apple
AAPL,
-1.59%

shops, and a new set of shop-in-shops through a partnership with Ulta Beauty Inc.
ULTA,
-0.28%

Target plans to add 100 Ulta shops in 2021 with hundreds more coming over time.

Target’s enhanced Apple shops aim for greater electronics sales, analyst says

Target also has 10 owned brands ringing up $1 billion in sales, including four with more than $2 billion in sales.

“This investment plan is consistent with its multiyear strategy, which has proven beyond prudent, and we expect this continued focus on strategic and tactical investments to strengthen Target’s already formidable competitive position,” said Charlie O’Shea, Moody’s vice president.

“Target’s ability to manage the COVID-related surge in revenue during Q4 and for the full-year while maintaining margins validates the soundness and effective execution of its continuing strategic multiyear investment program. A $15 billion increase in revenue for the full-year with stable margins is staggering, particularly when core competitors Walmart and Amazon are also running on all cylinders.”

Experts say the retailer has set a standard for traditional retail.

“We view Target as the U.S. leader in digital for big box retailers. The combination of profitability, e-commerce growth and store-based microfulfillment points to a new paradigm for big box retailers as well as the broader retail sector,” said Hilding Anderson, head of North American retail strategy at digital consultancy Publicis Sapient. 

To put Target’s year into perspective, Neil Saunders, director at GlobalData Retail says the retailer’s revenue was the equivalent of “every American spending $285 at the store – a figure that underlines how deeply Target is embedded in consumer culture.”

Still, the company has to prepare to lap tough comparisons as COVID-19 begins to recede.

National Retail Federation forecasts 2021 retail sales growth between 6.5% and 8.2% as COVID-19 vaccine continues roll out

“[W]e believe that the company will need to reach more deeply to secure growth which is one of the reasons it created a new position of chief growth officer,” Saunders said.

“The tactic for the company appears to be one of taking a forensic look at certain categories and plotting ways to engineer growth – something it has so far done with the Apple and Ulta partnerships in electronics and beauty, respectively. In our view, this switch from macro to micro is sensible.”

Target stock is down 3.4% in Tuesday trading, but has soared 65% over the past year.

The Amplify Online Retail ETF
IBUY,
-0.66%

is up nearly 170% over the past 12 months. And the benchmark S&P 500 index
SPX,
-0.57%

is up 25.8% for the period.



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