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Tuesday, June 28, 2022

Sales, profit soar again at Target and a $100 billion year is in sight

Target Corp. is still growing faster than it did before the pandemic, and executives on Wednesday signaled they expect no let-up in the months ahead.

Sales grew 8.9% in May, June and July on top of record growth of more than 24% during the same time last year, which is the second quarter of its fiscal year.

Comparable sales, or those at stores open at least a year, grew 8.7% and digital sales rose 10%. Target’s profit rose about 7%.

“Even after unprecedented growth over the last two years, we see much more opportunity ahead of us, and we’re leaning into opportunities to invest in the long-term growth and resiliency of our business,” Brian Cornell, the company’s chief executive, said in a statement.

Before the pandemic, Target had comparable store sales growth of 5% in 2018 and 7% in 2019, figures that were near the top of the retail industry at the time.

Now, with Target shares trading at all-time highs — nearly double their year-ago value and more than triple what they were two years ago — the company’s board decided to maintain a share repurchase effort. It authorized $15 billion in new share repurchases, though it did not specify a time period for them.

The company halted share buybacks last year when the pandemic spawned an economic downturn and its share value plunged. It has bought about $3 billion of its shares in the first six months of this fiscal year.

“Our continued strong operating performance and ability to generate cash have supported meaningful investments in our team and our business, along with the return of capital through both dividends and share repurchases,” said chief financial officer Michael Fiddelke, in a statement.”This new authorization reflects our confidence in the sustained, strong performance of our business, which will enable continued share repurchases in keeping with our long-standing capital deployment goals.”

Target beat Wall Street earnings expectations with total revenue of $25.2 billion, however, share prices were down about 2% to around $250 in pre-market trading indications.

The company said it earned $1.82 billion, or $3.65 a diluted share, in the quarter. It earned $1.69 billion, or $3.35 a diluted share, in the same period a year ago.

Even as more people began to return to more normalized routines as more people became vaccinnated, customer chose to use same-day services like drive-up and order pickup for more than half of digital sales. But the growth in such was more tempered at about 55% compared to the triple-digit percentage growth last year when the pandemic changed shopping habits for many.

As part of plans to spend $4 billion a year on initiatives such as opening small and midsize stores and store remodels, Target opened two new “flow centers,” which send small shipments to stores more frequently, in the quarter. More than 100 full-store remodels are also currently underway and 19 new stores have opened.

For the second half of the year, Target leadership expects high single-digit percentage growth in sales, which is near the high end of the guidance range it estimated in the first quarter. Already sales in the back-to-school season are off to a good start, the company said.

With $48.7 billion in sales through the first half of its fiscal year, Target is on pace to surpass $100 billion for the full year. The third fiscal quarter includes back-to-school season, the second-busiest shopping season, and the fourth includes the holiday season that’s the busiest.

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