Target has reported strong earnings that rivaled Walmart’s for Q1 2020, with a 10.8% same-store sales jump, driven by a 141% increase in digital comparable sales. Brick-and-mortar sales only rose at a modest 0.9%, but the retailer’s embrace of store-based fulfillment has continued to pay off: stores fulfilled nearly 80% of all digital purchases, and usage of same-day services (including pickup, drive-up and Shipt) grew 278% — accounting for 5% of the company’s overall sales growth.
“Throughout the first quarter, our team and guests faced unprecedented challenges arising from the spread of COVID-19,” said Brian Cornell, CEO of Target in a statement. “In the face of those challenges, our team showed extraordinary resilience as guests relied on Target as a trusted resource for their families. With our stores at the center of our strategy, and a significant investment in the safety of our team and guests, our operations had the agility and flexibility needed to meet the changing needs of our business.”
Digital comparable sales growth actually accelerated as the COVID-19 pandemic forced people to shift their shopping online, from a 33% increase in February to a 282% leap in April. The continuous growth helped Target boost its comparable sales for the quarter into the double digits, up from the 7% reported in late April.
However, Target was still impacted by the challenge of operating under the pandemic: the retailer’s operating income margin rate fell to 2.4%, compared to 6.4% in Q1 2019, and the gross margin rate was 25.1%, down from 29.6% during the same period last year. The declines were attributed to a slowdown in apparel and accessories sales (down more than 20%) and increased interest in lower-margin categories such as food and beverage (up approximately 20%). High digital and supply chain costs also impacted margins.
Target also incurred $500 million in expenses related to increased wages, store cleaning and similar COVID-19 initiatives. The retailer has temporarily increased associate wages by $2 per hour and will pay for improved benefits through July 4.
Like most other retailers, Target withdrew its 2020 financial guidance due to the uncertain economic outlook created by the ongoing COVID-19 crisis.