Target's strong pandemic-induced sales in the third quarter propelled its shares to a new high Wednesday, but its success will likely be a hard act to follow even with the help of the busy holiday season.
With virus-wary consumers continuing to rely on one-stop shopping, Minneapolis-based Target's comparable sales jumped 20.7% during August, September and October, a huge increase though slightly less than earlier this year.
"It's been encouraging to see the resilience and the guests coming back to us each and every week, quarter by quarter during the pandemic, and we certainly hope that continues as we go forward into the holidays," Target CEO Brian Cornell said during a media call.
Target said it earned $1.01 billion, up 42%, on sales of $22.6 billion, up 21%, during its fiscal third quarter. Its adjusted earnings per share of $2.79 breezed past the $1.60 average estimate of analysts.
Target stock closed at $166.85, up 2.3% for the day. For the year so far, Target shares are up nearly 40%.
Target's robust growth could make it tough for the retailer to post strong gains in future quarters, said Brian Yarbrough, an analyst with Edward Jones.
"The concern is going to be how do they grow on top of these comparisons next year? … If we still don't have a vaccine and there's still a lockdown I think the Targets and the Walmarts and the Costcos of the world are going to maintain the benefit, but at some point I'm convinced that that demand is going to wane," Yarbrough said in an interview.
Target's store traffic increased by 4.5% in the latest period and the average ticket was up nearly 16%.
Neil Saunders, managing director of data analytics for consulting company GlobalData, said Target's strong performance could continue through the end of the year.
"I think the fourth quarter can still be really good for Target," Saunders said, though he added holiday sales will likely be diffused instead of concentrated over one weekend. "It could actually break records in the fourth quarter, but after that it's definitely going downhill."
Saunders noted that Target was still able to grow customer traffic this quarter, something that Walmart, which reported its results Tuesday, wasn't able to do. Walmart's traffic is considerably reliant on grocery, and people have consolidated their grocery trips, Saunders said.
According to a GlobalData survey, 34% of respondents said they visited Target during the pandemic "just to browse and to get out of the house." It was the highest percentage of any retailer in GlobalData's survey.
"People go to Target for a whole variety of reasons," he said.
Typically during the fourth quarter of the year, electronics and toys generate half their annual sales and consumers tend to shop more online, said Michael Fiddelke, Target's chief financial officer.
Given that the electronics and toys as well as digital sales have already seen surges, it is difficult to predict how they could perform in the last quarter, he said. "The reality is that none of us can accurately predict the future as all of us are facing a much higher level of uncertainty compared with a normal year," Fiddelke said.
Target began to roll out its holiday sales early in October and spread out its deals over recent weeks, offering them in-store and online to prevent huge crowds from converging on stores. Many consumers have started to shop earlier, but most shoppers still have a large portion of their holiday shopping they need to finish, Cornell said.
"I think the guest is reacting well to the fact that we are spreading out deals," he said. "We are making sure they got Black Friday value all month long. And I think the steps we have taken to really make sure it's easy and convenient and safe for our guests to shop is being well received."
Similar to earlier this year, electronics continued to be a popular category for shoppers in the third quarter with sales growing more than 50%. Consumers also bought more home items and decor, which pushed sales growth into the mid-20% range. Apparel grew by nearly 10%.
Following patterns seen already during the pandemic, digital comparable sales grew 155% and contactless same-day services including drive-up, order pickup and those delivered by Shipt grew in the triple digits in total, but still noticeably less than the growth rate in the first two quarters of the year.