Target traffic continues to increase as execs raise outlook, says it's ready for holidays

Target executives say the Minneapolis-based retailer is ready for the predicted big holiday season even as it continues to absorb rising costs and navigate unprecedented supply chain disruptions.

More people are going on Target runs as overall traffic in stores and online increased 13%, and comparable sales grew 12.7% in August, September and October, the company said Wednesday. Feeling optimistic, Target executives raised their outlook for the final quarter of the fiscal year.

"We've seen continued momentum in the marketplace and a guest who is shopping all of our categories utilizing both our stores and our digital channels, and we think that's going to continue throughout the holiday season," Target CEO Brian Cornell said during a call with analysts. "All indications are that the U.S. consumer is looking to celebrate the holiday season. They are anxious to get together with family and friends."

While profits were up, Target shares closed down nearly 5% Wednesday. The gross margin rate, a measure of expenses against sales, was lower than expected at 28%. The rate dipped compared with last year, Target said, because of higher costs for merchandise, freight and personnel.

The combination of slowing sales growth compared with last year's blockbuster results and cost pressures have made investors cautious about when Target's earnings are going to normalize, said Brian Yarbrough, an Edward Jones analyst.

"That can be a double negative," he said.

Cornell has emphasized Target is currently not raising prices for consumers even as it deals with higher operation costs, a strategy likely to continue to stay competitive with the low prices of Walmart, Yarbrough said.

Target's profit grew to about $1.5 billion in its fiscal third quarter, up from a little more than $1 billion in the same period last year. Adjusted earnings were up nearly 9% to $3.03 a share, which beat the average estimate of analysts.

Revenue was $25.7 billion, up more than 13%. All five of its core sales categories saw double-digit growth, including apparel, which has rebounded this year.

The company is already in the thick of a holiday shopping season that's been shaped by early promotions and concerns that international shipping delays might lead to more out-of-stock merchandise.

To combat supply chain issues, Target increased its inventory in recent months, and finished the quarter with about $2 billion more goods. This fall Target announced it had chartered its own container ship to help bring its merchandise from overseas ports to the United States. At the country's most congested ports in Los Angeles and Long Beach, Target has begun to move a large percentage of its shipping containers at night.

"We know that we are going to still face some supply chain challenges as we go into 2022," Cornell said.

Yet Target also said Wednesday that transactions have increased as basket sizes have remained relatively even compared with last year.

And while people are shopping more in stores, digital same-day services including order pick-up and Shipt delivery services continued to grow 60%. Target's curbside pickup business that it calls drive up increased 80% on top of last year's pandemic-induced jump of more than 500% last year.

With many students returning to in-person classes this year, Target's back-to-school shopping season was strong, and the retail chain had a record Halloween shopping season, Cornell said.

Target revealed its Black Friday deals this week as the company prepares for a surge in shopping. Target announced early this year that it would be closed Thanksgiving like it was last year.

Last quarter, Target's leadership team estimated the company would reach high single-digit percentage growth in comparable sales for the second half of the year. On Wednesday, it said leaders now expect high single-digit to low double-digit growth in sales in the fourth quarter.

Target is on track to surpass $100 billion in revenue for the fiscal year, a feat that only two other Minnesota companies — UnitedHealth Group and Cargill Inc. — have accomplished.

The retailer had nearly $74 billion in sales through the first nine months of its fiscal year. During its fiscal fourth quarter at year ago, Target's revenue was $28.3 billion. Several retail surveys have predicted consumers will spend more this holiday season as more people return to shopping in person and celebrating together.

Target said that it still plans to complete about 145 store remodels this year, with the bulk of them still slated to wrap up before the holidays. Target opened 15 new stores in the quarter with the company adding about 30 new stores this year to date ranging in size from 11,000 square feet to 160,000 square feet.