Target Sees Muted Impact From Virus Amid Aggressive Shopping
Target Forecasts 2020 Profit Toward Lower End of Estimates
(Bloomberg) -- Target Corp. delivered a sanguine outlook for the year ahead, saying the coronavirus hasn’t had a big impact on operations yet while pressing ahead with growth initiatives online and in the stores.
While the retailer has witnessed “aggressive shopping” as consumers stockpile food and other household essentials in recent days, Chief Executive Officer Brian Cornell told investors Tuesday that he hasn’t “seen a large impact on our business or outlook.” That view contrasted with rivals Walmart Inc. and Best Buy Co., who earlier said the outbreak could cloud their full-year outlooks.
“We feel confident in our ability to manage through the situation,” said Cornell, adding that the retailer has rebounded from a disappointing holiday performance with “solid” February sales to start the first quarter.
Analysts had been primarily concerned with the supply-chain impact from the virus, given the amount of products sourced from China, but they’re now becoming increasingly concerned about how consumers will react. Some shoppers rushed to stores over the weekend to purchase bottled water and disinfectant wipes, while others preferred to stay home and order from Amazon.com Inc., which suffered some delivery slowdowns. One beneficiary could be Costco Wholesale Corp., which reports February sales Thursday.
“It’s now becoming increasingly likely that there could be some impact on the U.S. consumer,” Edward Kelly, an analyst at Wells Fargo Securities, said in a note. “Now that the COVID-19 threat has gone mainstream, we expect consumers to adjust. Pantry stocking of key staples items seems likely, and online shopping could become even more attractive.”
‘Some Delays’
Target said it’s boosting inventories of stock-up items like bottled water, and has a team that meets daily to track the production levels of its suppliers’ factories and monitor purchase orders as they move through clogged ports. The company said it will see “some periodic delays” in shipments due to the outbreak, but overall has not “seen anything so far that would cause our outlook to deviate.”
Investors weren’t entirely pleased with the company’s reassurances, though, pushing Target shares down as much as 4.5% on a day when the U.S. Federal Reserve cut interest rates to protect the nation’s economic expansion from the spreading coronavirus. The stock of rival big-box discount chain Kohl’s Corp. also fell after earlier gains even though it posted better-than-expected sales and profits.
In a presentation that was hastily moved from New York to Minneapolis due to the coronavirus, Target briefed investors on several growth plans, such as the addition of perishable items to its grocery pickup service and the development of new small-format stores that will be about half the size of existing ones. Both moves aim to double down on strategies that have been successful so far.
Online Sales
Excluding some items, earnings per share this fiscal year will be $6.70 to $7, Target said, the midpoint of which is below analysts’ average estimate of $6.94. Comparable sales for the full year and the first quarter will increase in the low-single digits this year, in line with last year’s pace.
Target’s online sales grew 20% in the fourth quarter, the slowest pace in more than three years. Walmart and Amazon debuted free next-day deliveries for thousands of items last year, and have also spruced up their offerings in areas like apparel and home decor.
Those efforts could have put a dent in Target’s e-commerce growth, analysts have said, which is worrying as comparable sales in its physical stores alone declined 0.7% in the fourth quarter. That’s the first time store-only comparable sales declined since the first quarter of 2017.
The slowdown in the stores is “a slight cause for concern,” Neil Saunders, an analyst at GlobalData Retail, said. Target is “now on a lower-growth trajectory and will not deliver the same kind of sales gains as it did over 2019. Pivoting to new areas of growth is critical.”
That could include the grocery aisle, which accounts for about one-fifth of Target’s revenue but has never been a true destination for shoppers. Target is trying to improve its grocery offering with a new private brand, Good & Gather, along with the recent rollout of Boar’s Head meats and sandwiches. The addition of milk and eggs -- along with alcoholic beverages -- to its pickup service could add more items to every online order.
“Grocery is a potential big win if they can get it right,” Saunders said.
To contact the reporter on this story: Matthew Boyle in New York at mboyle20@bloomberg.net
To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Jonathan Roeder, Anne Cronin
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