Target Faces Higher Costs Even as Sales and Online Use Surge

(Bloomberg) -- Target Corp. has seen a big boost from selling essential goods during the coronavirus pandemic, but higher costs and the likelihood of having to write off slow-selling merchandise, like clothing, will weigh on the profitability, the company said in a statement.

The potential for lower margins spooked investors as shares fell as much as 5.9% in New York on Thursday. Before Thursday, the stock has declined 17% this year.

Target reported that it’s on pace for same-store sales growth of 7% in the fiscal first quarter that ends this month. If that holds, it would mark its best performance since 2000, according to data collected by Bloomberg.

Target Falls on ‘Severe’ Margin Pressure; Peers Down in Sympathy

The retailer has kept stores open as others have closed. Still, Americans shifting to staying at home means fewer visits to stores, which saw comparable sales fall at a mid-teens percentage in April. While its nearly 1,900 locations have posted a “slight decline” in revenue so far this quarter, that’s a performance many harder hit retailers would covet given the circumstances.

Target is also extending a temporary $2-an-hour pay increase and other benefits to May 30.

But quarantines have also sent shoppers to Target’s website, which has seen e-commerce revenue more than double. That includes a 275% increase so far this month as most of America fell under stay-at-home orders.

“The significant share gains we are seeing now will not only make us more relevant in the near term, but also in the long term,” Target Chief Executive Officer Brian Cornell said on a call with reporters.

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