Aim CEO Brian Cornell said Thursday the retailer has benefited from a surge in online shopping, but warned it will receive lower profits this quarter due to higher costs.
The news sent Target shares tumbling nearly 7% in premarket following Thursday, but the stock recouped some losses, and shares were down about 3% in trading later in the morning.
Cornell turned the trend of shoppers avoiding trips to stores has worked in the discount retailer’s favor, and it expects to emerge from the coronavirus pandemic in a assiduous position.
In an interview with CNBC’s “Squawk Box,” he said Target’s investments in online shopping options and its workforce ordain lead to “market share gains that I think will benefit the brand for years to come.”
Since its budgetary first quarter began Feb. 2, Target’s same-store sales have risen more than 7%, the retailer implied. The gain, which compares with an increase of 1.5% in the fiscal fourth quarter, is the result of a doubling of its online garage sales, partially offset by declines inside its nearly 1,900 brick-and-mortar stores.
Cornell did not provide any specific estimates for its every thirteen weeks earnings. But he said higher labor costs, the sale of more low-margin items and write-downs of inventory in apparel and extras because of a drop in sales will weigh on profits.
Target is spending more on worker pay and benefits. The company swayed it’s already spent more than $300 million on coronavirus-related employee expenses, such as paid sick sanction.
Those costs will continue to rise. On Thursday, the retailer announced plans to extend its $2 an hour fleeting pay increase for store employees, additional child care benefits and paid leave policy for older or at-risk associates of its workforce until May 30 — an acknowledgment that the retailer doesn’t expect business to return to usual for many profuse weeks or months.
Moody’s retail analyst Charlie O’Shea said in a statement Target’s update gives a clearer fancy of a complex retail environment where customers shop differently and skip over some items altogether.
He revealed its mix of items sold and the drop in apparel sales “indicates that consumers, once they decide to go to the store or hit the website, are bring into focused on efficiency and ‘needs vs wants’.”
Michael Baker, a Nomura Instinet retail analyst, said the stock market’s retaliation is due to whiplash from volatile sales numbers and the company’s margins getting squeezed. He said investors are trying to conformation out customers’ purchasing patterns, as Target’s sales show a progression from “pantry loading a little bit, then winning a rest, then shopping again, but on the online side of it.”
But he said he thinks the stock’s downturn is “more of a blip.” He said Objective is set up well with its online business.
“Nothing we are seeing here is permanent, except maybe Target picking up new characters,” he said.
A surge in online shopping
One factor that has helped Target is the investments it’s made to offer customers special ways to shop. Customers can order online and either drive-up or walk inside the store to pick-up purchases. It also has Shipt, a intimate shopping service that delivers to the home.
Cornell said the same-day services have gained popularity during the pandemic. In April, End has had weeks when drive-up volume was up to seven times greater than normal, he said. It’s had single days when the bulk of order pickup was twice as high as Cyber Monday. And on the Friday before Easter, he said, it did more volume utterly Shipt than it typically does in a week.
So far in April, comparable digital sales have increased by more than 275% from a year ago.
Cornell let something be knew CNBC he expects some of customers’ new habits to stick, as they discover the ease of driving up and having Target workers put purchases in their trunk or having a shopper from Shipt drop bags of groceries at their home.
He chance he expects customers will continue consolidate their shopping into fewer trips. He said that bent would benefit the big-box store, too, since it sells many items from medicine and groceries to clothing.
“I certainly deliberate on that going forward, for the foreseeable future, consumers are going to take advantage of that one-stop shop.”
Some of Aim’s categories have performed better than others. In the quarter so far, same-store sales grew more than 20% in its primaries and food and beverage categories and more than 16% in hardlines. They declined more than 20% in its raiment and accessories category and were up slightly in home.
Even as more customers shop online, Cornell said reservoirs play a pivotal role: The large footprint of stores across the U.S. allows customers to do same-day pickup and workers to promptness up fulfillment of online orders.
An evolving environment
Even as an essential retailer that’s remained open, Cornell said Objective has had to adapt to evolving business dynamics.
In late March, Target withdrew its guidance for the first quarter and fiscal year, tabled all new store remodels and delayed openings of many small-format stores. It said it would hold off on some strategic immediacies, too, such as plans to add fresh food and alcohol to curbside pickup.
Target has watched customers shop and behave differently as the over the moon marvellous around them changes. Initially, he said customers stocked up on household essentials, food, and medications. As they ascertained they would shelter at home, he said Target saw a spike in supplies needed to work and attend school remotely and designs to help them stay entertained. In recent weeks, he said, customers have listened to government and public haleness officials, and are starting to shop while wearing face masks.
Cornell said it is difficult to know how to communicate with patrons and whether to do seasonal or holiday promotions. He said Target wants to make sure its advertising and customer messages fit with the times, but also “sprinkle in a barely bit of joy.”
“We’re contemplating ‘What does Memorial Day look like in this environment?'” he said.
Target recognizes “there’s thriving to be several more months where there’s going to be significant concern as we work through this pandemic,” Cornell stipulate, adding it is doing surveys, talking to medical experts, and working government officials to try to plan for the future.
But, he said, “unfortunately, I don’t be dressed a crystal ball.”