Target earnings show omni channel strategy is key for retailers to survive Pro

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Jharonne Martis, director of consumer research at Refinitiv, joins “Squawk Box” to discuss the latest quarterly earnings results in the retail sector, including Target Lowe’s and Home Depot.

Target’s digital sales fueled first-quarter gains, but the big-box retailer’s earnings results Wednesday showed it paid a hefty price for that growth as labor costs rose and sales of higher-margin items like apparel dropped.

Shares were down less than 1% Wednesday morning.

Target stores have remained open across the country during the coronavirus pandemic, but the crisis has underscored the challenge of making money from e-commerce. As retailers sell more online, they’re also taking on more work, such as picking items, packing them and shipping them. That typically squeezes their profits —whether retailers fill an order for curbside pickup, mail it or deliver it to customers’ doors.

Here’s what Target reported for the first quarter ended May 2, compared with what analysts were expecting, according to Refinitiv:

Earnings per share: 59 cents, adjusted vs. 40 cents, expected
Revenue: $19.62 billion vs. $19.04 billion, expected
Same-store sales: up 10.8%
In late April, Target warned the company’s increased expenses — such as higher pay for workers — would pressure its profits for the quarter, sparking a stock sell-off.

The cost of the increased wages, store cleaning and other expenses related to the pandemic has totaled about $500 million, CEO Brian Cornell told reporters during an earnings call. That includes $2 per hour wage increases and and improved benefits that will be paid through July 4.

Target said first-quarter net income fell to $284 million, or 56 cents per share, from $795 million, or $1.53 per share, a year earlier. Excluding some items, Target earned 59 cents per share. Analysts were expecting Target would earn 40 cents per share, according to Refinitiv.

The company’s revenue rose 11.3% to $19.62 billion, from $17.63 billion a year earlier, beating analysts’ estimate of $19.04 billion.

Target’s same-store sales grew by 10.8% in the first quarter from a year earlier. The vast majority of that growth came from e-commerce. Sales at stores open at least 12 months rose 0.9%, while digital sales surged by 141%.

The company withdrew its financial outlook for the full-year and first quarter in late March because of Covid-19. It has not provided a second-quarter or annual forecast.

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