Target CEO Brian Cornell said consumers have become “increasingly optimistic,” shopping for clothes again and returning to normal buying habits after a year of uncertainty during the pandemic.
The shift can be seen in the Minneapolis-based first quarter results released Wednesday morning. Target saw first quarter revenue grow more than 23% to $24.2 billion compared with last year, beating Wall Street expectations. Net profits grew from $284 million to $2.1 billion.
Comparable sales grew nearly 23%, with digital sales still going strong with growth of 50%.
“I think consumer confidence is on the rise as we think about the strength in the economy, certainly the federal aid that’s been distributed and vaccine distribution,” said Target CEO Brian Cornell, in a call with media.
More consumers are beginning to “return to those normal activities, getting out of their homes, shopping in our stores, beginning to plan for celebrations,” he said. For example, recent Mother’s Day sales were among Target’s strongest in years.
Around this time last year, Target experienced the largest increase in sales it had seen in 15 years as consumers rushed the retailer for everyday necessities during the onset of the COVID-19 pandemic. But profits took a dip since much of what people were buying were lower-margin items like groceries.
In the quarter this year that ended May 1, Target’s revenue growth was led by apparel sales that increased more than 60%, after dipping about 20% in the same quarter a year ago. Home products grew more than 30%. Target’s sales of owned brands, which includes activewear line All in Motion and Cat & Jack children’s clothing, jumped 36%, a new record for Target.
In the first quarter of 2020, Target withdrew its financial guidance because of the uncertain impact that COVID-19 could have on buyer shopping patterns. On Wednesday, the company joined many other firms in providing fiscal guidance again, saying it expected mid-to-high single digit growth in comparable sales in the second quarter and positive single-digit comparable sales growth in the last two quarters of the year.
“We see a consumer that’s on a macro level seeing the benefit of vaccine rollout and a strengthening economy and the benefit of federal stimulus and importantly we got to see the guest response to Target’s business as well,” said Michael Fiddelke, Target’s chief financial officer.
Store and digital traffic grew 17%.
Despite analysts’ concerns that Target could be a victim to its own success and not be able to keep up with the unprecedented sales of last year, Target and other big-box retailers such as Walmart and Home Depot posted strong sales growth in their first quarters.
Retail analytics firm Placer.ai said visits to Target skyrocketed in March and April to gains of 21.7% and 49.5%, respectively, compared with last year and to 2019 before the pandemic. Ethan Chernofsky, vice president of marketing at Placer.ai, said Walmart also posted improving traffic numbers.
“What makes this recovery all the more impressive is that it is happening as behavior normalizes,” Chernofsky wrote. “Essentially, Walmart and Target are so strong that they excel regardless of the situation or wider consumer behavior shifts.”
The shift in the way people shop continued in the first quarter as more Target customers continued to use same-day services that don’t require them to go into stores. Overall same-day services increased more than 90% compared with last year. Drive-up, where employees bring an order out to someone’s car, jumped 123% compared to this time last year when usage surged more than 600%.
This week, Target also announced it would expand its same-day pickup and drive up to include alcoholic beverages at more than 1,200 stores across the country. By the end of the month, Shipt will offer same-day delivery of alcohol at more than 600 stores. Last year, Target piloted the adult beverage service at stores in Florida, California and South Dakota.
In another nod to the changing retail atmosphere, this week Target announced it would no longer require customers and employees who are vaccinated to wear masks in stores unless required by local law. The move by Target and other retailers after the Centers for Disease Control and Prevention said mask-wearing by vaccinated people was not necessary in most instances.
Target also has recently introduced new brands and partnerships including a collaboration with plant enthusiast Hilton Carter to sell live and artificial plants and accessories as well as Good & Gather Plant Based, an assortment of more than 30 food products offering meat alternatives such as meatless meatballs and cauliflower wings.
In March, as it announced its fiscal year-end report, Target said it would spend $4 billion a year on initiatives such as opening small and midsize stores and store remodels. The company said it would open 30 to 40 new stores a year and increase the number of remodels with about 150 planned to be completed this year before the next holiday season.