As the COVID-19 crisis has evolved, Target said it has been experiencing unusually strong traffic and sales, particularly in its stores and same-day services, as consumers rely on Target for essential items like food, medicine, cleaning products and pantry stock-up items. As a result, the company has adjusted the expected timing of some of its strategic initiatives.
Updated plans for Target’s remodel program anticipate approximately 130 remodels in 2020, down from the previous expectation of approximately 300. This will allow remodel projects already underway to be completed, and move all other remodel projects into 2021. Similarly, the company now expects to open 15 to 20 new small format stores in 2020, rather than the 36 previously announced. This will allow projects already underway to be completed, but move the remaining new store projects into next year. In addition, the effort to incorporate fresh grocery and adult beverages into the company’s Drive Up and Order Pickup services is temporarily on hold.
“We are prioritizing the work that’s in front of us to support our team, store operations and supply chain as families across the country rely on Target for everything they need in this challenging environment. I want to thank our entire team for their efforts, which have been nothing short of heroic,” said Brian Cornell, chairman and CEO, Target. “Over the past few weeks we’ve experienced an unprecedented surge in traffic and sales, as guests rely on our stores and same-day services. Ensuring we can take care of our team and deliver for the millions of guests who are counting on us remains our top priority.”
Target also provided an update on trends in the company’s sales performance as well as the expected impacts of investments in team member pay and benefits and changes to in-store processes.
For the first three weeks of the first quarter, which began on February 2, total company comparable sales and category mix were in line with expectations. Beginning with the fourth week of February and into the first part of March, the retailer saw an increase in traffic and comparable sales across its multi-category portfolio. For the month of February, total company comparable sales increased 3.8%.
Beginning in mid-March, the company experienced an even stronger surge in traffic and sales, with category mix heavily concentrated in the essentials and food and beverage categories. Around that time, strength also emerged within the portions of hardlines that support in-home activities, including home office and entertainment, while performance softened in apparel and accessories.
Month-to-date in March, overall comparable sales are more than 20% above last year, with comparable sales in essentials and food and beverage up more than 50%. During that same period, comparable sales in apparel and accessories are down more than 20% compared with last year.
Target noted that its stronger-than-anticipated quarter-to-date sales have led to gross margin dollar growth ahead of prior expectations. However, continued sales declines in higher-margin discretionary categories could result in lower-than-expected gross margin dollar performance for the remainder of the quarter.
In addition, certain first quarter costs are anticipated to be higher than prior expectations, driven by investments in pay and benefits, the spike in merchandise volume in stores and the supply chain, and the impact of additional hours dedicated to more rigorous cleaning routines in stores and distribution centers. Collectively, these changes are expected to add more than $300 million of incremental costs to the company’s prior outlook for the first quarter.
The company also withdrew its prior guidance for first quarter and full year 2020 sales, operating income and earnings per share. In addition, the company is suspending share repurchase activity in the current environment.