Following the Walmart pandemic-fueled earnings beat released Tuesday, Target today also easily beat Wall Street expectations to deliver a record-breaking quarter on a number of key metrics. On Wednesday, the retailer announced its strongest quarter to date for comparable sales, which grew 24.3% in the second quarter, driving the profit up 80.3% yoy to $ 1.69 billion. Online orders were particularly popular, Target noted, with digital sales up 195%. Same-day services such as Drive Up, Order Pick Up and Shipt also grew by 273%.
In the quarter, Target exceeded estimates for revenue, same-store sales, adjusted EPS, and gross margin. It recorded revenues of $ 23 billion against an estimate of $ 19.82 billion. Its record 24.3% increase in comparable sales was well above the 5.8% expected. Earnings per share were $ 3.38 versus the forecast of $ 1.58. And its GM was 30.9% instead of the expected 28.98%.
The company has attributed its sales growth to a number of factors, including its ability to stay open amid the pandemic as an essential business, its customers' overall confidence in the Target brand, its ability to persuade customers to do purchases through its product categories, its digital services and, in particular, the return of customers to its stores in the second quarter.
However, the latter element doesn't necessarily mean that Target shoppers were walking the aisles.
Instead, he talks about the investments Target has made ahead of the pandemic to bridge the gap between online orders and its brick and mortar stores. In the second quarter, Target's in-store order pickup grew by more than 60%, as shoppers headed inside Target to pick up their web orders, for example.
Target's Drive Up service, which allows customers to shop online and then pull over to designated parking lots to take orders with their car, increased more than 700% in the quarter.
And Target's same-day Shipt home delivery service is up 350% from last year.
This means that for much of what Target customers consider "online shopping", their sales have actually been fulfilled by Target stores. In fact, Target said its stores met over 90% of second-quarter sales.
To develop its digital fulfillment services, Target took a similar approach to that of a technology company by leveraging in-house engineering teams who can iterate new ideas quickly. For example, a team of eight, including four engineers, originally built Drive Up as of April 2017. By summer 2017, Drive Up was tested internally. Then it was launched on Target's home market by that fall. And as of August 2019, Target's Drive Up service was available nationwide.
The retailer also made key acquisitions to aid its e-commerce operations, including the $ 550 million deal for Shipt in 2017 and, most recently, the acquisition of same-day delivery technology from Deliv in May. It has also integrated Shipt's same-day service directly into its website and app, instead of relying only on Shipt's dedicated branding to reach Target buyers.
The results of these efforts are now bearing fruit in a pandemic where shoppers don't necessarily want to explore store aisles in person to shop. This led Target to see what Yahoo Finance today described as "technology-like growth" for their retail business.
Target president and CEO Brian Cornell also noted that the company added $ 5 billion in market share in the first six months of 2020, during which time it added 10 million new digital customers.
"Our comparable second quarter sales growth of 24.3% is the strongest we've ever reported, which is a true testament to the resilience of our team and the durability of our business model. Our stores have been the key to this unprecedented growth, with in-store comp sales up 10.9% and stores accounting for more than three-quarters of Target's digital sales, which increased nearly 200%. "He said." We also generated exceptional profitability in the quarter, despite making significant investments in compensation and benefits for our team. We remain steadfast in our focus on investing in a safe and affordable shopping experience for customers. our guests and their trust has translated into a $ 5 billion market share increase in the first six months of the year, "continued Cornell.
"With our differentiated merchandise assortment, a full complement of affordable fulfillment options, a solid budget, and our deeply dedicated team, we are well equipped to meet the ongoing challenges of the pandemic and continue to grow profitably for years to come. ", he said.
The pandemic also played a role in what customers bought. Target said its sales increased across all five core merchandise categories. This has been driven by stronger sales in the electronics industry, a category that has increased 70% year-on-year due to people staying home for work, school and entertainment, leading to more purchases of things like computers or systems of game. Electronics was followed by household products, which increased by 30%, then increased by 20% for the beauty, food and beverage and essentials categories. Apparel even went from a 20% decline in the first quarter to double-digit growth in the second quarter. Customer cart size also increased by 18.8%, as people bought more items during Target runs.
Like Walmart, Target also saw a boost from government stimulus controls, which are likely to ease in the next quarter. But Target declined to offer any further guidance for 2020, saying the COVID-19 crisis makes consumer buying patterns and government policies unpredictable.