Q2 Traffic Returned to Target 'in Droves,' Driving 9% Comp Sales Rise
Store traffic returned to Target "in droves" in Q2 as comparable store sales grew 8.7% from Q2 2020, the company reported Wednesday. Overall comp sales growth of 8.9% was driven by traffic, which had a 12.7% year-on-year increase, said CEO Brian Cornell on an earnings call. Digital comp sales growth slowed to 10% from 195% in pandemic-led Q2 2020.
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Target had growth across all five core merchandise categories, though electronics, in its hardlines segment, had a “moderate” mid-single-digit comp decline, said Chief Growth Officer Christina Hennington. In the year-ago quarter, electronics grew over 70% during a period when some competitors' stores were closed, she noted.
Revenue jumped 9.5% year on year to $25.2 billion for the quarter ended July 31. Q2 sales rose 9.4% to $24.8 billion. Target expects high single-digit growth in comp sales for the second half, near the high end of the previous guidance range, said Chief Financial Officer Michael Fiddelke. Shares closed 2.8% lower Wednesday at $247.55.
Target is having a strong back-to-school selling season, despite customer concerns over safety due to rising infection rates of the delta variant, said Cornell. Customers are shopping with caution and “wearing masks more across the country,” he said, saying the increase in store traffic proves customers are “resilient."
Inventory was up 26% at the end of July vs. last year, said Chief Operating Officer John Mulligan, but there’s “more work to do as our guests are still seeing empty shelves on some occasions.” Target’s team is working to secure additional quantities in cases where it sold more than expected of particular items, and it’s working with vendors that are experiencing constraints in product delivery, he said. The company is addressing supply-chain bottlenecks affecting domestic freight and international shipping with expedited ordering and larger upfront quantities in advance of a given shopping season, “mitigating the risk that replenishment could take longer than usual," he said.
Target’s drive-up business continued strong growth, rising 80% for the quarter. The retailer added more parking spots for drive-up and canopies to help with weather, said Mulligan. It added 5,000 items available for pick-up and the ability within the app to designate an alternate person for pickup, in response to customer feedback.
About 95% of total sales were fulfilled by stores in Q2; same-day services grew 55% on top of 270% growth in the year-ago quarter. Order pickup grew 30%, while the Shipt delivery service dropped 20% year on year, after 60% growth a year ago.
New functionality in the Target app alerts customers to deals so they don’t miss out, said Hennington. When customers add items to their cart, the app will show them all the applicable Target Circle rewards program offers before they check out, she said.