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Target shocks investors again with COVID-19 fueled Q3 earnings blowout

Brian Sozzi
·Editor-at-Large
·3 min read

And the financial gifts from Santa to Target’s investor base continued into the third quarter.

The country is smack in the middle of a health pandemic that has uprooted household finances and consumer sentiment, but the retailer has racked up a 20.7% total comparable sales increase for the third quarter. Same-store sales at physical Target locations rose 9.9%. E-commerce sales surged 155%. Target delivered another almost hard-to-believe quarterly earnings report.

Here’s how Target (TGT) performed compared to Wall Street estimates in the third quarter:

  • Net Sales: $22.6 billion versus estimates for $20.7 billion

  • Gross Margin: 30.57% versus estimates for 29.32%

  • Operating Profits: $1.93 billion versus estimates for $1.18 billion

  • Diluted EPS: $2.79 a share versus estimates for $1.60 cents a share

The only blemish for Target is that the growth in sales at stores and online slowed a touch from the second quarter, when they rose 10.9% and 195%, respectively. The verdict is out on how Target bulls (shares are up 35% in the past six months) will take to that.

But for some perspective on how crazy Target’s third quarter was — absent the discussion on there being no fresh government stimulus plan during an unemployment crisis in America — Walmart U.S. put up a 6.4% same-store sales gain in the third quarter and it saw a 79% online sales increase.

Both performances for Walmart are extraordinary in their own right. For Target to top the world’s largest retailer is eye-opening as the country teeters on a double-dip recession.

Target Chairman and CEO Brian Cornell told reporters on a media call he believes the retailer continues to win because of efforts to offer more buying options for shoppers (see Target’s same-day delivery service Shipt and parking lot pickup service) and up the safety protocols amidst the pandemic.

“I've certainly been really pleased with how the guest has responded to our offerings, to the investments we've made in safety in our stores, and how they continue to come back to us each and every week during the pandemic to shop our stores,” Cornell told Yahoo Finance on the call. “So it has certainly been encouraging to see the resilience and them coming back to us each and every week, quarter by quarter during the pandemic. And we certainly hope that continues as we go forward into the holidays.”

As the police say to onlookers near a car accident, not much to see so please keep on moving. And that’s the theme coming off Target’s third quarter.

The company clearly has momentum into the holidays. It just reinstated its stock repurchase plan Wednesday, signaling to investors it could repurchase $4.5 billion in stock next year. The wildcard to Target’s feel good story of 2020 is how much more worse the pandemic gets and the corresponding impact on consumer spending. Any holiday season sales letdown for Target will not be looked upon too kindly by the Street.

In the meantime, bring on Black Friday.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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