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How Target Mastered the Pandemic

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GuruFocus.com
·3 min read
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- By Panos Mourdoukoutas

Target Corp. (NYSE:TGT) is a big winner of the Covid-19 pandemic crisis, as evidenced by a series of robust financial reports.

This week, Target reported fiscal fourth-quarter adjusted earnings per share of $2.67, beating expectations of $2.54. Revenue came in at $28.34 billion, exceeding expectations of $27.48 billion.

In November, Target reported third-quarter earnings and revenue that crushed Wall Street's expectations, as other retailers strived for survival.


How Target did it? By investing heavily ahead of the pandemic to build a strong business model, which helped the company raise its market share, according to Chairman and CEO Brian Cornell.

"Following years of investment to build a durable, scalable, and sustainable business model, we saw record growth in 2020, as our guests turned to Target to safely provide for their families throughout the pandemic," he said. "With the strength of our unique, multi-category assortment and the flexibility we offer through our reliable and convenient fulfillment options, we gained nearly $9 billion in market share in 2020, and grew our revenue by $15 billion, which is more than the 11 prior years combined."

Ryan Rommelfanger, founder and chief creative officer of Envoy, attributes Target's success to the elevation of customer experience.

"Since the beginning of the pandemic, Target's shown it's a force to be reckoned with through its continued focus on elevating the customer experience through omnichannel services and by addressing the changing preferences of consumers, who have shown a dramatic shift in brand loyalty and more of an interest in brands that share in their personal values such as sustainability, clean labels, and elevated design," he said.

"The retailer applied key learnings from the beginning of the pandemic to strengthen their omnichannel approach and it served them well, and they continue to apply learnings to every aspect of their business, particularly the health and wellness segment," Todd Morris, CEO of Label, added.

Over the past three years, Target's sales grew by 7.9% and its Ebitda rose 4.2%%, lagging behind Walmart's (NYSE:WMT) and Amazon's (NASDAQ:AMZN) numbers, but beating both companies in a key value metric, economic profit, meaning that it still enjoys a strong competitive advantage and creates significant value for its shareholders.

Target

Walmart

Amazon

Three-year Revenue Growth (%)

7.9

5.7

28

Three-year Ebitda Growth (%)

4.2

8.7

45.2

Current Operating Margin (%)

6.66

4.03

5.93

Market Price

$186.10

$131.37

$3,146.14

Intrinsic Value

$112.63

$124.41

$3,198.53



Company

ROIC

WACC

ROIC-WACC (Economic profit)

Target

14.95%

6.74%

8.21%

Walmart

8.31%

3.67%

4.64%

Amazon

12.40%

7.71%

4.70%



Will Target's success continue beyond the pandemic? Tom Caporaso, CEO of premium loyalty provider Clarus Commerce, thinks so.

"So many Americans are now acclimated to ordering groceries and weekly commodities online, and many Target shoppers will continue this routine moving forward, just like Amazon Prime users have chosen to do for years," he said. "However, unlike Amazon Prime or Walmart+, Target still does not offer a premium loyalty program where customers can choose to pay an annual or monthly fee for enhanced, instant benefits."

That may end up being to Target's advantage, however, as the competition among the retail giants intensifies.

Disclosure: I own shares of Target and Amazon.

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This article first appeared on GuruFocus.