Target rings up additional $300 million in first-quarter costs as March food and beverage comps soar 50%

Bloomberg

Target has seen same-store sales spike due to the coronavirus, but costs have also soared.

Target Corp. saw same-store sales soar during the first quarter as customers stocked up on household necessities amid the coronavirus pandemic. However, costs also skyrocketed, putting pressure on margins.

Target /zigman2/quotes/207799045/composite TGT +2.12% said Wednesday that sales jumped toward the end of February, with same-store sales rising 3.8% for the month.

In March, same-store sales surged, along with traffic. Not only were customers buying disinfectant wipes, groceries and other essentials, sales were also cascading into other categories as families prepared to work from home and spend more time with their children.

Read: Costco’s coronavirus-related surge won’t end anytime soon, analysts say

Brian Cornell, chief executive of Target, told the media in a conference call that demand in categories related to office supplies and games increased.

For the month to date in March, same-store sales are up more than 20%, with essentials and food-and-beverage same-store sales up 50% year over year.

Now, Cornell said, as consumers prepare more meals at home, kitchen items and small kitchen appliances are seeing increased demand.

However, sales for things like clothing fell, though Cornell noted that sales of leisure wear and pajamas have climbed.

Sales declines in higher-margin discretionary categories have put pressure on results, the company warned. Target has pulled its first-quarter and full-year guidance. In addition, it is suspending share buybacks.

The FactSet consensus for the first quarter is for earnings per share of $1.66, up 8.6% from last year, and sales of $18.17 billion, a 3.1% increase from 2019. The same-store sales consensus is for 2.9% growth.

First-quarter earnings are scheduled to be announced on May 20.

The retailer has also made investments in pay and benefits, has seen labor hours jump as stores require more sanitizing, and has added costs for the supply chain and merchandise volume. The company has announced that workers’ wages would go up by $2 per hour until at least May 2.

Those needs drove up costs an additional $300 million above Target’s previous outlook.

See: There are 382,000 job openings and counting as Amazon, Walmart, Domino’s and others hire to meet the coronavirus demand

The investments will continue, though at a slower pace.

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