April 23, 2020 / 11:04 AM / a month ago

UPDATE 2-Target sees margin squeeze as it spends more to meet coronavirus-led demand

 (Adds share movement, details from statement)
    By Uday Sampath Kumar and Aishwarya Venugopal
    April 23 (Reuters) - Target Corp         said on Thursday
rising costs from trying to meet the fast-changing needs of
consumers during the coronavirus crisis were set to hurt its
first-quarter profit and margins, even as it recorded robust
online sales during March and April.
    The big box retailer said digital comparable sales surged
more than 275% in April, with several days in the month
recording more online sales than Cyber Monday, traditionally the
busiest day for e-commerce companies.
    However, shares of the retailer fell nearly 3% after the
company said it expects margins to drop by 5-percentage points
in the first quarter due to temporary wage increases and higher
sales of more low-margin products such as groceries. 
    The company now plans to pay an extra $2 an hour for store
and distribution center workers until May 30. 
    Target also said it had to write down the value of its
inventory for apparel and accessories as shoppers confined to
their homes refrained from refreshing their wardrobe, leading to
a 40% drop in comparable sales so far in April. 
    Target, along with Kroger        and Costco         , are
among the few companies that have seen a net benefit in sales
from consumers stockpiling essentials.
    Other players in retail, especially apparel chains and
department stores, have taken a big hit from the pandemic, with
some of them on the verge of filing for bankruptcies. 
    "Watching the retail industry decline is not something I
enjoy, but I think going forward we're going to see
significant market share opportunities, across our apparel
business," Target Chief Executive Officer Brian Cornell said on
a media call. 
    "That'll be a benefit to us. But unfortunately, it will come
at the expense of others who are closing their doors and
potentially no longer operating in this future environment." 
    Gap         said on Thursday that it may not have sufficient
funds to operate during the coronavirus crisis.             
    A surge in online shopping more than made up for a mid-teens
decline in comparable store sales for Target in April. Overall
comparable sales, including digitial, rose more than 5%.
    "Target's ability to accommodate and capture such growth is
a testament to its early acknowledgement of the need for and
continued strengthening of its online fulfillment practices,"
Jefferies analyst Christopher Mandeville said.
    Sales of food and beverage items rose over 12% in April,
while those of toys and electronics jumped over 30%. 
    Target said quarter-to-date comparable sales have risen over
7%, with digital sales more than doubling.

 (Reporting by Uday Sampath and Aishwarya Venugopal; in
Bengaluru; Editing by Anil D'Silva)
  
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