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Target, Walmart show momentum as they tame global supply backups

🕐 5 min read

By ANNE D'INNOCENZIO, AP News.

NEW YORK (AP) — Target delivered another strong quarter, overcoming a slew of challenges from inflationary pressures to congested ports.

Third-quarter profits rose nearly 47%, while sales increased 13.2%, both exceeding expectations and the Minneapolis company raised projections for fourth-quarter comparable store sales.

Target joins Walmart heading into the holiday shopping season with momentum. The biggest U.S. retailers are rerouting goods to less congested ports, even chartering their own vessels. Target also said it unloaded about 60% of its containers at off-peak times Target and Walmart are using their scale to keep prices comparatively low and perhaps most importantly, keeping its shelves full when so much is in short supply.

On Wednesday, Target said that inventory levels rose 20% compared with the same period last year.

It’s quarterly operating income margin rate during the quarter was 7.8%, up from 8.5% last year. Its gross margin rate was 28%, also up from last year’s 30.6%. The company cited higher merchandise and freight costs, on top of rising supply chain costs.

Before the opening bell Wednesday, shares of Target Corp. fell 3%

Sales at stores that have been open for at least a year rose 9.7% in the three-month period that ended Oct. 30. That was on top of a 9.9% growth in the same 2020 span. Target reported double-digit sales growth across all five of its key merchandise categories including food and clothing.

Online comparable sales jumped 29% compared with a blistering 155% increase a year ago before vaccines against COVID-19 became available and many Americans steered clear of indoor spaces.

Net income rose to $1.49 billion, or $3.04 per share, from $1.01 billion, or $2.01 per share, last year. Adjusted earnings per share for the recent quarter was $3.03, far exceeding the $2.82 per share Wall Street had been expecting, according to a survey by FactSet.

Sales reached $25.29 billion in the quarter, topping last year’s $22.34 billion and also the projections of industry analysts.

Target CEO Brian Cornell told reporters Tuesday that Americans have been shopping throughout the year.

The company now expects that same-store sales for the fourth quarter will be up in the high single digit to low double-digit percentage range, up from the previous guidance for a high-single digit increase.

On Tuesday, Walmart raised its outlook for the year after another surprisingly strong quarter as the largest retailer in the world flexed its scale to deal with rising costs and a snarled global supply chain.

Walmart rerouted goods to less congested ports, even chartered its own vessels, and said Tuesday that its inventory levels actually rose 11.5% from the same period last year. It boosted market share gains as a result, particularly with groceries, as it drew in more Americans stung by prices that are rising everywhere.

“The sharp increase in inflation has been felt by many households, especially when it comes to grocery shopping, and this has created far more churn in where consumers buy,” said Neil Saunders, managing director at GlobalData Retail. “Thanks to its solid low-price credentials, Walmart is one of the retailers households turn to make their food budget stretch further.”

Food sales rose nearly 10% during the quarter, reflecting strong market share gains and low to mid-single digit inflation.

Walmart executives said they’re seeing beneficial gaps in pricing for groceries compared with rivals and that those gaps are wider now than before the pandemic began.

Walmart was not immune from the current inflationary pressures, however, and said Tuesday that its consolidated gross profit rate took a hit primarily due to increased supply chain costs, among other issues.

“We’re off to a good start for the holiday season and in a good position to continue delivering strong results,” Chief Financial Officer Brett Biggs said in a conference call Tuesday. “ Despite the various macro and industry challenges our inventory position is good. Stores and fulfillment centers are well staffed and our price position remains strong. Customers should expect to find the items they want.”

On Tuesday, the U.S. reported that retail sales climbed a seasonally adjusted 1.7% in October from the previous month. That’s the biggest gain since March, though some of that increase can be attributed to rising prices.

Walmart posted a profit of $3.1 billion, or $1.11 per share, during the three-month period ended Oct. 31. Adjusted for one-time gains and losses, per share earnings were $1.45. That’s a nickel better than Wall Street had expected, according to a survey a survey of industry analysts by FactSet.

Last year, Walmart reported earnings of $5.13 billion during the same stretch.

Sales rose 4.1% to $139.21 billion, also better than the $135.43 billion industry analysts had projected.

Comparable sales at U.S. Walmart stores rose 9.2%, up from both the 5.2% pace during the second quarter and a 6% increase in the first. Online spending growth is being compared with last year’s pandemic-induced shopping sprees. There was a 37% increase in the fiscal first quarter and 69% increase in the fiscal fourth quarter.

Customer traffic rose 5.7% and spending per trip increased 3.3%, encouraging signs that the pandemic is loosening its grip as vaccinations roll out and Americans are returning to stores.

Overseas, Walmart net sales were $23.6 billion, a 20.1% decline, dragged down by divestitures.

The company expects sales at its U.S. stores opened at least a year to be up around 5% for the current fourth quarter. It also said it now expects annual per-share earnings of $6.40, compared with prior guidance of $6.20 to $6.30. Analysts have been projecting 2021 earnings of $6.34 per share.

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Follow Anne D’Innocenzio on Twitter.

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