3 things to expect from Target in 2021
During some of the biggest shifts in consumer demand in living memory, few retailers have performed as well as Target (TGT 1.84% ) did so in 2020. The company built on its consumer staples offerings during the early days of the pandemic before quickly recognizing – and capitalizing on – growing demand for home furnishings and home furnishings. housekeeping throughout the year.
The retailer posted impressive profit margin gains, with operating profit up 35% through the end of October, thanks in part to the popularity of premium fulfillment options like same-day delivery.
This performance makes investors optimistic about the company in 2021 and beyond. So let’s take a look at three big trends to expect from Target this year.
1. Market share wins
Target isn’t alone in achieving exceptionally strong sales results during the pandemic. walmart (WMT 0.02% ), Costco ( COST -0.08% )and some other national retail chains announced record growth rates after COVID-19 containment efforts initially disrupted (but ultimately increased) consumer demand for stores deemed essential and allowed to remain open.
Target has earned more than its fair share from this pandemic-related business. Comparable store sales jumped 21% in the third fiscal quarter, for example, while Walmart recorded a 9% increase for the same period.
Unlike its biggest rival, Target saw the increase in customer traffic continue through the end of October. Management credited the chain’s unique mix of high-end yet affordable products with helping it win business in competitive areas like furniture. “The result,” CEO Brian Cornell told investors in mid-November, “is reflected in unprecedented market share gains and historically strong sales growth.” Investors should look for this increase in the number of customers to continue their growth in 2021.
2. Profit margin up
The increase in sales is even more impressive when accompanied by an increase in profit margin. This is where Target has taken advantage of strong assets like its consumer discretionary offerings in 2020. flock to premium products like home furnishings and consumer electronics, and they often paid more for super-fast delivery.
These metrics set Target apart from peers like Costco, which aims to keep profitability low in an effort to prioritize its price advantage. Target is also focused on creating value, but always aims to increase margins over time. Operating profit rose to more than 7% of sales in the nine months to the end of October, from 6% a year earlier.
3. Higher cash returns
Target enters 2021 with tons of cash thanks to its operating gains, as well as management’s choice last year to suspend share buyback spending. These redemptions will resume this year, and investors can also count on a rising dividend payout that will boost their returns. The channel announced a 3% increase in this payout in June 2020, but could easily issue a bigger hike in 2021 — assuming economic growth trends don’t collapse in the fiscal first quarter.
Target’s cautious approach to cash returns might disappoint some investors, but it’s a key reason the chain is one of the few retailers to qualify as a Dividend Aristocrat, with a sequence of at least 25 years of consecutive annual increases. Target will nearly double that threshold by announcing its 49th consecutive increase in 2021.
This is exactly the type of long-term success that investors should celebrate. But that’s just one of the many great reasons to consider owning Target stock right now.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.