It would have been easy to succumb to despair this holiday season, and believe that little shopping would be done for gifts that weren't canned goods or toilet paper. Target (NYSE:TGT) bucked such a depressing trend in a very big way, and turned in a holiday shopping season that actually made the pre-COVID-19 holiday look like the real disaster by comparison.
A Big Win for Target
Make no mistake about it, Target turned in an absolute win of a quarter. It would be an absolute win under normal conditions, and when you throw in the conditions under which we spent most of 2020, it's a win that makes “absolute” seem like an understatement. Target saw its same-store sales jump 17.2%, and things only got better when the online shopping component was thrown into the mix. Online sales better than doubled over the same time last year, and on a variety of points.
Home goods proved a winner, with same-store sales up in the low-20% range. Customers seemed oddly in favor of gingerbread house kits and matching pajamas, which suggest that “cozy holiday at home” was a winning motif with Christmas 2020. Yet it wasn't just people looking for a good old-fashioned family Christmas showing up at Target, either; big spenders also came, and in droves. The average customer spend was up 12.3% against this time last year, reports note, and combined transactions in-store and on the website were up 4.3% as well.
Analysts Feeling It Too
The broader analyst community, based on our latest research, has also settled in squarely in Target's favor. Target has been a “buy” for the last six months, and the ratios going into that assessment are as high as they've been in the last six months. Six months ago, the company had six “hold” ratings, 18 “buy” ratings and two “strong buy” ratings. Today, it has seven “hold” ratings, 16 “buy” ratings, and three “strong buy” ratings, which is proportionally a near-match for six months ago. There hasn't been a “sell” rating in the mix for three months, and the one that was there departed at least a month ago.
Moreover, the price target has also been on the rise. It remains a match for what it was last month, at $149.14. However, last month, that $149.14 represented a 12.78% upside for Target's share price at the time. Today, it represents a 24.14% downside. Given that there hasn't been any adjustment in the price target since late November, it does suggest that perhaps the analysis has gone a bit stale. Either that or analysts were waiting to see how the holidays would boil down before making any modifications.
The Flame that Burns Twice as Bright
Target has been an absolutely phenomenal growth story for most of 2020, thanks to its freestanding locations, its ability to withstand the lockdowns thanks to its grocery department and its ability to secure itself as “essential” in the early days, and its breathtaking online shopping component. Target made a lot of moves over the course of 2020, and many of them worked quite well. Even moves to bring in smaller-footprint stores lent a hand in gaining ground.
The only question left is simple: what does Target do for an encore?
Target can't make huge moves to improve its online shopping component; that job is already done. Any further improvements will be incremental revisions over what's already been done and really can't have the same level of impact. Moreover, with vaccines and treatments for coronavirus coming out in large numbers, and herd immunity pretty much on deck—considering the sheer numbers of people who have already had COVID-19 and have recovered from same, the level of antibodies out there has to be substantial—people are going to crave normalcy, and that's likely to give malls a bit of new life. That may not be as helpful as Target might like.
No company can grow forever. Eventually, growth plateaus and positions are maintained, or competitors come in and innovate, producing outcomes that established companies are insufficiently agile to predict or counter. Target's incredible 2020 success story isn't likely to be repeated in 2021, and that's likely to slow further growth. However, there's word Target has a plan for this, starting with stock buybacks to come this year and a focus on improving profit margins. So for those who buy in now, don't expect to see the rocketing gains of 2020. Instead, milder gains are likely on tap, but gains are gains, and that makes for an attractive buy, even now.
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