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Target Crushes Earnings Forecast as Biden Stimulus Powers Sales Boost

Target's first quarter earnings grew five-fold from last year, as sales neared the $25 billion mark, thanks in part to government stimulus and a post-pandemic shopping surge.

Target Corp.  (TGT)  posted much stronger-than-expected first quarter earnings Wednesday, and said profit margins will likely improve over the rest of the year, as big retailers continue to command market as the country exits the coronavirus pandemic and shoppers are powered by trillions in government stimulus. 

Target said adjusted earnings for the three months ending in April were pegged at $3.69 per share,  more than five times last year's total and massively ahead of the Street consensus forecast of $2.21 per share. Group revenues, Target said, rose 23.4% to $24.2 billion, again topping analysts' estimates of a $21.76 billion tally.

Target said same-store sales rose 18%, with overall comparable sales, including digital channels, rising 22.9%, well ahead of the Refinitiv forecast of 9.9%. Comparable digital sales, Target said, rose 50% from last year as online shopping continued to drive transactions even in the waning months of the pandemic.

Target said it sees "high single digit" growth in comparable sales for the current quarter, and an operating margin that's "well above" last year's rate of 7.2%. 

"Our performance in the first quarter was outstanding on every measure, and showcased the power of putting our stores at the center of our strategy," said CEO Brian Cornell. "Importantly, market-share gains of more than $1 billion in the first quarter, on top of $1 billion in share gains a year ago, demonstrate Target's continued relevance with our guests, even as they have many more shopping options compared with a year ago."

"Given the trust we've built with our guests quarter after quarter and our commitment to adjusting along with them to the ongoing shifts in the macro environment, we're confident in continued comp growth in the second quarter and through the remainder of the year, as well as a healthy full-year operating margin rate," he added.

Target shares were marked 3.8% in early trading immediately following the earnings release, compared to a 1.3% decline for the S&P 500, to change hands at $214.00 each.

March retail sales roared past Wall Street forecasts, rising 9.8% from last year to $619.1 billion thanks in part to the impact of $1,400 stimulus payments to most domestic households from President Joe Biden's $1.9 trillion American Rescue Plan Act.

April retail sales, however, stalled amid a sharp uptick in consumer price inflation -- the fastest since 2009, in fact -- and the fading stimulus impact. 

“Stores continued to be the linchpin of Target’s online capability, once again validating management’s strategic decision to position them at the center of its online flywheel, with ship from, in store-pick-up, and curbside all benefitting, resulting in continuing robust online sales growth as consumers avail themselves of these flexible options,” said Moody's vice president Charlie O'Shea.

“Guidance for Q2 and beyond, particularly on the margin side, reflects management’s view that operating expenses can continue to be further leveraged, and mix will remain favorable, with our view that a key driver on the revenue side will be private and exclusive brands, which drive margins,” he added.