Covid-19 hits profits at Target, despite online surge

US retailer Target warned on Thursday that the Covid-19 outbreak had ramped up costs and would dent first-quarter profits, despite record growth in online sales.

The general merchandiser said that in the quarter to date, total comparable sales were 7% higher, which reflected a “slight decline” in stores but more than 100% growth in digital channels.

In April, in-store sales slumped by the “mid-teens” but digital sales surged “more than 275%”. In total, April sales to date are up 5%.

But the chain said that increased investment in pay and benefits to support employees during the pandemic, customers spending less in higher-margin categories, and inventory writedowns in apparels and accessories meant the first-quarter operating margin rate was expected be reduced by more than 5 percentage points.

The update weighed on the stock, and the shares lost 5% shortly after the bell. By 1500 BST they had recovered some of the lost ground, but continued to trade 3% lower.

Brian Cornell, chief executive, said: “Our strategy was built to be durable and sustainable in any environment and its strength in driving our business in the face of marked shifts in shopping behaviours caused by Covid-19.

“We are seeing record-setting digital growth, strong demand for our same-day fulfilment services and broad market share gains across each of our core categories. While this crisis will certainly put near-term pressure on our profitability, that pressure is far outweighed by doing right by our team and our guests.”

Mike Fiddelke, chief financial officer, said: “Over the last several years we have strengthened Target’s operational and financial model.

“While we expect our short term profitability to be affected by Covid-19, we expect to have the financial capability to emerge from this crisis in a position of strength.”