Target sees margin squeeze as it spends more to meet coronavirus-led demand

(Reuters) - Target Corp TGT.N said on Thursday rising costs from trying to meet the fast-changing needs of consumers during the coronavirus crisis were set to hurt its first-quarter profit and margins, even as it recorded robust online sales during March and April.

The big box retailer said digital comparable sales surged more than 275% in April, with several days in the month recording more online sales than Cyber Monday, traditionally the busiest day for e-commerce companies.

However, shares of the retailer fell nearly 3% after the company said it expects margins to drop by 5-percentage points in the first quarter due to temporary wage increases and higher sales of more low-margin products such as groceries.

The company now plans to pay an extra $2 an hour for store and distribution center workers until May 30.

Target also said it had to write down the value of its inventory for apparel and accessories as shoppers confined to their homes refrained from refreshing their wardrobe, leading to a 40% drop in comparable sales so far in April.

Target, along with Kroger KR.N and Costco COST.O, are among the few companies that have seen a net benefit in sales from consumers stockpiling essentials.

Other players in retail, especially apparel chains and department stores, have taken a big hit from the pandemic, with some of them on the verge of filing for bankruptcies.

“Watching the retail industry decline is not something I enjoy, but I think going forward we’re going to seesignificant market share opportunities, across our apparel business,” Target Chief Executive Officer Brian Cornell said on a media call.

“That’ll be a benefit to us. But unfortunately, it will come at the expense of others who are closing their doors and potentially no longer operating in this future environment.”

Gap GPS.N said on Thursday that it may not have sufficient funds to operate during the coronavirus crisis. A surge in online shopping more than made up for a mid-teens decline in comparable store sales for Target in April. Overall comparable sales, including digitial, rose more than 5%.

“Target’s ability to accommodate and capture such growth is a testament to its early acknowledgement of the need for and continued strengthening of its online fulfillment practices,” Jefferies analyst Christopher Mandeville said.

Sales of food and beverage items rose over 12% in April, while those of toys and electronics jumped over 30%.

Target said quarter-to-date comparable sales have risen over 7%, with digital sales more than doubling.

Reporting by Uday Sampath and Aishwarya Venugopal; in Bengaluru; Editing by Anil D’Silva