Target's bottom line fueled by people spending during the coronavirus

Yahoo Finance’s Alexis Christoforous and Brian Sozzi discuss Target’s first quarter earnings, and break down what Target CEO Brian Cornell had to say about the results.

Video Transcript

ALEXIS CHRISTOFOROUS: For NASDAQ futures up just about 100. One of the reasons why? Target. It is one of the companies gaining during this pandemic.

The big box retailers saw comparable store sales up 10.8% last quarter. And get a load of this? Digital sales up a whopping 141%. Target said it benefited from government stimulus checks that were sent to many Americans, as well as from shoppers who were able to return to their stores some states reopen for business.

Brian Sozzi is with us now. And Brian, you were on that media call last night with Target's CEO. What was the big takeaway for you?

BRIAN SOZZI: Big takeaway here, at least for me-- several, Alexis. First and foremost, like Walmart noted yesterday on its earnings call, sales picked up into May and have remained pretty solid. The main reason because people are out there with their new stimulus checks, going out there and spending.

But I think one of the key questions here on investors minds this morning-- why isn't stock ripping higher? Why isn't the stock up 10% more after a $0.13 earnings beat? When you go through the press release from Target, they saw their margins under pressure.

I asked CEO Brian Cornell on the call last night, what's the direction for pay increases? Target was one of the retailers that raised hourly wages by $2 to help workers during this tough time. And I asked him, are these increases permanent?

To me, it sounded like he's thinking about making them permanent. And that will come at a cost to the bottom line.

ALEXIS CHRISTOFOROUS: Yeah, I mean, I guess that's the question. We see this 141% jump in digital sales, which just seems incredible. But still, that was not enough to offset sort of business as usual, if you will, and also all the costs associated with what they had to do in terms of cleaning stores and taking care of employees, right?

BRIAN SOZZI: Right, Alexis. And it's not as if people right now are going online buying 75 inch big screen TVs and tons of back-to-school apparel. Those are a lot of the high-margin stuff that Target typically has success selling. Right now, people are buying everyday essentials. These are low-margin products that are very price competitive with Walmart and Costco. And that's why I think you're seeing investors still a little worried on how the sales mix for the business is trending.

ALEXIS CHRISTOFOROUS: What about-- what did Target have to say about the second half of the year, and any guidance? Because things like back to school, back to college, back to work after Labor Day-- all of that is so unclear now. And it's usually a place where people would go to to buy items to stock up for back to school. Did they talk about that at all?

BRIAN SOZZI: Alexis, at this point, it's a big giant shoulder shrug for Target and for every other retailer. Target pulled its initial full-year guidance in late March. They did not come out and provide second quarter guidance. They did not provide fiscal year 2020 guidance.

Visibility in the business remains spotty. It remains week to week. Sometimes, you'll see giant weekly increases online. Then next week, they'll go back down. And the sales in the stores also continue to be under pressure.

ALEXIS CHRISTOFOROUS: And then one last question on this supply chain-- I know it's been really hard to keep paper goods on store shelves and to have these places be stocked. Did Cornell talk at all about supply chain, what looks good, what looks bad?

BRIAN SOZZI: That was not mentioned on the media call. I think what you're seeing is supply starting to flow back. We've talked a lot these packaged food executives. They're starting to get their supply chains under control.

Recently talked to Clorox CEO. He told me disinfecting products will be more back in stock this summer. So we have a couple of weeks to wait.

ALEXIS CHRISTOFOROUS: Looking forward to that. I still cannot find some paper goods on store shelves. It's still as empty as ever. So hoping for that sometime soon. All right, Brian, thanks a lot.