Target Corp will invest $4 billion annually over the next several years as the big box retailer upgrades stores and strengthens its online business, hoping to cement gains made during the pandemic that led to blowout holiday quarter results.
Shares, up 80% for the year before Tuesday’s announcement, fell as much as 6.8% on the expected hit to margins.
Target’s push over the last year to use its retail outlets as fulfillment centers for online orders has drastically cut delivery times and enabled it to swipe market share from smaller rivals who rely more on their store traffic.
Sales through the company’s same-day deliveries and store pick-up services more than tripled, while total revenue rose 21.1% to $28.34 billion in the quarter.
“We’re in a position to play offense and lean into the opportunity to build on last year’s momentum,” Chief Operating Officer Michael Fiddelke said.
The company expects to remodel 150 stores in time for the holiday season to cater to same-day fulfillment, as it seeks to better compete with Amazon.com Inc and Walmart Inc.
Walmart, another retail winner of the health crisis, in February forecast higher investments this year in areas like supply chain and automation.
Target estimated the investments to cause this year’s operating margin rate to fall below the 7% recorded in 2020 but remain above 6%.
The company said it plans to launch 30 to 40 stores each year, compared with 30 in 2020, with new small format outlets in New York City, Los Angeles and Portland.
While Target refrained from providing sales and earnings forecasts for fiscal 2021, it expects to benefit from new stimulus money but unsure by how much.
Comparable sales rose 20.5% in the fourth quarter, comfortably beating estimates for a 16.4% rise, according to IBES data from Refinitiv.