By Nina Trentmann

Michael Fiddelke, the Target Corp. veteran who has been running the retailer's finances since late 2019, is planning further investments in its stores to hold on to sales gains made during the pandemic.

The company will continue to invest in its stores, supply chain and fulfillment operations, Mr. Fiddelke said Tuesday, adding that Target plans to spend $4 billion annually over the next few years. That is up from $2.59 billion in fiscal 2020. Target wants to open 30 to 40 new stores a year and launch new distribution facilities in Delaware and Chicago, according to Mr. Fiddelke. It opened 30 new stores in 2020.

Minneapolis-based Target in 2017 chose to make its stores the core of its strategy, which means it ships its products to nearly 1,900 locations, where customers pick them up inside the bricks-and-mortar part of the business. The stores also serve as places for curbside pickup and as distribution centers for deliveries to peoples' homes. "The store powers all of that," Mr. Fiddelke said. More than 95% of Target's sales totaling over $92 billion in fiscal 2020 went through the stores.

The coronavirus pandemic has accelerated the company's plans, with same-day services growing by 235% to over $7 billion in sales during fiscal 2020. "We were fast-forwarding years in a matter of months," Mr. Fiddelke said. Shipping from stores also took some pressure off Mr. Fiddelke and the company's supply chain management team, as they were struggling to forecast customer demand. "The product that sits on the shelf can be picked up in the cart, put into a box or put into a trunk," Mr. Fiddelke said.

The company is now restarting some refurbishments that were put on hold earlier in the pandemic. Target said it would remodel about 150 locations in 2021 after refurbishing 130 stores in 2020. The company plans to remodel more than 200 locations in 2022 and beyond.

Mr. Fiddelke has worked at Target for 17 years in a variety of departments outside of finance, including store operations, human resources and merchandising. "A lot of what I brought to this role was framed by these roles," Mr. Fiddelke said about his current position as chief financial officer, which he took on in November 2019.

Mr. Fiddelke said he gained deep insights working in different parts of the organization, including how it feels to sit on the other side of the table, opposite the finance department. At one point, during his time as a financial analyst for the company, he wanted to allocate less money toward store payrolls. Years later, when he worked in store operations and would meet with financial analysts, he saw the other side.

"Thanks to that store payroll experience, I will never think of store payroll as just an expense," he said. Target has been paying its store workers at least $15 an hour since the summer.

Mr. Fiddelke succeeded Cathy Smith, who served as Target CFO for over four years, and inherited a strong balance sheet, analysts said. The company on Tuesday reported net earnings of $4.37 billion for fiscal 2020, up 33.1% compared with the prior year period. Target held $8.51 billion in cash on the balance sheet as of Jan. 30, up from $2.58 billion on Feb. 1, 2020.

The company has learned a lot when it comes to e-commerce and online shopping, Mr. Fiddelke said. "If you go back a decade, we thought about digital wrong," he said. "We didn't invest enough because the margins didn't look good," he said.

That has changed, in part because of the pandemic. Target customers who try its Drive Up service offering contactless pickup from their nearby store spend 20% to 30% on future purchases, Mr. Fiddelke said. Store employees fulfilling online orders now do so for several customers at the time. "The team can bring out multiple orders at once," Mr. Fiddelke said.

Target's operating margin rose from 6.0% on Feb. 1, 2020, to 7.0% during the 12 months ended Jan. 30. Mr. Fiddelke said he sees potential for cost savings in stores, but declined to comment further.

Mr. Fiddelke, similar to many other retail executives, faces a challenge forecasting what consumers will do once vaccination rates go up and the pandemic fades. "The crystal balls are still a bit cloudy depending on how the year plays out," Mr. Fiddelke said.

The main question is whether customers will maintain their 2020 spending levels on groceries, homegoods, electronics and other items that Target sells, said Michael Baker, managing director at D.A. Davidson, a financial services firm. "They had a big boost from people diverting their spending away from travel and leisure," Mr. Baker said. "There are so many different scenarios for what is going to happen for the rest of 2021," he said.

Mr. Fiddelke said he expects consumers to stick to new formats such as Drive Up. Analysts said they agree. "People have learned to save a lot of time, even if it adds a bit of cost, said Chuck Grom, a managing director at Gordon Haskett Research Advisors, a research firm.

Asked about product categories such as disinfectant and toilet paper, which rose in popularity during the pandemic, Mr. Fiddelke said the company is watching closely for any changes. "We can make some forecasts about categories, but I assume they will be wrong," he said.

The company hasn't provided financial guidance for fiscal 2021.

Write to Nina Trentmann at Nina.Trentmann@wsj.com

(END) Dow Jones Newswires

03-02-21 1805ET