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Financial, Retail

Target Corporation Reports Fourth Quarter and Full-Year 2022 Earnings

Target reports comparable sales growth in the fourth quarter, despite a very challenging environment, and states strength in Food & Beverage, Beauty and Household Essentials offset ongoing softness in discretionary categories. 

2/28/2023
MINNEAPOLIS -- Target Corporation (NYSE: TGT)  announced its fourth-quarter and full-year 2022 results. The Company reported fourth-quarter GAAP earnings per share (EPS) of $1.89, compared with $3.21 in 2021, and $5.98 for full-year 2022, compared with $14.10 in 2021. Adjusted EPS1 was $1.89 for the fourth quarter, compared with $3.19 in 2021, and $6.02 for the full-year, compared with $13.56 in 2021. Full-year 2021 GAAP EPS included a $335 million pretax gain on the sale of Dermstore, which was excluded from Adjusted EPS. The attached tables provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.

"We're pleased that our business delivered comparable sales growth in the fourth quarter, in what continues to be a very challenging environment. Strength in Food & Beverage, Beauty and Household Essentials offset ongoing softness in discretionary categories. This performance highlights the benefit of our multi-category merchandise assortment, which drives relevance with our guests in any environment, and is a key reason we grew traffic every quarter last year," said Brian Cornell, chairman and chief executive officer of Target Corporation.

"Looking ahead, we're focused on executing our long-term strategy, including continued differentiation through affordability, assortment, ease and convenience. At the same time, we're planning our business cautiously in the near term to ensure we remain agile and responsive to the current operating environment. We're pleased that we entered the year in a very healthy inventory position, reflecting our conservative approach in discretionary categories and our commitment to reliability in our frequency businesses. As we plan for the year ahead, we will continue to make robust capital investments and pursue efficiency opportunities in support of our long-term growth. We're proud of the loyalty and trust we've built with our guests, and want to thank our team for their ongoing commitment to delivering a truly exceptional and differentiated retail experience."

Q4 2022 Highlights

Comparable sales increased 0.7 percent, on top of 8.9 percent in Q4 2021, driven entirely by an increase in guest traffic.
Same-day services (in-store pickup, Drive Up, and Shipt), which represent more than 10 percent of total sales, increased 4.3 percent in the quarter.

Inventory at the end of the quarter was 3 percent lower than in 2021, despite an increase in early receipts compared with last year. Inventory in discretionary categories was approximately 13 percent lower than a year ago, partially offset by higher inventory in frequency categories.

Full-Year 2022 Highlights

Total revenue grew $3 billion to $109 billion, from $106 billion in 2021. Total revenue has grown more than $30 billion since 2019.
Comparable sales grew 2.2 percent, on top of 12.7 percent in 2021.

Comparable traffic grew 2.1 percent, on top of 12.3 percent in 2021.

All five core merchandise categories delivered unit share growth, on top of strong share performance over the past several years.

The Company continues to invest in long-term growth plans while pursuing efficiency initiatives.

Guidance

For first quarter 2023, the Company expects comparable sales in a wide range, from a low-single digit decline to a low-single digit increase, and an operating income margin rate of 4 to 5 percent. First quarter GAAP EPS and adjusted EPS are both expected to range from $1.50 to $1.90.

For the full year, the Company expects comparable sales in a wide range from a low-single digit decline to a low-single digit increase. Operating income is expected to grow more than $1 billion, and GAAP EPS and adjusted EPS are both expected to range from $7.75 to $8.75.

Over the next three years, the Company expects its operating income margin rate will reach, and begin to move beyond, its pre-pandemic rate of 6 percent, and believes it could reach an operating income margin rate of 6 percent as early as fiscal 2024, depending on the speed of recovery for the economy and consumer demand.

Operating Results

The Company's total comparable sales grew 0.7 percent in the fourth quarter, reflecting comparable stores sales growth of 1.9 percent and a comparable digital sales decline of (3.6) percent. Total revenue of $31.4 billion grew 1.3 percent in the fourth quarter compared with last year, driven by sales growth of 1.2 percent and an 8.4 percent increase in other revenue. Operating income was $1.2 billion in fourth quarter 2022, down 44.7 percent from $2.1 billion in 2021.

Full-year sales increased 2.8 percent to $107.6 billion from $104.6 billion last year, reflecting a 2.2 percent increase in comparable sales combined with sales from non-mature stores. Full-year total revenue of $109.1 billion grew 2.9 percent compared with 2021, reflecting sales growth of 2.8 percent and a 9.8 percent increase in other revenue.

Fourth quarter operating income margin rate was 3.7 percent in 2022 compared with 6.8 percent in 2021. Fourth quarter gross margin rate was 22.7 percent, compared with 25.7 percent in 2021, reflecting pressure from higher clearance and promotional markdown rates, higher net merchandise costs, and higher inventory shrink, partially offset by favorable category mix.

Full-year operating income of $3.8 billion in 2022 was down 57.0 percent from $8.9 billion last year. Full-year gross margin rate was 23.6 percent, compared with 28.3 percent in 2021, reflecting pressure from higher clearance and promotional markdown rates, higher net merchandise and freight costs, higher supply chain costs reflecting increased compensation and headcount in the Company's distribution centers, and higher inventory shrink.

Fourth quarter SG&A expense rate was 18.1 percent in 2022, compared with 17.9 percent in 2021. Full-year SG&A expense rate was 18.9 percent in 2022, compared with 18.6 percent in 2021. Rate increases in both periods reflect the net impact of cost increases across the business, including investments in hourly team member wages, partially offset by lower incentive compensation in 2022 compared to the prior year.

Interest Expense and Taxes

The Company's fourth quarter 2022 net interest expense was $129 million, compared with $104 million last year. Full-year 2022 net interest expense was $478 million, compared with $421 millionin 2021. Higher interest expense in both the fourth quarter and full-year reflect higher average long-term debt and commercial paper balances.

Fourth quarter 2022 effective income tax rate was 16.1 percent, compared with 23.4 percent last year. The Company's full-year 2022 effective income tax rate was 18.7 percent compared with 22.0 percent in 2021. This decrease in both fourth quarter and full-year tax rates was driven by significantly lower earnings, amplifying the rate benefit of discrete items and tax benefits.

Capital Deployment and Return on Invested Capital

The Company paid dividends of $497 million in the fourth quarter, compared with $432 million last year, reflecting a 20.0 percent increase in the dividend per share, partially offset by a decline in average share count.

The Company did not repurchase any shares in fourth quarter 2022. As of the end of the fourth quarter, the Company had approximately $9.7 billion of remaining capacity under the repurchase program approved by Target's Board of Directors in August 2021.

For the trailing twelve months through fourth quarter 2022, after-tax return on invested capital (ROIC) was 12.6 percent, compared with 33.1 percent for the twelve months through fourth quarter 2021. This decrease was driven primarily by lower profitability coupled with an increase in invested capital. The tables in this release provide additional information about the Company's ROIC calculation.

The report can be found here.
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