Target Corporation Reports Fourth Quarter and Full-Year 2022 Earnings
Target Corporation (NYSE: TGT) announced its Q4 2022 results with comparable sales growth of 0.7%, supported by increased guest traffic. Total revenue for the year reached $109 billion, up $3 billion from 2021. However, Q4 GAAP EPS was $1.89, significantly down from $3.21 in the prior year. The company anticipates comparable sales for Q1 2023 to range from a low-single digit decline to an increase, forecasting GAAP EPS between $1.50 and $1.90. The operating income margin in Q4 dropped to 3.7% from 6.8% the previous year, attributed to rising costs and markdown pressures.
- Comparable sales for full-year 2022 grew 2.2% on top of 12.7% in 2021.
- Total revenue increased by $3 billion year-over-year.
- Same-day services sales rose 4.3% in Q4.
- Q4 GAAP EPS declined to $1.89 from $3.21 year-over-year.
- Operating income fell 44.7% to $1.2 billion in Q4 2022.
- Full-year operating income dropped 57% to $3.8 billion.
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 $109 billion $106 billion $30 billion - 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.
For additional media materials, please visit:
https://corporate.target.com/article/2023/02/q4-fy2022
1Adjusted EPS, a non-GAAP financial measure, excludes the impact of certain discretely managed items. See the tables of this release for additional information about the items that have been excluded from Adjusted 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
"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."
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
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
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
Full-year sales increased 2.8 percent to
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
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
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
The Company paid dividends of
The Company did not repurchase any shares in fourth quarter 2022. As of the end of the fourth quarter, the Company had approximately
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.
Webcast Details
Miscellaneous
Statements in this release regarding the Company's future financial performance, including its fiscal 2023 first quarter and full-year guidance and operating income margin rate guidance, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties which could cause the Company's actions to differ materially. The most important risks and uncertainties are described in Item 1A of the Company's Form 10-K for the fiscal year ended
About
For more on the
Consolidated Statements of Operations | ||||||||||||
Three Months Ended | Twelve Months Ended | |||||||||||
(millions, except per share data) (unaudited) |
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| Change |
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| Change | ||||||
Sales | $ 30,983 | $ 30,616 | 1.2 % | $ 107,588 | $ 104,611 | 2.8 % | ||||||
Other revenue | 412 | 380 | 8.4 | 1,532 | 1,394 | 9.8 | ||||||
Total revenue | 31,395 | 30,996 | 1.3 | 109,120 | 106,005 | 2.9 | ||||||
Cost of sales | 23,946 | 22,761 | 5.2 | 82,229 | 74,963 | 9.7 | ||||||
Selling, general and administrative expenses | 5,675 | 5,535 | 2.5 | 20,658 | 19,752 | 4.6 | ||||||
Depreciation and amortization (exclusive of depreciation included in cost of sales) | 615 | 605 | 1.6 | 2,385 | 2,344 | 1.8 | ||||||
Operating income | 1,159 | 2,095 | (44.7) | 3,848 | 8,946 | (57.0) | ||||||
Net interest expense | 129 | 104 | 24.6 | 478 | 421 | 13.4 | ||||||
Net other (income) / expense | (13) | (26) | (47.5) | (48) | (382) | (87.4) | ||||||
Earnings before income taxes | 1,043 | 2,017 | (48.3) | 3,418 | 8,907 | (61.6) | ||||||
Provision for income taxes | 167 | 473 | (64.6) | 638 | 1,961 | (67.5) | ||||||
Net earnings | $ 876 | $ 1,544 | (43.3) % | $ 2,780 | $ 6,946 | (60.0) % | ||||||
Basic earnings per share | $ 1.90 | $ 3.24 | (41.4) % | $ 6.02 | $ 14.23 | (57.7) % | ||||||
Diluted earnings per share | $ 1.89 | $ 3.21 | (41.1) % | $ 5.98 | $ 14.10 | (57.6) % | ||||||
Weighted average common shares outstanding | ||||||||||||
Basic | 460.3 | 476.1 | (3.3) % | 462.1 | 488.1 | (5.3) % | ||||||
Diluted | 462.7 | 480.6 | (3.7) % | 464.7 | 492.7 | (5.7) % | ||||||
Antidilutive shares | 1.2 | — | 1.1 | — | ||||||||
Dividends declared per share | $ 1.08 | $ 0.90 | 20.0 % | $ 4.14 | $ 3.38 | 22.5 % | ||||||
Consolidated Statements of Financial Position | ||||
(millions, except footnotes) (unaudited) |
|
| ||
Assets | ||||
Cash and cash equivalents | $ 2,229 | $ 5,911 | ||
Inventory | 13,499 | 13,902 | ||
Other current assets | 2,118 | 1,760 | ||
Total current assets | 17,846 | 21,573 | ||
Property and equipment | ||||
Land | 6,231 | 6,164 | ||
Buildings and improvements | 34,746 | 32,985 | ||
Fixtures and equipment | 7,439 | 6,407 | ||
Computer hardware and software | 3,039 | 2,505 | ||
Construction-in-progress | 2,688 | 1,257 | ||
Accumulated depreciation | (22,631) | (21,137) | ||
Property and equipment, net | 31,512 | 28,181 | ||
Operating lease assets | 2,657 | 2,556 | ||
Other noncurrent assets | 1,320 | 1,501 | ||
Total assets | $ 53,335 | $ 53,811 | ||
Liabilities and shareholders' investment | ||||
Accounts payable | $ 13,487 | $ 15,478 | ||
Accrued and other current liabilities | 5,883 | 6,098 | ||
Current portion of long-term debt and other borrowings | 130 | 171 | ||
Total current liabilities | 19,500 | 21,747 | ||
Long-term debt and other borrowings | 16,009 | 13,549 | ||
Noncurrent operating lease liabilities | 2,638 | 2,493 | ||
Deferred income taxes | 2,196 | 1,566 | ||
Other noncurrent liabilities | 1,760 | 1,629 | ||
Total noncurrent liabilities | 22,603 | 19,237 | ||
Shareholders' investment | ||||
Common stock | 38 | 39 | ||
Additional paid-in capital | 6,608 | 6,421 | ||
Retained earnings | 5,005 | 6,920 | ||
Accumulated other comprehensive loss | (419) | (553) | ||
Total shareholders' investment | 11,232 | 12,827 | ||
Total liabilities and shareholders' investment | $ 53,335 | $ 53,811 | ||
Common Stock Authorized 6,000,000,000 shares, |
Preferred Stock Authorized 5,000,000 shares, |
Consolidated Statements of Cash Flows | ||||
Twelve Months Ended | ||||
(millions) (unaudited) |
|
| ||
Operating activities | ||||
Net earnings | $ 2,780 | $ 6,946 | ||
Adjustments to reconcile net earnings to cash provided by operations: | ||||
Depreciation and amortization | 2,700 | 2,642 | ||
Share-based compensation expense | 220 | 228 | ||
Deferred income taxes | 582 | 522 | ||
Gain on | — | (335) | ||
Noncash losses / (gains) and other, net | 172 | 67 | ||
Changes in operating accounts: | ||||
Inventory | 403 | (3,249) | ||
Other assets | 22 | (78) | ||
Accounts payable | (2,237) | 2,628 | ||
Accrued and other liabilities | (624) | (746) | ||
Cash provided by operating activities | 4,018 | 8,625 | ||
Investing activities | ||||
Expenditures for property and equipment | (5,528) | (3,544) | ||
Proceeds from disposal of property and equipment | 8 | 27 | ||
Proceeds from | — | 356 | ||
Other investments | 16 | 7 | ||
Cash required for investing activities | (5,504) | (3,154) | ||
Financing activities | ||||
Additions to long-term debt | 2,625 | 1,972 | ||
Reductions of long-term debt | (163) | (1,147) | ||
Dividends paid | (1,836) | (1,548) | ||
Repurchase of stock | (2,826) | (7,356) | ||
Stock option exercises | 4 | 8 | ||
Cash required for financing activities | (2,196) | (8,071) | ||
Net decrease in cash and cash equivalents | (3,682) | (2,600) | ||
Cash and cash equivalents at beginning of period | 5,911 | 8,511 | ||
Cash and cash equivalents at end of period | $ 2,229 | $ 5,911 | ||
Operating Results | ||||||||
Rate Analysis | Three Months Ended | Twelve Months Ended | ||||||
(unaudited) |
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|
|
| ||||
Gross margin rate | 22.7 % | 25.7 % | 23.6 % | 28.3 % | ||||
SG&A expense rate | 18.1 | 17.9 | 18.9 | 18.6 | ||||
Depreciation and amortization (exclusive of depreciation included in cost of sales) expense rate | 2.0 | 2.0 | 2.2 | 2.2 | ||||
Operating income margin rate | 3.7 | 6.8 | 3.5 | 8.4 | ||||
Note: Gross margin rate is calculated as gross margin (sales less cost of sales) divided by sales. All other rates are calculated by dividing the applicable amount by total revenue. Other revenue includes | ||||||||
Comparable Sales | Three Months Ended | Twelve Months Ended | ||||||
(unaudited) |
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|
|
| ||||
Comparable sales change | 0.7 % | 8.9 % | 2.2 % | 12.7 % | ||||
Drivers of change in comparable sales: | ||||||||
Number of transactions | 0.7 | 8.1 | 2.1 | 12.3 | ||||
Average transaction amount | 0.0 | 0.7 | 0.1 | 0.4 | ||||
Comparable Sales by Channel | Three Months Ended | Twelve Months Ended | ||||||
(unaudited) |
|
|
|
| ||||
Stores originated comparable sales change | 1.9 % | 8.9 % | 2.4 % | 11.0 % | ||||
Digitally originated comparable sales change | (3.6) | 9.2 | 1.5 | 20.8 | ||||
Sales by Channel | Three Months Ended | Twelve Months Ended | ||||||
(unaudited) |
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|
|
| ||||
Stores originated | 79.2 % | 78.2 % | 81.4 % | 81.1 % | ||||
Digitally originated | 20.8 | 21.8 | 18.6 | 18.9 | ||||
Total | 100 % | 100 % | 100 % | 100 % | ||||
Sales by Fulfillment Channel | Three Months Ended | Twelve Months Ended | ||||||
(unaudited) |
|
|
|
| ||||
Stores | 96.7 % | 96.3 % | 96.7 % | 96.4 % | ||||
Other | 3.3 | 3.7 | 3.3 | 3.6 | ||||
Total | 100 % | 100 % | 100 % | 100 % | ||||
Note: Sales fulfilled by stores include in-store purchases and digitally originated sales fulfilled by shipping merchandise from stores to guests, Order Pickup, Drive Up, and Shipt. | ||||||||
RedCard Penetration | Three Months Ended | Twelve Months Ended | ||||||
(unaudited) |
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|
|
| ||||
Total RedCard Penetration | 19.4 % | 20.4 % | 19.8 % | 20.5 % | ||||
Number of Stores and Retail Square Feet | Number of Stores | Retail Square Feet (a) | ||||||
(unaudited) |
|
|
|
| ||||
170,000 or more sq. ft. | 274 | 274 | 48,985 | 49,071 | ||||
50,000 to 169,999 sq. ft. | 1,527 | 1,516 | 191,241 | 190,205 | ||||
49,999 or less sq. ft. | 147 | 136 | 4,358 | 4,008 | ||||
Total | 1,948 | 1,926 | 244,584 | 243,284 | ||||
(a) In thousands, reflects total square feet less office, distribution center, and vacant space. | ||||||||
Reconciliation of Non-GAAP Financial Measures
To provide additional transparency, we have disclosed non-GAAP adjusted diluted earnings per share (Adjusted EPS). This metric excludes certain items presented below. We believe this information is useful in providing period-to-period comparisons of the results of our operations. This measure is not in accordance with, or an alternative to, generally accepted accounting principles in
Reconciliation of Non-GAAP Adjusted EPS | Three Months Ended | |||||||||||||
(millions, except per share data) (unaudited) | Pretax | Net of Tax | Per Share | Pretax | Net of Tax | Per Share | Change | |||||||
GAAP diluted earnings per share | $ 1.89 | $ 3.21 | (41.1) % | |||||||||||
Adjustments | ||||||||||||||
Other (a) | $ — | $ — | $ — | $ (18) | $ (13) | $ (0.03) | ||||||||
Adjusted diluted earnings per share | $ 1.89 | $ 3.19 | (40.6) % | |||||||||||
Note: Amounts may not foot due to rounding. | ||||||||||||||
Reconciliation of Non-GAAP Adjusted EPS | Twelve Months Ended | |||||||||||||
(millions, except per share data) (unaudited) | Pretax | Net of Tax | Per Share | Pretax | Net of Tax | Per Share | Change | |||||||
GAAP diluted earnings per share | $ 5.98 | $ 14.10 | (57.6) % | |||||||||||
Adjustments | ||||||||||||||
Gain on Dermstore Sale | $ — | $ — | $ — | $ (335) | $ (269) | $ (0.55) | ||||||||
Other (a) | 20 | 15 | 0.03 | 9 | 7 | 0.01 | ||||||||
Adjusted diluted earnings per share | $ 6.02 | $ 13.56 | (55.7) % | |||||||||||
Note: Amounts may not foot due to rounding. | |
(a) | Other items unrelated to current period operations, none of which were individually significant. |
Reconciliation of Non-GAAP Adjusted EPS Guidance | Guidance | ||
Q1 2023 | Full Year 2023 | ||
(unaudited) | Per Share | Per Share | |
GAAP diluted earnings per share guidance | |||
Estimated adjustments | |||
Other (a) | $ — | $ — | |
Adjusted diluted earnings per share guidance | |||
(a) | First quarter and full-year 2023 GAAP EPS may include the impact of certain discrete items, which will be excluded in calculating Adjusted EPS. In the past, these items have included losses on the early retirement of debt and certain other items that are discretely managed. The Company is not currently aware of any such discrete items. |
Earnings before interest expense and income taxes (EBIT) and earnings before interest expense, income taxes, depreciation and amortization (EBITDA) are non-GAAP financial measures. We believe these measures provide meaningful information about our operational efficiency compared with our competitors by excluding the impact of differences in tax jurisdictions and structures, debt levels, and, for EBITDA, capital investment. These measures are not in accordance with, or an alternative to, GAAP. The most comparable GAAP measure is net earnings. EBIT and EBITDA should not be considered in isolation or as a substitution for analysis of our results as reported in accordance with GAAP. Other companies may calculate EBIT and EBITDA differently, limiting the usefulness of the measures for comparisons with other companies.
EBIT and EBITDA | Three Months Ended | Twelve Months Ended | ||||||||||
(dollars in millions) (unaudited) |
|
| Change |
|
| Change | ||||||
Net earnings | $ 876 | $ 1,544 | (43.3) % | $ 2,780 | $ 6,946 | (60.0) % | ||||||
+ Provision for income taxes | 167 | 473 | (64.6) | 638 | 1,961 | (67.5) | ||||||
+ Net interest expense | 129 | 104 | 24.6 | 478 | 421 | 13.4 | ||||||
EBIT | $ 1,172 | $ 2,121 | (44.7) % | $ 3,896 | $ 9,328 | (58.2) % | ||||||
+ Total depreciation and amortization (a) | 697 | 690 | 0.9 | 2,700 | 2,642 | 2.2 | ||||||
EBITDA | $ 1,869 | $ 2,811 | (33.5) % | $ 6,596 | $ 11,970 | (44.9) % | ||||||
(a) | Represents total depreciation and amortization, including amounts classified within Depreciation and Amortization and within Cost of Sales. |
We have also disclosed after-tax ROIC, which is a ratio based on GAAP information, with the exception of the add-back of operating lease interest to operating income. We believe this metric is useful in assessing the effectiveness of our capital allocation over time. Other companies may calculate ROIC differently, limiting the usefulness of the measure for comparisons with other companies.
After-Tax Return on | ||||||
(dollars in millions) | ||||||
Trailing Twelve Months | ||||||
Numerator |
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| ||||
Operating income | $ 3,848 | $ 8,946 | ||||
+ Net other income / (expense) | 48 | 382 | ||||
EBIT | 3,896 | 9,328 | ||||
+ Operating lease interest (a) | 93 | 87 | ||||
- Income taxes (b) | 744 | 2,073 | ||||
Net operating profit after taxes | $ 3,245 | $ 7,342 | ||||
Denominator |
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Current portion of long-term debt and other borrowings | $ 130 | $ 171 | $ 1,144 | |||
+ Noncurrent portion of long-term debt | 16,009 | 13,549 | 11,536 | |||
+ Shareholders' investment | 11,232 | 12,827 | 14,440 | |||
+ Operating lease liabilities (c) | 2,934 | 2,747 | 2,429 | |||
- Cash and cash equivalents | 2,229 | 5,911 | 8,511 | |||
Invested capital | $ 28,076 | $ 23,383 | $ 21,038 | |||
Average invested capital (d) | $ 25,729 | $ 22,210 | ||||
After-tax return on invested capital | 12.6 % | 33.1 % | ||||
(a) | Represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases. Calculated using the discount rate for each lease and recorded as a component of rent expense within SG&A. Operating lease interest is added back to Operating Income in the ROIC calculation to control for differences in capital structure between us and our competitors. |
(b) | Calculated using the effective tax rates, which were 18.7 percent and 22.0 percent for the trailing twelve months ended |
(c) | Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities. |
(d) | Average based on the invested capital at the end of the current period and the invested capital at the end of the comparable prior period. |
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