Target Corporation Reports Third Quarter Earnings

Rhea-AI Summary

Target Corporation (TGT) reported third quarter 2022 results with comparable sales growth of 2.7%, following a 12.7% increase last year. Total revenue rose to $26.5 billion, up 3.4%, but GAAP EPS fell 49.3% to $1.54. The company announced an enterprise initiative to enhance efficiency, aiming for savings of $2-3 billion over three years. Despite achieving unit share gains across core categories, profit trends weakened late in the quarter due to inflation and economic uncertainty, prompting a cautious fourth quarter outlook with expected low-single digit sales decline.

Positive

• Comparable sales growth of 2.7%.
• Total revenue increased by 3.4% to $26.5 billion.
• Enterprise initiative expected to save $2-3 billion over three years.

Negative

• GAAP EPS declined 49.3% from $3.04 in 2021 to $1.54.
• Operating income fell 49.2% to $1.0 billion.
• Gross margin rate decreased from 28.0% to 24.7%.

MINNEAPOLIS, Nov. 16, 2022 /PRNewswire/ --

• Comparable sales increased 2.7 percent, on top of 12.7 percent growth last year.
• Comparable sales growth was driven by 1.4 percent traffic growth and a 1.3 percent increase in average ticket.
• Category performance was led by growth in frequency businesses including Beauty, Food and Beverage and Household Essentials, which offset continued softness in discretionary categories.
• The Company saw unit share gains across all five core merchandising categories.
• Third quarter operating margin rate of 3.9 percent improved meaningfully compared with the second quarter results, but fell far short of expectations.
• In light of an increasingly challenging environment, the Company lowered its topline and bottom line expectations for the fourth quarter.
• The Company announced an enterprise initiative to simplify and gain efficiencies across its business, representing an estimated cumulative savings opportunity of $2 to $3 billion over the next three years.

For additional media materials, please visit: 
https://corporate.target.com/article/2022/11/q3-2022-earnings

Target Corporation (NYSE: TGT) today announced its third quarter 2022 financial results, which reflected continued sales and traffic growth in an increasingly challenging environment.

The Company reported third quarter GAAP earnings per share (EPS) of $1.54, down 49.3 percent from $3.04 in 2021. Third quarter Adjusted EPS¹ of $1.54 decreased 49.1 percent compared with $3.03 in 2021. The attached tables provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.

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.

"In the third quarter, our business delivered comparable sales growth of 2.7 percent, and we saw unit share gains across all of our core merchandise categories.  This performance demonstrates the durability of our business model which continues to serve our guests and drive loyalty despite the challenging economic environment," said Brian Cornell, chairman and chief executive officer of Target Corporation. "In the latter weeks of the quarter, sales and profit trends softened meaningfully, with guests' shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty. This resulted in a third quarter profit performance well below our expectations. 

While we're ready to deliver exceptional value for our guests this holiday season, supported by the decisive inventory actions we took earlier this year, the rapidly evolving consumer environment means we're planning the balance of the year more conservatively. We're also taking new actions to drive efficiencies now and in the future, optimizing our operations to match the scale of our business and drive continued growth. The strides we have made in recent years to build a truly differentiated, guest-centered retail offering, punctuated by a balanced, multi-category portfolio, positions us well to navigate in any environment. Looking ahead, we remain laser-focused on delivering the best of Target to our guests, and continuing to invest in our long-term, profitable growth."

Fiscal 2022 Guidance

Based on softening sales and profit trends that emerged late in the third quarter and persisted into November, the Company believes it is prudent to plan for a wide range of sales outcomes in the fourth quarter, centered around a low-single digit decline in comparable sales, consistent with those recent trends. Similarly, the Company is now planning a wide range for its fourth quarter operating margin rate centered around 3 percent.

Enterprise Efficiency

The Company announced today it was undertaking an enterprise-wide effort to simplify and gain efficiencies across its business with a focus on reducing complexities and lowering costs while continuing to support its team. The Company believes it can save a total of $2 to $3 billion over the next three years through this work. These savings will support the company's investments in driving deeper guest engagement and long-term growth while also delivering on its profit goals. This opportunity is enabled by the rapid growth since 2019, in which Target's total revenue has grown approximately 40 percent. In light of this growth, this effort is focused on fully leveraging the scale that's been gained to best-position the Company to continue growing efficiently over time.

Operating Results

Comparable sales grew 2.7 percent in the third quarter, reflecting comparable store sales growth of 3.2 percent and comparable digital sales growth of 0.3 percent. Total revenue of $26.5 billion grew 3.4 percent compared with last year, reflecting total sales growth of 3.3 percent and a 9.5 percent increase in other revenue. Operating income was $1.0 billion in third quarter 2022, down 49.2 percent from $2.0 billion in 2021, driven primarily by a decline in the Company's gross margin rate.

Third quarter operating income margin rate was 3.9 percent in 2022, compared with 7.8 percent in 2021. Third quarter gross margin rate was 24.7 percent, compared with 28.0 percent in 2021. This year's gross margin rate reflected higher markdown rates, inventory shrink, and merchandise and freight costs, net of retail price increases, compared with last year.  Additionally, gross margin rate was pressured by increased compensation and headcount in our distribution centers and the costs of managing early receipts of inventory, with a slight offset from favorable category mix. Third quarter SG&A expense rate was 19.7 percent in 2022, compared with 18.9 percent in 2021. This reflected the impact of cost inflation across multiple parts of the business, including investments in hourly team member compensation, which was partially offset by lower incentive compensation.

Interest Expense and Taxes

The Company's third quarter 2022 net interest expense was $125 million, compared with $105 million last year, reflecting higher average long-term debt and commercial paper balances.

Third quarter 2022 effective income tax rate was 21.6 percent, compared with the prior year rate of 22.1 percent, reflecting the rate impact of tax benefits on lower pre-tax earnings compared with last year.

Capital Deployment and Return on Invested Capital

The Company paid dividends of $497 million in the third quarter, compared with $440 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 stock in the third quarter.  As of the end of the third 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 third quarter 2022, after-tax return on invested capital (ROIC) was 14.6 percent, compared with 31.3 percent for the trailing twelve months through third quarter 2021. The decrease in ROIC was driven primarily by lower profitability in third quarter 2022. The tables in this release provide additional information about the Company's ROIC calculation.

Webcast Details

Target will webcast its third quarter earnings conference call at 7:00 a.m. CT today. Investors and the media are invited to listen to the meeting at Investors.Target.com (click on link under "Upcoming Events"). A replay of the webcast will be provided when available. The replay number is 1-800-391-9853.

Miscellaneous

Statements in this release regarding fourth quarter comparable sales levels and operating margin rate, and the potential benefits from the enterprise initiative to simplify and gain efficiencies across the business 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. These risk and uncertainties include difficulties and delays in identifying and achieving the potential cost savings associated with the enterprise initiative to simplify and gain efficiencies and the other risks and uncertainties described in Item 1A of the Company's Form 10-K for the fiscal year ended January 29, 2022. Forward-looking statements speak only as of the date they are made, and the Company does not undertake any obligation to update any forward-looking statement.

About Target

Minneapolis-based Target Corporation (NYSE: TGT) serves guests at nearly 2,000 stores and at Target.com, with the purpose of helping all families discover the joy of everyday life. Since 1946, Target has given 5% of its profit to communities, which today equals millions of dollars a week. For the latest store count or more information, visit Target.com/Pressroom. For a behind-the-scenes look at Target, visit Target.com/abullseyeview or follow @TargetNews on Twitter.

TARGET CORPORATION
Consolidated Statements of Operations
		Three Months Ended						Nine Months Ended
(millions, except per share data) (unaudited)		October 29, 2022		October 30, 2021		Change		October 29, 2022		October 30, 2021		Change
Sales		$       26,122		$       25,290		3.3 %		$       76,605		$       73,995		3.5 %
Other revenue		396		362		9.5		1,120		1,014		10.4
Total revenue		26,518		25,652		3.4		77,725		75,009		3.6
Cost of sales		19,680		18,206		8.1		58,283		52,202		11.6
Selling, general and administrative expenses		5,219		4,859		7.4		14,983		14,217		5.4
Depreciation and amortization (exclusive of      depreciation included in cost of sales)		597		577		3.6		1,770		1,739		1.8
Operating income		1,022		2,010		(49.2)		2,689		6,851		(60.8)
Net interest expense		125		105		17.5		349		317		9.8
Net other (income) / expense		(12)		(6)		106.0		(35)		(356)		(90.3)
Earnings before income taxes		909		1,911		(52.4)		2,375		6,890		(65.5)
Provision for income taxes		197		423		(53.6)		471		1,488		(68.4)
Net earnings		$            712		$         1,488		(52.1) %		$         1,904		$         5,402		(64.7) %
Basic earnings per share		$           1.55		$           3.07		(49.5) %		$           4.11		$         10.97		(62.5) %
Diluted earnings per share		$           1.54		$           3.04		(49.3) %		$           4.09		$         10.87		(62.4) %
Weighted average common shares outstanding
Basic		460.3		484.8		(5.1) %		462.6		492.2		(6.0) %
Diluted		462.5		489.4		(5.5) %		465.3		496.8		(6.3) %
Antidilutive shares		1.3		—				1.1		—
Dividends declared per share		$           1.08		$           0.90		20.0 %		$           3.06		$           2.48		23.4 %

 

TARGET CORPORATION
Consolidated Statements of Financial Position
(millions, except footnotes) (unaudited)		October 29, 2022		January 29, 2022		October 30, 2021
Assets
Cash and cash equivalents		$                954		$             5,911		$             5,753
Inventory		17,117		13,902		14,958
Other current assets		2,322		1,760		1,865
Total current assets		20,393		21,573		22,576
Property and equipment
Land		6,214		6,164		6,146
Buildings and improvements		34,279		32,985		32,478
Fixtures and equipment		7,184		6,407		6,144
Computer hardware and software		2,899		2,505		2,447
Construction-in-progress		2,358		1,257		1,302
Accumulated depreciation		(22,013)		(21,137)		(20,602)
Property and equipment, net		30,921		28,181		27,915
Operating lease assets		2,596		2,556		2,539
Other noncurrent assets		1,705		1,501		1,381
Total assets		$          55,615		$          53,811		$          54,411
Liabilities and shareholders' investment
Accounts payable		$          15,438		$          15,478		$          16,250
Accrued and other current liabilities		6,138		6,098		5,925
Current portion of long-term debt and other borrowings		2,207		171		1,176
Total current liabilities		23,783		21,747		23,351
Long-term debt and other borrowings		14,237		13,549		11,586
Noncurrent operating lease liabilities		2,590		2,493		2,494
Deferred income taxes		2,240		1,566		1,246
Other noncurrent liabilities		1,746		1,629		1,931
Total noncurrent liabilities		20,813		19,237		17,257
Shareholders' investment
Common stock		38		39		40
Additional paid-in capital		6,558		6,421		6,381
Retained earnings		4,631		6,920		8,069
Accumulated other comprehensive loss		(208)		(553)		(687)
Total shareholders' investment		11,019		12,827		13,803
Total liabilities and shareholders' investment		$          55,615		$          53,811		$          54,411

Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 460,297,654, 471,274,073 and 480,905,493 shares issued and outstanding as of October 29, 2022, January 29, 2022, and October 30, 2021, respectively.

Preferred Stock Authorized 5,000,000 shares, $0.01 par value; no shares were issued or outstanding during any period presented.

 

TARGET CORPORATION
Consolidated Statements of Cash Flows
		Nine Months Ended
(millions) (unaudited)		October 29, 2022		October 30, 2021
Operating activities
Net earnings		$           1,904		$           5,402
Adjustments to reconcile net earnings to cash (required for) provided by operating activities:
Depreciation and amortization		2,004		1,952
Share-based compensation expense		177		187
Deferred income taxes		548		233
Gain on Dermstore sale		—		(335)
Noncash losses / (gains) and other, net		141		18
Changes in operating accounts:
Inventory		(3,215)		(4,305)
Other assets		(205)		(117)
Accounts payable		(224)		3,284
Accrued and other liabilities		(578)		(722)
Cash (required for) provided by operating activities		552		5,597
Investing activities
Expenditures for property and equipment		(4,323)		(2,483)
Proceeds from disposal of property and equipment		4		23
Proceeds from Dermstore sale		—		356
Other investments		16		14
Cash required for investing activities		(4,303)		(2,090)
Financing activities
Change in commercial paper, net		2,104		—
Additions to long-term debt		991		—
Reductions of long-term debt		(139)		(112)
Dividends paid		(1,339)		(1,116)
Repurchase of stock		(2,825)		(5,042)
Stock option exercises		2		5
Cash required for financing activities		(1,206)		(6,265)
Net decrease in cash and cash equivalents		(4,957)		(2,758)
Cash and cash equivalents at beginning of period		5,911		8,511
Cash and cash equivalents at end of period		$              954		$           5,753

 

 

TARGET CORPORATION
Operating Results
Rate Analysis						Three Months Ended				Nine Months Ended
(unaudited)						October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Gross margin rate						24.7 %		28.0 %		23.9 %		29.5 %
SG&A expense rate						19.7		18.9		19.3		19.0
Depreciation and amortization expense rate (exclusive of depreciation included in cost of sales)						2.3		2.2		2.3		2.3
Operating income margin rate						3.9		7.8		3.5		9.1
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 $184 million and $550 million of profit-sharing income under our credit card program agreement for the three and nine months ended October 29, 2022, respectively, and $184 million and $527 million for the three and nine months ended October 30, 2021, respectively.
Comparable Sales						Three Months Ended				Nine Months Ended
(unaudited)						October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Comparable sales change						2.7 %		12.7 %		2.9 %		14.4 %
Drivers of change in comparable sales
Number of transactions (traffic)						1.4		12.9		2.6		14.0
Average transaction amount						1.3		(0.2)		0.2		0.3
Comparable Sales by Channel						Three Months Ended				Nine Months Ended
(unaudited)						October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Stores originated comparable sales change						3.2 %		9.7 %		2.6 %		11.9 %
Digitally originated comparable sales change						0.3		28.9		4.1		27.8
Sales by Channel						Three Months Ended				Nine Months Ended
(unaudited)						October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Stores originated						82.9 %		82.4 %		82.3 %		82.3 %
Digitally originated						17.1		17.6		17.7		17.7
Total						100 %		100 %		100 %		100 %
Sales by Fulfillment Channel						Three Months Ended				Nine Months Ended
(unaudited)						October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Stores						96.8 %		96.7 %		96.7 %		96.5 %
Other						3.2		3.3		3.3		3.5
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				Nine Months Ended
(unaudited)						October 29, 2022		October 30, 2021		October 29, 2022		October 30, 2021
Target Debit Card						10.8 %		11.7 %		11.2 %		11.8 %
Target Credit Cards						8.8		8.9		8.8		8.7
Total RedCard Penetration						19.6 %		20.7 %		20.0 %		20.5 %
Note: Amounts may not foot due to rounding.
Number of Stores and Retail Square Feet		Number of Stores						Retail Square Feet (a)
(unaudited)		October 29, 2022		January 29, 2022		October 30, 2021		October 29, 2022		January 29, 2022		October 30, 2021
170,000 or more sq. ft.		274		274		274		48,985		49,071		49,071
50,000 to 169,999 sq. ft.		1,522		1,516		1,515		190,739		190,205		190,116
49,999 or less sq. ft.		145		136		135		4,305		4,008		3,952
Total		1,941		1,926		1,924		244,029		243,284		243,139
(a)                   In thousands; reflects total square feet less office, distribution center, and vacant space.

 

 

TARGET CORPORATION
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, GAAP. The most comparable GAAP measure is diluted earnings per share. Adjusted EPS 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 Adjusted EPS differently, limiting the usefulness of the measure for comparisons with other companies.
Reconciliation of Non-GAAP Adjusted EPS		Three Months Ended
		October 29, 2022						October 30, 2021
(millions, except per share data) (unaudited)		Pretax		Net of Tax		Per Share		Pretax		Net of Tax		Per Share		Change
GAAP diluted earnings per share						$     1.54						$     3.04		(49.3) %
Adjustments
Other (a)		$        —		$         —		$        —		$         (9)		$          (7)		$   (0.01)
Adjusted diluted earnings per share						$     1.54						$     3.03		(49.1) %
Reconciliation of Non-GAAP Adjusted EPS		Nine Months Ended
		October 29, 2022						October 30, 2021
(millions, except per share data) (unaudited)		Pretax		Net of Tax		Per Share		Pretax		Net of Tax		Per Share		Change
GAAP diluted earnings per share						$     4.09						$  10.87		(62.4) %
Adjustments
Gain on Dermstore sale		$        —		$         —		$        —		$    (335)		$     (269)		$   (0.54)
Other (a)		20		15		0.03		27		20		0.04
Adjusted diluted earnings per share						$     4.12						$  10.37		(60.2) %
Note: Amounts may not foot due to rounding.
(a)                   Other items unrelated to current period operations, none of which were individually significant.

 

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						Nine Months Ended
(dollars in millions) (unaudited)		October 29, 2022		October 30, 2021		Change		October 29, 2022		October 30, 2021		Change
Net earnings		$            712		$         1,488		(52.1) %		$         1,904		$         5,402		(64.7) %
+ Provision for income taxes		197		423		(53.6)		471		1,488		(68.4)
+ Net interest expense		125		105		17.5		349		317		9.8
EBIT		$         1,034		$         2,016		(48.7) %		$         2,724		$         7,207		(62.2) %
+ Total depreciation and amortization (a)		674		652		3.5		2,004		1,952		2.7
EBITDA		$         1,708		$         2,668		(36.0) %		$         4,728		$         9,159		(48.4) %
(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 Invested Capital
(dollars in millions) (unaudited)
		Trailing Twelve Months
Numerator		October 29, 2022		October 30, 2021
Operating income		$         4,784		$           8,687
+ Net other income / (expense)		61		358
EBIT		4,845		9,045
+ Operating lease interest (a)		89		85
- Income taxes (b)		1,059		1,947
Net operating profit after taxes		$         3,875		$           7,183
Denominator		October 29, 2022		October 30, 2021		October 31, 2020
Current portion of long-term debt and other borrowings		$         2,207		$           1,176		$            131
+ Noncurrent portion of long-term debt		14,237		11,586		12,490
+ Shareholders' investment		11,019		13,803		13,319
+ Operating lease liabilities (c)		2,879		2,737		2,400
- Cash and cash equivalents		954		5,753		5,996
Invested capital		$       29,388		$         23,549		$       22,344
Average invested capital (d)		$       26,469		$         22,947
After-tax return on invested capital		14.6 %		31.3 %

(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 21.5 percent and 21.3 percent for the trailing twelve months ended October 29, 2022, and October 30, 2021, respectively. For the twelve months ended October 29, 2022, and October 30, 2021, includes tax effect of $1.0 billion and $1.9 billion, respectively, related to EBIT, and $19 million and $18 million, respectively, related to operating lease interest.
(c)	Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities, respectively.
(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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SOURCE Target Corporation

FAQ

What were Target's third quarter 2022 earnings results?

Target reported third quarter GAAP EPS of $1.54, down 49.3% from $3.04 in 2021.

How did Target's comparable sales perform in Q3 2022?

Comparable sales grew by 2.7% in the third quarter of 2022.

What is Target's outlook for the fourth quarter of 2022?

Target anticipates a low-single digit decline in comparable sales for the fourth quarter.

What efficiency measures is Target implementing?

Target has initiated an enterprise-wide effort aiming to save $2-3 billion over the next three years.

How did inflation impact Target's sales in Q3 2022?

Inflation and economic uncertainty significantly impacted consumer shopping behavior, softening sales and profit trends.