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Target Corporation Reports Fourth Quarter and Full-Year 2023 Earnings image

Target Corporation Reports Fourth Quarter and Full-Year 2023 Earnings

Minneapolis, MN

Q4 2023 Highlights     

  • Comparable sales and traffic trends improved sequentially for the second quarter in a row.
  • Same-day services (in-store pickup, Drive Up, and Shipt), which represent more than 10 percent of total sales, increased 13.6 percent in the quarter, led by growth in Drive Up.
  • GAAP and Adjusted EPS1 of $2.98 was 57.6 percent higher than last year, and well-above the high end of the expected range of $1.90 to $2.60.

Full-Year 2023 Highlights

  • Full-year GAAP and Adjusted EPS of $8.94 were both nearly 50 percent higher than in 2022.
  • The Company’s operating income margin rate of 5.3 percent was nearly two percentage points higher than last year. Operating income dollars grew by nearly $2 billion compared with 2022, well-above expectations.
  • The Company’s efficiency efforts delivered savings of more than $500 million in 2023.
  • Cash from operations more than doubled from $4.0 billion in 2022 to $8.6 billion in 2023.
  • The team maintained appropriate inventory levels by category throughout the year, resulting in lower markdown rates, more effective operations, and stronger in-stock measures compared with 2022.

Target Corporation (NYSE: TGT)  announced its fourth-quarter and full-year 2023 results, both of which benefited from an additional week of sales as compared to 2022.  The Company reported fourth-quarter GAAP and Adjusted earnings per share (EPS) of $2.98, compared with $1.89 in 2022.  GAAP and Adjusted EPS were $8.94 for full-year 2023, compared with $5.98 in GAAP EPS and $6.02 in Adjusted EPS in the prior year.  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.

“Our team’s efforts changed the momentum of our business, further improving our sales and traffic trends in the fourth quarter while driving profitability well ahead of expectations,” said Brian Cornell, chairman and chief executive officer of Target Corporation.

“Throughout the season, guests responded to newness, value, and the inspiration and ease of our in-store and digital shopping experience. Looking ahead, we’ll continue to invest in the strengths and differentiators that have delivered strong financial performance over time. We’ll also roll out fresh innovations, including our new Target Circle membership program, as part of our roadmap for growth aimed at meeting consumers where they are, reigniting sales, traffic and market share gains, and positioning Target for profitable growth in 2024 and beyond.”

Guidance

For first quarter 2024, the Company expects a comparable sales decline of 3 to 5 percent.  First quarter GAAP and Adjusted EPS are both expected to range from $1.70 to $2.10.

For the full year, the Company expects a modest increase in comparable sales in a range from flat to two percent.  GAAP EPS and Adjusted EPS are both expected to range from $8.60 to $9.60.

Operating Results

The Company’s total comparable sales declined 4.4 percent in the fourth quarter, reflecting comparable stores sales declines of 5.4 percent and a comparable digital sales decline of 0.7 percent. Total revenue of $31.9 billion grew 1.7 percent in the fourth quarter compared with 2022, driven by sales growth of 1.6 percent and a 9.8 percent increase in other revenue. Sales growth reflected an additional week in fiscal year 2023.  Operating income was $1.9 billion in fourth quarter 2023, an increase of 60.9 percent from $1.2 billion in 2022.

Full-year sales decreased 1.7 percent to $105.8 billion from $107.6 billion last year, reflecting a 3.7 percent decrease in comparable sales partially offset by sales from non-mature stores and an additional week in 2023. Full-year total revenue of $107.4 billion decreased 1.6 percent compared with 2022, reflecting a 1.7 percent decline in sales partially offset by a 5.1 percent increase in other revenue.

Fourth quarter operating income margin rate was 5.8 percent in 2023 compared with 3.7 percent in 2022. Fourth quarter gross margin rate was 25.6 percent, compared with 22.7 percent in 2022, reflecting lower markdowns and other inventory-related costs, lower freight costs, lower supply chain and digital fulfillment costs, and favorable category mix. Shrink costs were lower than a year ago, as continued increases in store loss rates were more than offset by the timing of inventory accruals compared with 2022.

Full-year operating income of $5.7 billion in 2023 grew 48.3 percent from $3.8 billion last year. Full-year gross margin rate was 26.5 percent, compared with 23.6 percent in 2022, reflecting lower markdowns and other inventory-related costs, lower freight costs and lower supply chain and digital fulfillment costs partially offset by higher inventory shrink.

Fourth quarter SG&A expense rate was 18.9 percent in 2023, compared with 18.1 percent in 2022.  Full-year SG&A expense rate was 20.1 percent in 2023, compared with 18.9 percent in 2022.  Rate increases in both periods reflect the de-leveraging impact of lower sales combined with higher costs, including continued investments in pay and benefits and inflationary pressures throughout our business partially offset by disciplined cost management.

Interest Expense and Taxes

The Company’s fourth quarter 2023 net interest expense was $107 million, compared with $129 million last year, reflecting an increase in interest income partially offset by higher debt levels and the impact of higher floating rates on interest rate swaps. Full-year 2023 net interest expense was $502 million, compared with $478 million in 2022, driven by higher average debt levels and the impact of higher floating rates on interest rate swaps partially offset by an increase in interest income.

Fourth quarter 2023 effective income tax rate was 22.6 percent, compared with 16.1 percent last year. The Company’s full-year 2023 effective income tax rate was 21.9 percent compared with 18.7 percent in 2022.  The increases in both fourth quarter and full-year tax rates reflect higher pretax earnings and lower discrete benefits in fiscal year 2023.

Capital Deployment and Return on Invested Capital

The Company paid dividends of $508 million in the fourth quarter, compared with $497 million last year, reflecting a 1.9 percent increase in the dividend per share.

The Company did not repurchase any shares in fourth quarter 2023.  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 2023, after-tax return on invested capital (ROIC) was 16.1 percent, compared with 12.6 percent for the twelve months through fourth quarter 2022. This increase was driven primarily by higher profitability partially offset by an increase in average invested capital. The tables in this release provide additional information about the Company’s ROIC calculation.

 

TARGET CORPORATION

Consolidated Statements of Operations

Three Months Ended

Twelve Months Ended

(millions, except per share data) (unaudited)

February 3,
2024 (a)

January 28,
2023

Change

February 3,
2024 (a)

January 28,
2023

Change

Sales 

$     31,467

$     30,983

1.6 %

$   105,803

$   107,588

(1.7) %

Other revenue

452

412

9.8

1,609

1,532

5.1

Total revenue

31,919

31,395

1.7

107,412

109,120

(1.6)

Cost of sales

23,403

23,946

(2.3)

77,736

82,229

(5.5)

Selling, general and administrative expenses

6,029

5,675

6.3

21,554

20,658

4.3

Depreciation and amortization (exclusive of depreciation included in cost of sales)

622

615

1.2

2,415

2,385

1.3

Operating income

1,865

1,159

60.9

5,707

3,848

48.3

Net interest expense

107

129

(17.7)

502

478

5.0

Net other income

(28)

(13)

97.3

(92)

(48)

90.5

Earnings before income taxes

1,786

1,043

71.1

5,297

3,418

55.0

Provision for income taxes

404

167

141.1

1,159

638

81.7

Net earnings

$       1,382

$          876

57.8 %

$       4,138

$       2,780

48.8 %

Basic earnings per share

$         2.99

$         1.90

57.3 %

$         8.96

$         6.02

49.0 %

Diluted earnings per share

$         2.98

$         1.89

57.6 %

$         8.94

$         5.98

49.4 %

Weighted average common shares outstanding

Basic

461.7

460.3

0.3 %

461.5

462.1

(0.1) %

Diluted

463.1

462.7

0.1 %

462.8

464.7

(0.4) %

Antidilutive shares

0.8

1.2

2.1

1.1

Dividends declared per share

$         1.10

$         1.08

1.9 %

$         4.38

$         4.14

5.8 %

(a)

The fourth quarter and full year 2023 consisted of 14 weeks and 53 weeks, respectively, compared with 13 weeks and 52 weeks in the comparable prior-year periods. The extra week contributed $1,715 million of sales for the fourth quarter and full year 2023.

TARGET CORPORATION

Consolidated Statements of Financial Position

(millions, except footnotes) (unaudited)

February 3,
2024

January 28,
2023

Assets

Cash and cash equivalents

$           3,805

$           2,229

Inventory

11,886

13,499

Other current assets

1,807

2,118

Total current assets

17,498

17,846

Property and equipment

Land

6,547

6,231

Buildings and improvements

37,066

34,746

Fixtures and equipment

8,765

7,439

Computer hardware and software

3,428

3,039

Construction-in-progress

1,703

2,688

Accumulated depreciation

(24,413)

(22,631)

Property and equipment, net

33,096

31,512

Operating lease assets

3,362

2,657

Other noncurrent assets

1,400

1,320

Total assets

$         55,356

$         53,335

Liabilities and shareholders’ investment

Accounts payable

$         12,098

$         13,487

Accrued and other current liabilities

6,090

5,883

Current portion of long-term debt and other borrowings

1,116

130

Total current liabilities

19,304

19,500

Long-term debt and other borrowings

14,922

16,009

Noncurrent operating lease liabilities

3,279

2,638

Deferred income taxes

2,480

2,196

Other noncurrent liabilities

1,939

1,760

Total noncurrent liabilities

22,620

22,603

Shareholders’ investment

Common stock

38

38

Additional paid-in capital

6,761

6,608

Retained earnings

7,093

5,005

Accumulated other comprehensive loss

(460)

(419)

Total shareholders’ investment

13,432

11,232

Total liabilities and shareholders’ investment

$         55,356

$         53,335

Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 461,675,441 and 460,346,947 shares issued and outstanding as of February 3, 2024, and January 28, 2023, 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

Twelve Months Ended

(millions) (unaudited)

February 3, 

2024 (a)

January 28,
2023

Operating activities

Net earnings 

$              4,138

$              2,780

Adjustments to reconcile net earnings to cash provided by operations:

Depreciation and amortization

2,801

2,700

Share-based compensation expense

251

220

Deferred income taxes

298

582

Noncash losses / (gains) and other, net 

94

172

Changes in operating accounts:

Inventory

1,613

403

Other assets

(85)

22

Accounts payable

(1,216)

(2,237)

Accrued and other liabilities

727

(624)

Cash provided by operating activities

8,621

4,018

Investing activities

Expenditures for property and equipment

(4,806)

(5,528)

Proceeds from disposal of property and equipment

24

8

Other investments

22

16

Cash required for investing activities

(4,760)

(5,504)

Financing activities

Additions to long-term debt

2,625

Reductions of long-term debt

(147)

(163)

Dividends paid

(2,011)

(1,836)

Repurchase of stock

(2,646)

Shares withheld for taxes on share-based compensation

(127)

(180)

Stock option exercises

4

Cash required for financing activities

(2,285)

(2,196)

Net increase / (decrease) in cash and cash equivalents

1,576

(3,682)

Cash and cash equivalents at beginning of period

2,229

5,911

Cash and cash equivalents at end of period

$              3,805

$              2,229

(a)

2023 consisted of 53 weeks compared with 52 weeks in the prior-year period.

TARGET CORPORATION

Operating Results

Rate Analysis

Three Months Ended

Twelve Months Ended

(unaudited)

February 3,
2024

January 28,
2023

February 3,
2024

January 28,
2023

Gross margin rate

25.6 %

22.7 %

26.5 %

23.6 %

SG&A expense rate

18.9

18.1

20.1

18.9

Depreciation and amortization (exclusive of depreciation included in cost of sales) expense rate

1.9

2.0

2.2

2.2

Operating income margin rate

5.8

3.7

5.3

3.5

Comparable Sales

Three Months Ended

Twelve Months Ended

(unaudited)

February 3,
2024

January 28,
2023

February 3,
2024

January 28,
2023

Comparable sales change

(4.4) %

0.7 %

(3.7) %

2.2 %

Drivers of change in comparable sales:

Number of transactions

(1.7)

0.7

(2.4)

2.1

Average transaction amount

(2.8)

0.0

(1.4)

0.1

Comparable Sales by Channel

Three Months Ended

Twelve Months Ended

(unaudited)

February 3,
2024

January 28,
2023

February 3,
2024

January 28,
2023

Stores originated comparable sales change

(5.4) %

1.9 %

(3.5) %

2.4 %

Digitally originated comparable sales change

(0.7)

(3.6)

(4.8)

1.5

Sales by Channel

Three Months Ended

Twelve Months Ended

(unaudited)

February 3,
2024

January 28,
2023

February 3,
2024

January 28,
2023

Stores originated

78.7 %

79.2 %

81.7 %

81.4 %

Digitally originated

21.3

20.8

18.3

18.6

Total

100 %

100 %

100 %

100 %

Sales by Fulfillment Channel

Three Months Ended

Twelve Months Ended

(unaudited)

February 3,
2024

January 28,
2023

February 3,
2024

January 28,
2023

Stores

97.3 %

96.7 %

97.4 %

96.7 %

Other

2.7

3.3

2.6

3.3

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)

February 3,
2024

January 28,
2023

February 3,
2024

January 28,
2023

Total RedCard Penetration

18.4 %

19.4 %

18.6 %

19.8 %

Number of Stores and Retail Square Feet

Number of Stores

Retail Square Feet (a)

(unaudited)

February 3,
2024

January 28,
2023

February 3,
2024

January 28,
2023

170,000 or more sq. ft.

273

274

48,824

48,985

50,000 to 169,999 sq. ft.

1,542

1,527

192,908

191,241

49,999 or less sq. ft.

141

147

4,207

4,358

Total

1,956

1,948

245,939

244,584

(a)

In thousands, reflects total square feet less office, distribution center, and vacant space.

TARGET CORPORATION

 

Reconciliation of Non-GAAP

Adjusted EPS

Three Months Ended

February 3, 2024 (a)

January 28, 2023

(millions, except per share data) (unaudited)

Pretax

Net of Tax

Per Share

Pretax

Net of Tax

Per Share

Change

GAAP and adjusted diluted earnings per share 

$      2.98

$      1.89

57.6 %

Reconciliation of Non-GAAP

Adjusted EPS

Twelve Months Ended

February 3, 2024 (a)

January 28, 2023

(millions, except per share data) (unaudited)

Pretax

Net of Tax

Per Share

Pretax

Net of Tax

Per Share

Change

GAAP diluted earnings per share 

$      8.94

$      5.98

49.4 %

Adjustments

Other (b)

$         —

$         —

$         —

$         20

$         15

$      0.03

Adjusted diluted earnings per share 

$      8.94

$      6.02

48.6 %

Note: Amounts may not foot due to rounding.

(a)

The fourth quarter and full year 2023 consisted of 14 weeks and 53 weeks, respectively, compared with 13 weeks and 52 weeks in the comparable prior-year periods.

(b)

Other items unrelated to current period operations, none of which were individually significant.

Reconciliation of Non-GAAP

Adjusted EPS Guidance

Guidance

Q1 2024

Full Year 2024

(unaudited)

Per Share

Per Share

GAAP diluted earnings per share guidance

$1.70 – $2.10

$8.60 – $9.60

Estimated adjustments

Other (a)

$                —

$                —

Adjusted diluted earnings per share guidance

$1.70 – $2.10

$8.60 – $9.60

(a)

First quarter and full-year 2024 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.

EBIT and EBITDA

Three Months Ended

Twelve Months Ended

(dollars in millions) (unaudited)

February 3,
2024 (a)

January 28,
2023

Change

February 3,
2024 (a)

January 28,
2023

Change

Net earnings

$        1,382

$              876

57.8 %

$        4,138

$          2,780

48.8 %

 + Provision for income taxes

404

167

141.1

1,159

638

81.7

 + Net interest expense

107

129

(17.7)

502

478

5.0

EBIT

$        1,893

$          1,172

61.3 %

$        5,799

$          3,896

48.8 %

 + Total depreciation and amortization (b)

729

697

4.8

2,801

2,700

3.8

EBITDA

$        2,622

$          1,869

40.3 %

$        8,600

$          6,596

30.4 %

(a)

The fourth quarter and full year 2023 consisted of 14 weeks and 53 weeks, respectively, compared with 13 weeks and 52 weeks in the comparable prior-year periods.

(b)

Represents total depreciation and amortization, including amounts classified within Depreciation and Amortization and within Cost of Sales.

 

After-Tax Return on Invested Capital 

(dollars in millions)

Trailing Twelve Months

Numerator

February 3,
2024 (a)

January 28,
2023

Operating income

$         5,707

$           3,848

 + Net other income

92

48

EBIT

5,799

3,896

 + Operating lease interest (b)

120

93

 – Income taxes (c)

1,295

744

Net operating profit after taxes

$         4,624

$           3,245

Denominator

February 3,
2024

January 28,
2023

January 29,
2022

Current portion of long-term debt and other borrowings

$         1,116

$               130

$            171

 + Noncurrent portion of long-term debt

14,922

16,009

13,549

 + Shareholders’ investment

13,432

11,232

12,827

 + Operating lease liabilities (d)

3,608

2,934

2,747

 – Cash and cash equivalents

3,805

2,229

5,911

Invested capital

$       29,273

$         28,076

$       23,383

Average invested capital (e)

$       28,674

$         25,729

After-tax return on invested capital

16.1 %

12.6 %

(a)

2023 consisted of 53 weeks compared with 52 weeks in the prior-year period.

(b)

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.

(c)

Calculated using the effective tax rates, which were 21.9 percent and 18.7 percent for the trailing twelve months ended February 3, 2024, and January 28, 2023, respectively. For the twelve months ended February 3, 2024, and January 28, 2023, includes tax effect of $1.3 billion and $0.7 billion, respectively, related to EBIT and $26 million and $17 million, respectively, related to operating lease interest.

(d)

Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities.

(e)

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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