Target Corporation Reports First Quarter Earnings

Rhea-AI Summary

Target (NYSE: TGT) reported its first quarter 2024 financial results, showing a 5.3% operating income margin, a 140 basis point improvement over last year. However, comparable sales declined by 3.7%, with total revenue dropping to $24.5 billion, down 3.1% from the previous year. Digital sales saw a slight growth of 1.4%, and same-day services grew nearly 9%. The relaunch of the Target Circle loyalty program added over 1 million new members in Q1. Despite the overall sales decline, gross margin improved to 27.7%, while SG&A expenses rose to 21.1% of sales. Net interest expense decreased to $106 million, and the effective tax rate increased to 22.7%. Target maintains its full-year guidance, expecting a 0 to 2% increase in comparable sales and GAAP Adjusted EPS of $8.60 to $9.60.

Positive

• Operating income margin rate improved to 5.3%, a 140 basis point increase over last year.
• Digital comparable sales grew by 1.4%, indicating expansion in online shopping.
• Same-day services grew nearly 9%, particularly driven by a 13% growth in Drive Up.
• Gross margin rate improved to 27.7%, up from 26.3% in 2023.
• Net interest expense decreased to $106 million, showing improved financial management.
• Effective tax rate increased to 22.7%, reflecting lower discrete benefits.
• Target Circle loyalty program added over 1 million new members in Q1.
• Inventory levels were 7% lower than last year, indicating better inventory management.
• ROIC improved to 15.4%, up from 11.4% in the previous year.

Negative

• Comparable sales declined by 3.7%, with total revenue dropping 3.1% to $24.5 billion.
• Discretionary sales in categories like apparel still indicate a weak consumer demand.
• First quarter operating income of $1.3 billion was 2.4% lower than last year.
• SG&A expense rate increased to 21.1% from 19.8%, driven by higher costs.
• First quarter GAAP and Adjusted EPS were $2.03, slightly down from $2.05 in 2023.
• The company did not repurchase any stock in Q1 despite having $9.7 billion remaining capacity.

Financial Analyst

The first quarter financial results of Target Corporation present a mixed bag for investors. First, it's important to highlight the operating income margin rate improvement, which rose to 5.3, reflecting a significant increase in gross margin rate by 140 basis points. This suggests more efficient cost management and better merchandising strategies. However, the comparable sales decline of 3.7 could be a cause for concern, indicating potential softness in consumer demand, especially in discretionary categories.

Notably, the digital sales growth of 1.4 and a 9 percent increase in same-day services demonstrate Target's successful adaptation to changing consumer preferences towards e-commerce and convenience. The relaunch of the Target Circle loyalty program, with over 1 million new members, is another positive step towards strengthening customer retention and engagement.

Interestingly, the decline in inventory by 7 percent while maintaining higher in-stock levels suggests improved inventory management and potentially less future markdown risk. The Company’s guidance for the second quarter and the full year remains cautiously optimistic, projecting modest comparable sales growth and stability in earnings.

Despite the slight drop in EPS compared to the previous year, Target has managed to keep its financial performance within guided expectations, which should provide some reassurance to investors.

Overall, while there are challenges, such as declining sales volumes, Target's focus on cost efficiency, digital expansion and loyalty programs could bode well for its future performance.

Market Research Analyst

From a market perspective, Target's performance in the first quarter reflects broader retail industry trends. The decline in discretionary spending is consistent with consumer behavior during economic uncertainty, where non-essential purchases take a backseat. However, the growth in the Beauty segment and a 4 percent improvement in apparel sales compared to Q4 2023 are promising signs of recovery within specific categories.

Target's strategic initiatives, such as the expansion of the Target Circle loyalty program and enhancements in digital and same-day services, indicate a concerted effort to stay competitive in a rapidly evolving retail landscape. The increase in same-day services, especially Drive Up, by more than 13 percent underscores the importance of flexibility and convenience for modern shoppers.

Market dynamics suggest that Target's investments in customer experience, combined with an efficient inventory strategy, position it well against competitors. The company's ability to maintain higher in-stock levels while reducing overall inventory aligns with consumer expectations for product availability and variety.

Overall, Target's market strategy appears robust, reflecting adaptability and foresight in navigating both consumer trends and economic pressures.

MINNEAPOLIS, May 22, 2024 /PRNewswire/ -- 

• First quarter operating income margin rate of 5.3 percent reflects a 140 basis point improvement in gross margin rate as compared to the prior year.
• First quarter comparable sales declined 3.7 percent, in line with expectations.
  • Digital comparable sales grew 1.4 percent. Same-day services grew nearly 9 percent, led by more than 13 percent growth in Drive Up.
  • Sales declines, primarily in discretionary categories, were partially offset by continued growth in Beauty.
  • Discretionary sales trends continued to improve vs. prior quarters, led by an improvement of nearly 4 percentage points in apparel as compared to Q4 of 2023.
• The Company successfully relaunched its free-to-join Target Circle loyalty program in April, and welcomed more than 1 million new members to the platform in the first quarter.
• Inventory at the end of Q1 was 7 percent lower than last year, even as the Company saw higher in-stock levels than a year ago.

For additional media materials, please visit:
https://corporate.target.com/news-features/article/2024/05/q1-2024-earnings

Target Corporation (NYSE: TGT) today announced its first quarter 2024 financial results, which reflected sales and profit performance consistent with the Company's previously provided expectations.

The Company reported first quarter GAAP and Adjusted earnings per share¹ (EPS) of $2.03, compared with $2.05 in 2023. 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 first quarter financial performance was in line with our expectations on both the top and bottom line, tracking the trajectory we outlined for this year and setting up a return to growth in the second quarter," said Brian Cornell, chair and chief executive of Target Corporation. "Our topline performance improved for the third consecutive quarter, with growth in our digital business led by strength in our same-day fulfillment services. Consumers continue to respond to the newness and value that we offer across our shopping experience, and we're pleased with early results from the relaunch of Target Circle. Looking ahead, our team will deliver for our guests through lower prices, a seasonally relevant assortment, ease and convenience, as we keep investing in our strategy and efficiency initiatives to get back to growth and deliver on our longer-term financial goals."

Guidance

For the second quarter, the Company expects a 0 to 2 percent increase in its comparable sales, and GAAP and Adjusted EPS of $1.95 to $2.35.

For the full year, the Company continues to expect a 0 to 2 percent increase in its comparable sales, and GAAP and Adjusted EPS of $8.60 to $9.60.

Operating Results

Comparable sales declined 3.7 percent in the first quarter, reflecting a comparable store sales decline of 4.8 percent partially offset by a comparable digital sales increase of 1.4 percent. Total revenue of $24.5 billion was 3.1 percent lower than last year, reflecting a total sales decline of 3.2 percent and a 3.9 percent increase in other revenue. First quarter operating income of $1.3 billion was 2.4 percent lower than last year, driven by lower sales volume.

First quarter operating income margin rate was 5.3 percent in 2024, compared with 5.2 percent in 2023. First quarter gross margin rate was 27.7 percent, compared with 26.3 percent in 2023, reflecting the net impact of merchandising activities, including cost improvements that more than offset higher promotional markdown rates, combined with favorable category mix and lower book to physical inventory adjustments as compared to the prior year.  First quarter SG&A expense rate was 21.1 percent in 2024, compared with 19.8 percent in 2023, reflecting the combined impact of lower sales and higher costs, including continued investments in pay and benefits and marketing, partially offset by disciplined cost management.

Interest Expense and Taxes

The Company's first quarter 2024 net interest expense was $106 million, compared with $147 million last year, primarily driven by an increase in interest income reflecting higher cash balances year-over-year.

First quarter 2024 effective income tax rate was 22.7 percent, compared with the prior year rate of 21.1 percent, reflecting lower discrete benefits as compared to the prior year.

Capital Deployment and Return on Invested Capital

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

The Company did not repurchase any stock in the first quarter.  As of the end of the 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 first quarter 2024, after-tax return on invested capital (ROIC) was 15.4 percent, compared with 11.4 percent for the trailing twelve months through first quarter 2023. The increase in ROIC reflects higher operating income, partially offset by higher average invested capital. The tables in this release provide additional information about the Company's ROIC calculation.

Webcast Details

Target will webcast its first quarter earnings conference call at 7:00 a.m. CT today. Investors and the media are invited to listen to the meeting at Corporate.Target.com/Investors (click on "Q1 2024 Target Corporation Earnings Conference Call" under "Events & Presentations"). A replay of the webcast will be provided when available. The replay number is 1-800-513-1169.

Miscellaneous

Statements in this release regarding the Company's future financial performance, including its fiscal 2024 second quarter and full-year 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 results 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 February 3, 2024. 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. Additional company information can be found by visiting the corporate website (corporate.target.com) and press center.

 

TARGET CORPORATION   Consolidated Statements of Operations
		Three Months Ended
(millions, except per share data) (unaudited)		May 4, 2024		April 29, 2023		Change
Sales		$       24,143		$       24,948		(3.2) %
Other revenue		388		374		3.9
Total revenue		24,531		25,322		(3.1)
Cost of sales		17,449		18,386		(5.1)
Selling, general and administrative expenses		5,168		5,025		2.8
Depreciation and amortization (exclusive of depreciation included in cost of sales)		618		583		6.2
Operating income		1,296		1,328		(2.4)
Net interest expense		106		147		(27.8)
Net other income		(29)		(23)		26.9
Earnings before income taxes		1,219		1,204		1.3
Provision for income taxes		277		254		9.0
Net earnings		$            942		$            950		(0.8) %
Basic earnings per share		$           2.04		$           2.06		(1.0) %
Diluted earnings per share		$           2.03		$           2.05		(1.0) %
Weighted average common shares outstanding
Basic		462.2		460.9		0.3 %
Diluted		463.9		462.9		0.2 %
Antidilutive shares		1.6		1.2
Dividends declared per share		$           1.10		$           1.08		1.9 %

 

TARGET CORPORATION   Consolidated Statements of Financial Position
(millions, except footnotes) (unaudited)		May 4, 2024		February 3, 2024		April 29, 2023
Assets
Cash and cash equivalents		$             3,604		$             3,805		$             1,321
Inventory		11,730		11,886		12,616
Other current assets		1,744		1,807		1,836
Total current assets		17,078		17,498		15,773
Property and equipment
Land		6,544		6,547		6,493
Buildings and improvements		37,587		37,066		35,198
Fixtures and equipment		8,341		8,765		7,473
Computer hardware and software		3,265		3,428		3,067
Construction-in-progress		1,538		1,703		2,822
Accumulated depreciation		(24,161)		(24,413)		(22,657)
Property and equipment, net		33,114		33,096		32,396
Operating lease assets		3,486		3,362		2,640
Other noncurrent assets		1,439		1,400		1,341
Total assets		$          55,117		$          55,356		$          52,150
Liabilities and shareholders' investment
Accounts payable		$          11,561		$          12,098		$          11,935
Accrued and other current liabilities		5,684		6,090		5,732
Current portion of long-term debt and other borrowings		2,614		1,116		200
Total current liabilities		19,859		19,304		17,867
Long-term debt and other borrowings		13,487		14,922		16,010
Noncurrent operating lease liabilities		3,392		3,279		2,621
Deferred income taxes		2,543		2,480		2,289
Other noncurrent liabilities		1,996		1,939		1,758
Total noncurrent liabilities		21,418		22,620		22,678
Shareholders' investment
Common stock		39		38		38
Additional paid-in capital		6,747		6,761		6,541
Retained earnings		7,519		7,093		5,448
Accumulated other comprehensive loss		(465)		(460)		(422)
Total shareholders' investment		13,840		13,432		11,605
Total liabilities and shareholders' investment		$          55,117		$          55,356		$          52,150

Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 462,635,539, 461,675,441, and 461,552,843 shares issued and outstanding as of May 4, 2024, February 3, 2024, and April 29, 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
		Three Months Ended
(millions) (unaudited)		May 4, 2024		April 29, 2023
Operating activities
Net earnings		$               942		$               950
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation and amortization		718		667
Share-based compensation expense		72		43
Deferred income taxes		64		95
Noncash (gains) / losses and other, net		(31)		(11)
Changes in operating accounts:
Inventory		156		883
Other assets		43		34
Accounts payable		(524)		(1,463)
Accrued and other liabilities		(339)		67
Cash provided by operating activities		1,101		1,265
Investing activities
Expenditures for property and equipment		(674)		(1,605)
Proceeds from disposal of property and equipment		1		2
Other investments		2		1
Cash required for investing activities		(671)		(1,602)
Financing activities
Change in commercial paper, net		—		90
Reductions of long-term debt		(32)		(46)
Dividends paid		(508)		(497)
Shares withheld for taxes on share-based compensation		(91)		(118)
Cash required for financing activities		(631)		(571)
Net decrease in cash and cash equivalents		(201)		(908)
Cash and cash equivalents at beginning of period		3,805		2,229
Cash and cash equivalents at end of period		$           3,604		$           1,321

 

TARGET CORPORATION   Operating Results
Rate Analysis		Three Months Ended
(unaudited)		May 4, 2024		April 29, 2023
Gross margin rate		27.7 %		26.3 %
SG&A expense rate		21.1		19.8
Depreciation and amortization expense rate (exclusive of depreciation included in cost of sales)		2.5		2.3
Operating income margin rate		5.3		5.2

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 $142 million and $174 million of profit-sharing income under our credit card program agreement for the three months ended May 4, 2024 and April 29, 2023, respectively.

 

Comparable Sales		Three Months Ended
(unaudited)		May 4, 2024		April 29, 2023
Comparable sales change		(3.7) %		0.0 %
Drivers of change in comparable sales
Number of transactions (traffic)		(1.9)		0.9
Average transaction amount		(1.9)		(0.9)
Comparable Sales by Channel		Three Months Ended
(unaudited)		May 4, 2024		April 29, 2023
Stores originated comparable sales change		(4.8) %		0.7 %
Digitally originated comparable sales change		1.4		(3.4)
Sales by Channel		Three Months Ended
(unaudited)		May 4, 2024		April 29, 2023
Stores originated		81.7 %		82.5 %
Digitally originated		18.3		17.5
Total		100 %		100 %
Sales by Fulfillment Channel		Three Months Ended
(unaudited)		May 4, 2024		April 29, 2023
Stores		97.7 %		97.2 %
Other		2.3		2.8
Total		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.

 

Target Circle Card Penetration		Three Months Ended
(unaudited)		May 4, 2024		April 29, 2023
Total Target Circle Card Penetration		18.0 %		19.0 %

 

Number of Stores and Retail Square Feet		Number of Stores						Retail Square Feet (a)
(unaudited)		May 4, 2024		February 3, 2024		April 29, 2023		May 4, 2024		February 3, 2024		April 29, 2023
170,000 or more sq. ft.		273		273		274		48,824		48,824		48,985
50,000 to 169,999 sq. ft.		1,547		1,542		1,530		193,529		192,908		191,543
49,999 or less sq. ft.		143		141		150		4,301		4,207		4,465
Total		1,963		1,956		1,954		246,654		245,939		244,993

(a)	In thousands; reflects total square feet less office, supply chain facilities, and vacant space.

TARGET CORPORATION

Reconciliation of Non-GAAP Financial Measures

To provide additional transparency, we disclose non-GAAP adjusted diluted earnings per share (Adjusted EPS). When applicable, this metric excludes certain discretely managed items. 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, U.S. 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
		May 4, 2024		April 29, 2023		Change
GAAP and adjusted diluted earnings per share		$           2.03		$           2.05		(1.0) %

 

Reconciliation of Non-GAAP Adjusted EPS Guidance	Guidance
(per share) (unaudited)	Q2 2024		Full Year 2024
GAAP diluted earnings per share guidance	$1.95 - $2.35		$8.60 - $9.60
Estimated adjustments
Other (a)	$                   —		$                   —
Adjusted diluted earnings per share guidance	$1.95 - $2.35		$8.60 - $9.60

(a)	Second quarter and full-year 2024 GAAP EPS may include the impact of certain discrete items, which will be excluded in calculating Adjusted EPS. The guidance does not currently reflect any such discrete items. In the past, these items have included losses on the early retirement of debt and certain other items that are discretely managed.

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
(dollars in millions) (unaudited)		May 4, 2024		April 29, 2023		Change
Net earnings		$            942		$            950		(0.8) %
+ Provision for income taxes		277		254		9.0
+ Net interest expense		106		147		(27.8)
EBIT		$         1,325		$         1,351		(1.9) %
+ Total depreciation and amortization (a)		718		667		7.7
EBITDA		$         2,043		$         2,018		1.3 %

(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		May 4, 2024 (a)		April 29, 2023
Operating income		$         5,675		$           3,830
+ Net other income		99		57
EBIT		5,774		3,887
+ Operating lease interest (b)		133		96
- Income taxes (c)		1,314		770
Net operating profit after taxes		$         4,593		$           3,213
Denominator		May 4, 2024		April 29, 2023		April 30, 2022
Current portion of long-term debt and other borrowings		$         2,614		$               200		$         1,089
+ Noncurrent portion of long-term debt		13,487		16,010		13,379
+ Shareholders' investment		13,840		11,605		10,774
+ Operating lease liabilities (d)		3,723		2,921		2,854
- Cash and cash equivalents		3,604		1,321		1,112
Invested capital		$       30,060		$         29,415		$       26,984
Average invested capital (e)		$       29,737		$         28,199
After-tax return on invested capital		15.4 %		11.4 %

(a)	The trailing twelve months ended May 4, 2024, 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 22.2 percent and 19.3 percent for the trailing twelve months ended May 4, 2024, and April 29, 2023, respectively. For the twelve months ended May 4, 2024, and April 29, 2023, includes tax effect of $1.3 billion and $0.8 billion, respectively, related to EBIT, and $30 million and $18 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, respectively.
(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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SOURCE Target Corporation

FAQ

What was Target's operating income margin rate for Q1 2024?

Target reported an operating income margin rate of 5.3% for Q1 2024.

How did Target's comparable sales perform in Q1 2024?

Comparable sales declined by 3.7% in Q1 2024.

What is Target's guidance for Q2 2024?

Target expects a 0 to 2% increase in comparable sales and GAAP and Adjusted EPS of $1.95 to $2.35 for Q2 2024.

How did Target's digital sales perform in Q1 2024?

Target's digital comparable sales grew by 1.4% in Q1 2024.

What was Target's total revenue for Q1 2024?

Total revenue for Q1 2024 was $24.5 billion, a 3.1% decline from the previous year.

How many new members joined the Target Circle loyalty program in Q1 2024?

Over 1 million new members joined the Target Circle loyalty program in Q1 2024.

What was Target's gross margin rate in Q1 2024?

Target's gross margin rate improved to 27.7% in Q1 2024.

How much did Target pay in dividends in Q1 2024?

Target paid $508 million in dividends in Q1 2024.

What was Target's effective income tax rate for Q1 2024?

Target's effective income tax rate was 22.7% for Q1 2024.

How did Target's same-day services perform in Q1 2024?

Same-day services grew nearly 9% in Q1 2024, led by a 13% growth in Drive Up.