MINNEAPOLIS —
Target sales grew 0.5 percent, reflecting flat comparable sales combined with the benefit of sales from new locations.
Traffic grew 0.9 percent, on top of 3.9 percent in Q1 2022.
Comparable stores sales grew 0.7 percent, offset by a decline in comparable digital sales.
Among the components of comparable digital sales, same-day services saw mid-single digit growth, led by high-single digit growth in Drive-Up.
Strength in frequency businesses (Beauty, Food & Beverage and Household Essentials) offset continued softness in discretionary categories.
Inventory at the end of Q1 was 16 percent lower than last year, reflecting more than a 25 percent reduction in discretionary categories, partially offset by inventory investments to support rapidly-growing frequency categories, and strategic investments to support long-term market-share opportunities.
First quarter GAAP and Adjusted EPS of $2.05, and operating margin rate of 5.2 percent, were ahead of expectations, reflecting a higher gross margin rate compared with last year.
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https://corporate.target.com/article/2023/05/q1-2023-earnings
Target Corporation (NYSE: TGT) today announced its first quarter 2023 financial results, which reflected continued traffic and sales growth in an increasingly challenging environment.
The Company reported first quarter GAAP earnings per share (EPS) of $2.05, down 4.8 percent from $2.16 in 2022. First quarter Adjusted EPS1 of $2.05 decreased 6.2 percent compared with $2.19 in 2022. 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.
Brian Cornell, chair and CEO of Target Corporation, said, “We came into the year clear-eyed about the challenges consumers are facing, and we were determined to build on the trust we’ve established with our guests. It’s required agility and the ability to flex across our multi-category portfolio as we lean into value and the product categories our guests need most right now. Thanks to the team’s dedication, we saw an increase in guest traffic in Q1, with total sales increasing and profitability ahead of expectations.
As we look ahead, we now expect shrink will reduce this year’s profitability by more than $500 million compared with last year. While there are many potential sources of inventory shrink, theft and organized retail crime are increasingly important drivers of the issue. We are making significant investments in strategies to prevent this from happening in our stores and protect our guests and our team. We’re also focused on managing the financial impact on our business so we can continue to keep our stores open, knowing they create local jobs and offer convenient access to essentials.
For the full year, we are maintaining our full-year financial guidance, based on the expected benefit from efficiency and cost-savings efforts and our team’s continued focus on agility, flexibility and retail fundamentals in the face of continued challenges including inventory shrink. At the same time, we will continue making long-term investments in our stores, supply chain and our team, positioning Target for profitable growth and market-share gains in the years ahead.”
Guidance
Based on softening sales trends in the first quarter, the Company is planning for a wide range of sales outcomes in the second quarter, centered around a low-single digit decline in comparable sales. GAAP EPS and Adjusted EPS are both expected to range from $1.30 to $1.70.
For the full year, the Company is maintaining its prior guidance, which includes expected comparable sales in a wide range from a low-single digit decline to a low-single digit increase, operating income growth of more than $1 billion, and both GAAP EPS and Adjusted EPS of $7.75 to $8.75.
Operating Results
Comparable sales were flat to last year in the first quarter, reflecting comparable store sales growth of 0.7 percent and comparable digital sales down (3.4) percent. Total revenue of $25.3 billion grew 0.6 percent compared with last year, reflecting total sales growth of 0.5 percent and a 10.2 percent increase in other revenue. Operating income of $1.3 billion in first quarter 2023, was down 1.4 percent from last year, driven by an increase in the Company’s SG&A expense rate.
First quarter operating income margin rate was 5.2 percent in 2023, compared with 5.3 percent in 2022. First quarter gross margin rate was 26.3 percent, compared with 25.7 percent in 2022. This year’s gross margin rate reflected the benefit of lower freight costs, retail price increases, lower clearance markdown rates, and lower digital fulfillment costs driven by lower digital volume and a favorable mix of lower-cost same-day services. These benefits were partially offset by higher inventory shrink. First quarter SG&A expense rate was 19.8 percent in 2023, compared with 18.9 percent in 2022, reflecting the impact of cost inflation across multiple parts of the business, including investments in team member pay and benefits.
Interest Expense and Taxes
The Company’s first quarter 2023 net interest expense was $147 million, compared with $112 million last year, reflecting higher average long-term debt balances combined with the impact of higher floating interest rates.
First quarter 2023 effective income tax rate was 21.1 percent, compared with the prior year rate of 19.2 percent, reflecting the rate impact of higher discrete tax benefits in the prior year.
Capital Deployment and Return on Invested Capital
The Company paid dividends of $497 million in the first quarter, compared with $424 million last year, reflecting a 20.0 percent increase in the dividend per share, partially offset by a decline in average share count.
The Company did not repurchase any 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 2023, after-tax return on invested capital (ROIC) was 11.4 percent, compared with 25.3 percent for the trailing twelve months through first quarter 2022. The decrease in ROIC 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
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 2023 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 2023 second quarter and full-year guidance, and the potential benefits from the Company’s efficiency and cost-saving efforts 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. These risks and uncertainties include difficulties and delays in identifying and achieving the potential benefits associated with the Company’s efficiency and cost-saving efforts and the other risks and uncertainties described in Item 1A of the Company’s Form 10-K for the fiscal year ended January 28, 2023. 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 corporate.target.com/press. For a behind-the-scenes look at Target, visit corporate.target.com or follow @TargetNews on Twitter.
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