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Target caps off record year of growth but warns about first quarter 2022

·Anchor, Editor-at-Large
·3 min read
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Target (TGT) easily surpassed analysts' profit forecasts for the fourth quarter on Tuesday as consumers sought out deals on apparel and food amid an inflationary environment.

"The quarter was driven by traffic. So that means consumers voted with their with their feet and their clicks and picked Target more often. So that's an incredibly healthy sign for for our business," Target CFO Michael Fiddelke said on Yahoo Finance Live.

Shares of the discounter popped 11% in pre-market trading.

But Target also gave investors a lot to chew on (notably a warning on first quarter operating margins) as the company presents its longer term outlook to analysts in New York City Tuesday.

Here is some instant analysis of Target's quarter and outlook by the Yahoo Finance team.

Positives

  • 4Q sales of $30.99 billion were relatively in line with analyst estimates of $31.16 billion.

  • 4Q comparable store sales (+8.9%) and online comparable sales (+9.2%) increased versus strong year ago gains.

  • 4Q gross profit margin of 25.7% beat analyst forecasts for 25.3%.

  • 4Q operating profit margin of 6.8% beat estimates of 6%.

  • 4Q adjusted earnings of $3.19 a share beat estimates for $2.88. Earnings per share were helped by Target repurchasing $2.3 billion of its stock in the fourth quarter. The company said it retired 9.7 million shares.

  • Target outlined "high single-digit percentage" EPS growth for 2022. Assuming 8% year-on-year growth off adjusted 2021 numbers, Target's earnings for this year would clock in at $14.64. Wall Street analysts modeled for $13.31 a share.

  • Target outlined "long-term" high single-digit percentage EPS growth. The Street is modeling for about 8% EPS growth in each of the next three years.

Areas of concern

  • 4Q comparable sales increased 8.9%, below estimates for 10.4% growth.

  • 4Q gross profit margins of 25.7% fell 110 basis points from the prior year, "reflecting pressure from increased supply chain costs due to increased compensation and headcount in the company's distribution centers as well as higher freight and merchandising costs."

  • 1Q operating profit margins are seen "well below" last year's 9.8% rate. Wall Street analysts are modeling for an 8.22% first quarter operating margin.

  • Full-year operating profit margins are pegged at "8% or higher" compared to the 8.43% hit in 2021.

  • Target outlined annual capital expenditure spending "long-term" of $4 billion to $5 billion. The company spent $3.5 billion on capex in 2021. Wall Street is modeling for $4 billion in capex in each of the next three years.

Shoppers exit a Target store during Black Friday sales in Brooklyn, New York, U.S., November 26, 2021.  REUTERS/Brendan McDermid
Shoppers exit a Target store during Black Friday sales in Brooklyn, New York, U.S., November 26, 2021. REUTERS/Brendan McDermid

Target's stock hasn't been immune to the broader sell-off in markets, which is in part being fueled by concerns on the outlook for consumer spending amid rising gas prices and elevated levels of inflation.

Shares of the discounter were down about 13% ahead of the company's earnings. Walmart's stock is down 6.6% in 2022, Costco is lower by 8.5% and BJ's Wholesale has shed 6%.

Fiddelke struck an upbeat tone on the year ahead despite a cautious outlook for the first quarter.

"There are some unique things in last year's results and it's going to make profit choppy quarter by quarter. But if you step out from the quarter to quarter volatility, the thing that I'm encouraged by is the growth expected on the year," Fiddelke added.

The company will remodel 200 stores this year, Fiddelke said.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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