Target (TGT) Q4 Earnings Beat Estimates, Comps Increase Y/Y
Target Corporation TGT came up with fourth-quarter fiscal 2022 results, wherein the top line beat the Zacks Consensus Estimate and grew year over year. Despite a tough operating environment, comparable sales increased, primarily gaining from growth in store channels.
The bottom line also came ahead of the consensus mark but fell sharply from the year-ago period. We note that higher markdown rates and increased merchandise costs continued to weigh on margins.
Sales & Earnings Picture
Target reported adjusted earnings of $1.89 per share, which surpassed the Zacks Consensus Estimate of $1.39. However, the bottom line declined significantly from the earnings of $3.19 reported in the year-ago period.
The big-box retailer generated total revenues of $31,395 million, which increased 1.3% year over year and came ahead of the Zacks Consensus Estimate of $30,692 million. We note that sales jumped 1.2% to $30,983 million, while other revenues rose 8.4% to $412 million.
Meanwhile, comparable sales for the quarter under discussion increased 0.7%. The comparable sales growth reflected a 0.7% jump in the number of transactions. Comparable store sales grew 1.9%, while comparable digital sales decreased 3.6%. Strength in Food & Beverage, Beauty and Household Essentials offset the ongoing softness in discretionary categories.
Target Corporation Price, Consensus and EPS Surprise
Target Corporation price-consensus-eps-surprise-chart | Target Corporation Quote
Margins
The gross margin decreased 300 basis points to 22.7%, reflecting pressure from higher clearance and promotional markdown rates, increased net merchandise costs and higher inventory shrink, partly mitigated by a favorable category mix. Meanwhile, the operating margin shriveled to 3.7% from 6.8% in the year-ago period.
Other Financial Details
This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $2,229 million, long-term debt and other borrowings of $16,009 million and shareholders’ investment of $11,232 million. During the quarter, Target paid out dividends of $497 million.
Target did not buy back any shares during the quarter under review. At the end of the quarter, the company had about $9.7 billion remaining under the repurchase program approved in August 2021.
Outlook
Target envisions first-quarter fiscal 2023 comparable sales in a wide range, from a low-single-digit decline to low-single-digit growth. It foresees an operating margin rate of 4-5%. For the quarter, the company expects both GAAP and adjusted earnings in the band of $1.50-$1.90 per share.
For fiscal 2023, management expects comparable sales in a wide range, from a low-single-digit decline to a low-single-digit increase. Target expects the operating income to grow more than $1 billion. It expects both GAAP and adjusted earnings between $7.75 and $8.75 per share.
Target expects its operating margin rate to reach and begin to move beyond its pre-pandemic rate of 6% over the next three years. Management believes to attain an operating margin rate of 6% as early as fiscal 2024, depending on the economy and consumer demand.
We note that shares of Target have increased 5.1% in the past six months compared with the industry’s rise of 2.1%.
3 Picks You Can't Miss Out On
Here we have highlighted three better-ranked stocks, namely Costco COST, Arhaus ARHS and Albertsons Companies ACI.
Costco, which operates membership warehouses, currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 9.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Costco’s current financial-year revenues and EPS suggests growth of 7.3% and 8.6%, respectively, from the year-ago reported figure. Costco has a trailing four-quarter earnings surprise of 3.7%, on average.
Arhaus, which operates as a lifestyle brand and premium retailer in the home furnishing market, carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 16.1%.
The Zacks Consensus Estimate for Arhaus’ current financial-year revenues and EPS suggests growth of 54% and 26.1%, respectively, from the year-ago reported figure. Arhaus has a trailing four-quarter earnings surprise of 112%, on average.
Albertsons Companies, which operates food and drug stores in the United States, carries a Zacks Rank #2. The expected EPS growth rate for three to five years is 5.4%.
The Zacks Consensus Estimate for Albertsons Companies’ current financial-year revenues and EPS suggests growth of 7.8% and 6.5%, respectively, from the year-ago reported figure. Albertsons Companies has a trailing four-quarter earnings surprise of 17.2%, on average.
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