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Target's (TGT) Q4 Earnings Beat Estimates, Revenues Rise Y/Y

·5 min read

Target Corporation TGT continued with its decent performance in fourth-quarter fiscal 2021. While the top line fell short of the Zacks Consensus Estimate, the bottom line beat the same. Impressively, both revenues and earnings per share grew year over year. Comparable sales increased for the 19th successive quarter. The metric gained from strength in both store and digital channels. However, margins remained under pressure, thanks to supply-chain bottlenecks and higher freight costs.

Without a doubt, Target has been focusing on store refurbishments, enhancing digital capabilities and expanding same-day fulfillment options, keeping speed and convenience in mind. The company provided an upbeat outlook for fiscal 2022. We note that shares of this Minneapolis, MN-based company have increased 15.1% in the past year compared with the industry’s rise of 22.2%.

Sales & Earnings Picture

Target reported adjusted earnings of $3.19 per share that outshone the Zacks Consensus Estimate of $2.86 and rose 19.2% from the year-ago period.

The big-box retailer generated total revenues of $30,996 million that increased 9.4% year over year but missed the Zacks Consensus Estimate of $31,515.5 million. We note that sales jumped 9.4% to $30,616 million, while other revenues rose 11.1% to $380 million.

Meanwhile, comparable sales for the quarter increased 8.9%, backed by 8.1% jump in the number of transactions. Average transaction amount rose 0.7%. Again, digital comparable sales grew 9.2%, while comparable stores sales rose 8.9% during the quarter.

Target’s debit card penetration contracted 90 basis points (bps) to 11.5%, while credit card penetration shrunk 40 bps to 8.9%. Total REDcard penetration declined to 20.4% from the year-ago quarter’s 21.7%.

Target Corporation Price, Consensus and EPS Surprise

Target Corporation Price, Consensus and EPS Surprise
Target Corporation Price, Consensus and EPS Surprise

Target Corporation price-consensus-eps-surprise-chart | Target Corporation Quote

Margins

During the quarter, gross margin decreased 110 bps to 25.7%, reflecting pressure from higher supply chain costs owing to increased compensation and headcount in the distribution centers as well as higher freight and merchandising costs. Meanwhile, operating margin expanded 30 bps to 6.8%.

Other Financial Details

During the fourth quarter, Target paid dividends of $432 million. This reflected an increase of 32.4% in the dividend per share. The company repurchased shares worth $2.3 billion, thereby retiring 9.7 million shares at an average price of $237.00. At the end of the quarter, the company had roughly $12.3 billion remaining under its share-buyback program approved in August 2021.

This Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $5,911 million, long-term debt and other borrowings of $13,549 million and shareholders’ investment of $12,827 million.

Outlook

Management expects quarterly, year-over-year profit performance will be variable during the year, and generally improve as the year progresses. It envisions first-quarter fiscal 2022 operating margin rate to be favorable in relation to historical performance but well below first-quarter fiscal 2021 rate of 9.8%.

Target guided low-to-mid-single digit revenue growth, an operating margin rate of 8% or higher, low-single digit growth in operating margin dollars, and high-single digit increase in adjusted earnings per share for fiscal 2022.

In fiscal 2023 and beyond, Target stated that it expects mid-single digit growth in total revenues and high-single digit increase in adjusted earnings per share. It forecast mid-single digit growth in operating income. Management anticipates capital expenditures of $4-5 billion for each year.

3 Stocks Hogging the Limelight

We have highlighted three better-ranked stocks, namely, Boot Barn Holdings BOOT, Tractor Supply Company TSCO and Dollar Tree DLTR.

Boot Barn Holdings, the lifestyle retailer of western and work-related footwear, apparel and accessories, sports a Zacks Rank #1 (Strong Buy). The company has an expected EPS growth rate of 20% for three-five years. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Boot Barn Holdings’ current financial year sales and EPS suggests growth of 62.6% and 220.8%, respectively, from the year-ago period.

Tractor Supply Company, a rural lifestyle retailer in the United States, carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 22%, on average.

The Zacks Consensus Estimate for Tractor Supply Company’s current financial year sales and EPS suggests growth of 8.2% and 6.3%, respectively, from the year-ago period. TSCO has an expected EPS growth rate of 9.8% for three-five years.

Dollar Tree, which operates discount variety retail stores, carries a Zacks Rank #2. The company has an expected EPS growth rate of 12.2% for three-five years.

The Zacks Consensus Estimate for Dollar Tree’s current financial year sales suggests growth of 3.4% from the year-ago period. DLTR has a trailing four-quarter earnings surprise of 8.8%, on average.


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