Target Corporation (NYSE: TGT) has released its financial results for the fourth quarter and full-year 2023. The company’s sales benefited from an additional week as compared to 2022. In the fourth quarter, the company reported GAAP and Adjusted earnings per share (EPS) of $2.98, which is an increase from $1.89 in 2022. For full-year 2023, the company reported GAAP and Adjusted EPS of $8.94, which is a significant increase from last year’s figures of $5.98 in GAAP EPS and $6.02 in Adjusted EPS. Please refer to the attached tables for a reconciliation of non-GAAP to GAAP measures. All earnings per share figures are diluted EPS.
“Our team’s efforts changed the momentum of our business, further improving our sales and traffic trends in the fourth quarter while driving profitability well ahead of expectations,” said Brian Cornell, chairman and chief executive officer of Target Corporation.
“Throughout the season, guests responded to newness, value, and the inspiration and ease of our in-store and digital shopping experience. Looking ahead, we’ll continue to invest in the strengths and differentiators that have delivered strong financial performance over time. We’ll also roll out fresh innovations, including our new Target Circle membership program, as part of our roadmap for growth aimed at meeting consumers where they are, reigniting sales, traffic and market share gains, and positioning Target for profitable growth in 2024 and beyond.”
Guidance
For first quarter 2024, the Company expects a comparable sales decline of 3 to 5 percent. First quarter GAAP and Adjusted EPS are both expected to range from $1.70 to $2.10.
For the full year, the Company expects a modest increase in comparable sales in a range from flat to two percent. GAAP EPS and Adjusted EPS are both expected to range from $8.60 to $9.60.
Operating Results
The Company’s total comparable sales declined 4.4 percent in the fourth quarter, reflecting comparable stores sales declines of 5.4 percent and a comparable digital sales decline of 0.7 percent. Total revenue of $31.9 billion grew 1.7 percent in the fourth quarter compared with 2022, driven by sales growth of 1.6 percent and a 9.8 percent increase in other revenue. Sales growth reflected an additional week in fiscal year 2023. Operating income was $1.9 billion in fourth quarter 2023, an increase of 60.9 percent from $1.2 billion in 2022.
Full-year sales decreased 1.7 percent to $105.8 billion from $107.6 billion last year, reflecting a 3.7 percent decrease in comparable sales partially offset by sales from non-mature stores and an additional week in 2023. Full-year total revenue of $107.4 billion decreased 1.6 percent compared with 2022, reflecting a 1.7 percent decline in sales partially offset by a 5.1 percent increase in other revenue.
Fourth quarter operating income margin rate was 5.8 percent in 2023 compared with 3.7 percent in 2022. Fourth quarter gross margin rate was 25.6 percent, compared with 22.7 percent in 2022, reflecting lower markdowns and other inventory-related costs, lower freight costs, lower supply chain and digital fulfillment costs, and favorable category mix. Shrink costs were lower than a year ago, as continued increases in store loss rates were more than offset by the timing of inventory accruals compared with 2022.
Full-year operating income of $5.7 billion in 2023 grew 48.3 percent from $3.8 billion last year. Full-year gross margin rate was 26.5 percent, compared with 23.6 percent in 2022, reflecting lower markdowns and other inventory-related costs, lower freight costs and lower supply chain and digital fulfillment costs partially offset by higher inventory shrink.
Fourth quarter SG&A expense rate was 18.9 percent in 2023, compared with 18.1 percent in 2022. Full-year SG&A expense rate was 20.1 percent in 2023, compared with 18.9 percent in 2022. Rate increases in both periods reflect the de-leveraging impact of lower sales combined with higher costs, including continued investments in pay and benefits and inflationary pressures throughout our business partially offset by disciplined cost management.
Interest Expense and Taxes
The Company’s fourth quarter 2023 net interest expense was $107 million, compared with $129 million last year, reflecting an increase in interest income partially offset by higher debt levels and the impact of higher floating rates on interest rate swaps. Full-year 2023 net interest expense was $502 million, compared with $478 million in 2022, driven by higher average debt levels and the impact of higher floating rates on interest rate swaps partially offset by an increase in interest income.
Fourth quarter 2023 effective income tax rate was 22.6 percent, compared with 16.1 percent last year. The Company’s full-year 2023 effective income tax rate was 21.9 percent compared with 18.7 percent in 2022. The increases in both fourth quarter and full-year tax rates reflect higher pretax earnings and lower discrete benefits in fiscal year 2023.
Capital Deployment and Return on Invested Capital
The Company paid dividends of $508 million in the fourth quarter, compared with $497 million last year, reflecting a 1.9 percent increase in the dividend per share.
The Company did not repurchase any shares in fourth quarter 2023. As of the end of the fourth 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 fourth quarter 2023, after-tax return on invested capital (ROIC) was 16.1 percent, compared with 12.6 percent for the twelve months through fourth quarter 2022. This increase was driven primarily by higher profitability, partially offset by an increase in average invested capital. The tables in this release provide additional information about the Company’s ROIC calculation.