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financial news release

Target Corporation Reports Second Quarter Earnings

08/17/22

MINNEAPOLIS, Aug. 17, 2022  /PRNewswire/ --

  • Comparable sales grew 2.6 percent, on top of 8.9 percent growth last year.
    • Comparable sales growth reflected 2.7 percent traffic growth.
    • Growth reflected continued strength in Food & Beverage, Beauty and Household Essentials.
    • The Company gained unit share in all five of its core merchandising categories in the second quarter.
    • Store comparable sales increased 1.3 percent, on top of 8.7 percent growth last year.
    • Digital comparable sales grew 9.0 percent, following growth of 9.9 percent last year.
    • Same-day services (Order Pickup, Drive Up and Shipt) grew nearly 11 percent this year, led by Drive Up, which grew in the mid-teens on top of more than 80 percent last year.
    • More than 95 percent of Target's second quarter sales were fulfilled by its stores.
  • Operating margin rate of 1.2 percent reflected gross margin pressure from actions to reduce excess inventory as well as higher freight and transportation costs.
  • As a result of the Company's inventory actions in the second quarter, the Company reduced its inventory exposure in discretionary categories while investing in rapidly-growing frequency categories. Additionally, Fall season receipts in discretionary categories were reduced by more than $1.5 billion.

For additional media materials, please visit:
https://corporate.target.com/article/2022/08/q2-2022-earnings

Target Corporation (NYSE: TGT) today announced its second quarter 2022 financial results, which reflected continued sales and traffic growth on top of unprecedented increases over the last two years, and profit pressure driven primarily by the Company's inventory reduction efforts. 

The Company reported second quarter GAAP earnings per share (EPS) of $0.39, down 89.2 percent from $3.65 in 2021. Second quarter Adjusted EPS1 of $0.39 decreased 89.2 percent compared with $3.64 in 2021. The attached tables provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.

 "I'm really pleased with the underlying performance of our business, which continues to grow traffic and sales while delivering broad-based unit-share gains in a very challenging environment," said Brian Cornell, chairman and chief executive officer of Target Corporation. "I want to thank our team for their tireless work to deliver on the inventory rightsizing goals we announced in June. While these inventory actions put significant pressure on our near-term profitability, we're confident this was the right long-term decision in support of our guests, our team and our business. Looking ahead, the team is energized and ready to serve our guests in the back half of the year, with a safe, clean, uncluttered shopping experience, compelling value across every category, and a fresh assortment to serve our guests' wants and needs."

Fiscal 2022 Guidance

While the Company is planning cautiously for the remainder of the year, current trends support the company's prior guidance for full-year revenue growth in the low- to mid-single digit range, and an operating margin rate in a range around 6% in the back half of the year.

Operating Results

Comparable sales grew 2.6 percent in the second quarter, reflecting comparable store sales growth of 1.3 percent and comparable digital sales growth of 9.0 percent. Total revenue of $26.0 billion grew 3.5 percent compared with last year, reflecting total sales growth of 3.3 percent and a 14.8 percent increase in other revenue. Operating income was $321 million in second quarter 2022, down 87.0 percent from $2.5 billion in 2021, reflecting a decline in the Company's gross margin rate.

Second quarter operating income margin rate was 1.2 percent in 2022, compared with 9.8 percent in 2021. Second quarter gross margin rate was 21.5 percent, compared with 30.4 percent in 2021. This year's gross margin rate reflected higher markdown rates, driven primarily by inventory impairments and actions taken to address lower-than-expected sales in discretionary categories, as well as higher merchandise, inventory shrink, and freight costs.  Additionally, gross margin rate was pressured by increased compensation and headcount in our distribution centers, the costs of managing excess inventory, and higher per-unit last-mile shipping costs. Second quarter SG&A expense rate was 19.2 percent in 2022, compared with 19.3 percent in 2021, reflecting the impact of lower incentive compensation, partially offset by cost increases across our business, including investments in hourly team member wages.

Interest Expense and Taxes

The Company's second quarter 2022 net interest expense was $112 million, compared with $104 million last year, reflecting higher commercial paper and average long-term debt levels.

Second quarter 2022 effective income tax rate was 15.8 percent, compared with the prior year rate of 23.4 percent, reflecting the impact of tax benefits on lower pre-tax earnings compared with last year.

Capital Deployment and Return on Invested Capital

The Company paid dividends of $417 million in the second quarter, compared with $336 million last year, reflecting a 32.4 percent increase in the dividend per share, partially offset by a decline in average share count.

Final settlement of an Accelerated Share Repurchase (ASR) arrangement, which the Company initiated during the first quarter of 2022 occurred in early June.  As a result, the Company recorded the repurchase of $2.6 billion worth of its shares through the ASR, reflecting the retirement of 12.5 million shares of common stock at an average price of $211.58. As of the end of the second 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 second quarter 2022, after-tax return on invested capital (ROIC) was 18.4 percent, compared with 31.7 percent for the trailing twelve months through second quarter 2021. The decrease in ROIC was driven primarily by lower profitability in second quarter 2022. The tables in this release provide additional information about the Company's ROIC calculation.

Webcast Details

Target will webcast its second quarter earnings conference call at 7:00 a.m. CT today. Investors and the media are invited to listen to the meeting at Investors.Target.com (click on link under "Upcoming Events"). A replay of the webcast will be provided when available. The replay number is 1-866-430-8795.

Miscellaneous

Statements in this release regarding second half and full year revenue growth and operating margin rates 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 actions to differ materially. The most important risks and uncertainties are described in Item 1A of the Company's Form 10-K for the fiscal year ended January 29, 2022. 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 Target.com/Pressroom. For a behind-the-scenes look at Target, visit Target.com/abullseyeview or follow @TargetNews on Twitter.

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.

 

TARGET CORPORATION
 

Consolidated Statements of Operations

 
   

Three Months Ended

     

Six Months Ended

   

(millions, except per share data) (unaudited)

 

July 30, 2022

 

July 31, 2021

 

Change

 

July 30, 2022

 

July 31, 2021

 

Change

Sales

 

$       25,653

 

$       24,826

 

3.3 %

 

$       50,483

 

$       48,705

 

3.7 %

Other revenue

 

384

 

334

 

14.8

 

724

 

652

 

10.9

Total revenue

 

26,037

 

25,160

 

3.5

 

51,207

 

49,357

 

3.7

Cost of sales

 

20,142

 

17,280

 

16.6

 

38,603

 

33,996

 

13.6

Selling, general and administrative expenses

 

5,002

 

4,849

 

3.1

 

9,764

 

9,358

 

4.3

Depreciation and amortization (exclusive of
     depreciation included in cost of sales)

 

572

 

564

 

1.5

 

1,173

 

1,162

 

0.9

Operating income

 

321

 

2,467

 

(87.0)

 

1,667

 

4,841

 

(65.6)

Net interest expense

 

112

 

104

 

8.0

 

224

 

212

 

5.8

Net other (income) / expense

 

(8)

 

(7)

 

5.2

 

(23)

 

(350)

 

(93.5)

Earnings before income taxes

 

217

 

2,370

 

(90.8)

 

1,466

 

4,979

 

(70.6)

Provision for income taxes

 

34

 

553

 

(93.8)

 

274

 

1,065

 

(74.3)

Net earnings

 

$            183

 

$         1,817

 

(89.9) %

 

$         1,192

 

$         3,914

 

(69.6) %

Basic earnings per share

 

$           0.40

 

$           3.68

 

(89.2) %

 

$           2.57

 

$           7.89

 

(67.4) %

Diluted earnings per share

 

$           0.39

 

$           3.65

 

(89.2) %

 

$           2.55

 

$           7.82

 

(67.4) %

Weighted average common shares
     outstanding

                       

Basic

 

461.5

 

493.1

 

(6.4) %

 

463.8

 

495.8

 

(6.5) %

Diluted

 

463.6

 

497.5

 

(6.8) %

 

466.8

 

500.4

 

(6.7) %

Antidilutive shares

 

1.3

 

     

1.0

 

   

Dividends declared per share

 

$           1.08

 

$           0.90

 

20.0 %

 

$           1.98

 

$           1.58

 

25.3 %

 

TARGET CORPORATION
 

Consolidated Statements of Financial Position

 

(millions, except footnotes) (unaudited)

 

July 30, 2022

 

January 29, 2022

 

July 31, 2021

Assets

           

Cash and cash equivalents

 

$             1,117

 

$             5,911

 

$             7,368

Inventory

 

15,320

 

13,902

 

11,259

Other current assets

 

2,016

 

1,760

 

1,604

Total current assets

 

18,453

 

21,573

 

20,231

Property and equipment

           

Land

 

6,161

 

6,164

 

6,148

Buildings and improvements

 

33,694

 

32,985

 

32,133

Fixtures and equipment

 

6,744

 

6,407

 

5,892

Computer hardware and software

 

2,684

 

2,505

 

2,260

Construction-in-progress

 

2,245

 

1,257

 

944

Accumulated depreciation

 

(21,708)

 

(21,137)

 

(20,133)

Property and equipment, net

 

29,820

 

28,181

 

27,244

Operating lease assets

 

2,542

 

2,556

 

2,503

Other noncurrent assets

 

1,655

 

1,501

 

1,407

Total assets

 

$          52,470

 

$          53,811

 

$          51,385

Liabilities and shareholders' investment

           

Accounts payable

 

$          14,891

 

$          15,478

 

$          12,632

Accrued and other current liabilities

 

5,905

 

6,098

 

5,600

Current portion of long-term debt and other borrowings

 

1,649

 

171

 

1,190

Total current liabilities

 

22,445

 

21,747

 

19,422

Long-term debt and other borrowings

 

13,453

 

13,549

 

11,589

Noncurrent operating lease liabilities

 

2,543

 

2,493

 

2,462

Deferred income taxes

 

1,862

 

1,566

 

1,146

Other noncurrent liabilities

 

1,575

 

1,629

 

1,906

Total noncurrent liabilities

 

19,433

 

19,237

 

17,103

Shareholders' investment

           

Common stock

 

38

 

39

 

41

Additional paid-in capital

 

6,502

 

6,421

 

6,332

Retained earnings

 

4,421

 

6,920

 

9,200

Accumulated other comprehensive loss

 

(369)

 

(553)

 

(713)

Total shareholders' investment

 

10,592

 

12,827

 

14,860

Total liabilities and shareholders' investment

 

$          52,470

 

$          53,811

 

$          51,385

Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 460,236,393, 471,274,073 and 489,651,196 shares issued and outstanding as of July 30, 2022, January 29, 2022, and July 31, 2021, respectively.

 

Preferred Stock Authorized 5,000,000 shares, $0.01 par value; no shares were issued or outstanding during any period presented.

 

TARGET CORPORATION
 

Consolidated Statements of Cash Flows

 
   

Six Months Ended

(millions) (unaudited)

 

July 30, 2022

 

July 31, 2021

Operating activities

       

Net earnings

 

$           1,192

 

$           3,914

Adjustments to reconcile net earnings to cash (required for) provided by operating activities:

       

Depreciation and amortization

 

1,329

 

1,300

Share-based compensation expense

 

122

 

138

Deferred income taxes

 

227

 

143

Gain on Dermstore sale

 

 

(335)

Noncash losses / (gains) and other, net

 

108

 

7

Changes in operating accounts:

       

Inventory

 

(1,418)

 

(606)

Other assets

 

(179)

 

3

Accounts payable

 

(784)

 

(311)

Accrued and other liabilities

 

(644)

 

(831)

Cash (required for) provided by operating activities

 

(47)

 

3,422

Investing activities

       

Expenditures for property and equipment

 

(2,523)

 

(1,338)

Proceeds from disposal of property and equipment

 

4

 

15

Proceeds from Dermstore sale

 

 

356

Other investments

 

1

 

(5)

Cash required for investing activities

 

(2,518)

 

(972)

Financing activities

       

Change in commercial paper, net

 

1,545

 

Reductions of long-term debt

 

(113)

 

(72)

Dividends paid

 

(842)

 

(676)

Repurchase of stock

 

(2,821)

 

(2,850)

Stock option exercises

 

2

 

5

Cash required for financing activities

 

(2,229)

 

(3,593)

Net decrease in cash and cash equivalents

 

(4,794)

 

(1,143)

Cash and cash equivalents at beginning of period

 

5,911

 

8,511

Cash and cash equivalents at end of period

 

$           1,117

 

$           7,368

 

TARGET CORPORATION
 

Operating Results

 

 

Rate Analysis

 

Three Months Ended

 

Six Months Ended

(unaudited)

 

July 30, 2022

 

July 31, 2021

 

July 30, 2022

 

July 31, 2021

Gross margin rate

 

21.5 %

 

30.4 %

 

23.5 %

 

30.2 %

SG&A expense rate

 

19.2

 

19.3

 

19.1

 

19.0

Depreciation and amortization expense rate (exclusive of
     depreciation included in cost of sales)

 

2.2

 

2.2

 

2.3

 

2.4

Operating income margin rate

 

1.2

 

9.8

 

3.3

 

9.8

Note: Gross margin rate is calculated as gross margin (sales less cost of sales) divided by sales. All other rates are calculated by dividing the applicable amount by total revenue. Other revenue includes $181 million and $366 million of profit-sharing income under our credit card program agreement for the three and six months ended July 30, 2022, respectively, and $172 million and $343 million for the three and six months ended July 31, 2021, respectively.

 

Comparable Sales

 

Three Months Ended

 

Six Months Ended

(unaudited)

 

July 30, 2022

 

July 31, 2021

 

July 30, 2022

 

July 31, 2021

Comparable sales change

 

2.6 %

 

8.9 %

 

3.0 %

 

15.3 %

Drivers of change in comparable sales

               

Number of transactions (traffic)

 

2.7

 

12.7

 

3.3

 

14.8

Average transaction amount

 

0.0

 

(3.4)

 

(0.3)

 

0.5

 

Comparable Sales by Channel

Three Months Ended

 

Six Months Ended

(unaudited)

July 30, 2022

 

July 31, 2021

 

July 30, 2022

 

July 31, 2021

Stores originated comparable sales change

1.3 %

 

8.7 %

 

2.3 %

 

13.0 %

Digitally originated comparable sales change

9.0

 

9.9

 

6.1

 

27.3

 

Sales by Channel

 

Three Months Ended

 

Six Months Ended

(unaudited)

 

July 30, 2022

 

July 31, 2021

 

July 30, 2022

 

July 31, 2021

Stores originated

 

82.1 %

 

83.0 %

 

81.9 %

 

82.3 %

Digitally originated

 

17.9

 

17.0

 

18.1

 

17.7

Total

 

100 %

 

100 %

 

100 %

 

100 %

 

Sales by Fulfillment Channel

 

Three Months Ended

 

Six Months Ended

(unaudited)

 

July 30, 2022

 

July 31, 2021

 

July 30, 2022

 

July 31, 2021

Stores

 

96.6 %

 

96.6 %

 

96.6 %

 

96.4 %

Other

 

3.4

 

3.4

 

3.4

 

3.6

Total

 

100 %

 

100 %

 

100 %

 

100 %

Note: Sales fulfilled by stores include in-store purchases and digitally originated sales fulfilled by shipping merchandise from stores to guests, Order Pickup, Drive Up, and Shipt.

 

RedCard Penetration

 

Three Months Ended

 

Six Months Ended

(unaudited)

 

July 30, 2022

 

July 31, 2021

 

July 30, 2022

 

July 31, 2021

Target Debit Card

 

11.2 %

 

11.6 %

 

11.4 %

 

11.9 %

Target Credit Cards

 

8.9

 

8.7

 

8.8

 

8.6

Total RedCard Penetration

 

20.1 %

 

20.3 %

 

20.2 %

 

20.4 %

Note: Amounts may not foot due to rounding.

 

Number of Stores and Retail Square Feet

 

Number of Stores

 

Retail Square Feet (a)

(unaudited)

 

July 30,
2022

 

January 29,
2022

 

July 31,
2021

 

July 30,
2022

 

January 29,
2022

 

July 31,
2021

170,000 or more sq. ft.

 

273

 

274

 

273

 

48,798

 

49,071

 

48,798

50,000 to 169,999 sq. ft.

 

1,521

 

1,516

 

1,510

 

190,734

 

190,205

 

189,624

49,999 or less sq. ft.

 

143

 

136

 

126

 

4,256

 

4,008

 

3,709

Total

 

1,937

 

1,926

 

1,909

 

243,788

 

243,284

 

242,131

(a)   

In thousands; reflects total square feet less office, distribution center, and vacant space.

TARGET CORPORATION

Reconciliation of Non-GAAP Financial Measures

To provide additional transparency, we have disclosed non-GAAP adjusted diluted earnings per share (Adjusted EPS). This metric excludes certain items presented below. We believe this information is useful in providing period-to-period comparisons of the results of our operations. This measure is not in accordance with, or an alternative to, GAAP. The most comparable GAAP measure is diluted earnings per share. Adjusted EPS should not be considered in isolation or as a substitution for analysis of our results as reported in accordance with GAAP. Other companies may calculate Adjusted EPS differently, limiting the usefulness of the measure for comparisons with other companies.

Reconciliation of Non-GAAP

Adjusted EPS

 

Three Months Ended

   
 

July 30, 2022

 

July 31, 2021

   

(millions, except per share data) (unaudited)

 

Pretax

 

Net of Tax

 

Per Share

 

Pretax

 

Net of Tax

 

Per Share

 

Change

GAAP diluted earnings per share

         

$     0.39

         

$     3.65

 

(89.2) %

Adjustments

                           

Other (a)

 

$        —

 

$         —

 

$        —

 

$         (5)

 

$          (4)

 

$   (0.01)

   

Adjusted diluted earnings per share

         

$     0.39

         

$     3.64

 

(89.2) %

 

Reconciliation of Non-GAAP

Adjusted EPS

 

Six Months Ended

   
 

July 30, 2022

 

July 31, 2021

   

(millions, except per share data) (unaudited)

 

Pretax

 

Net of Tax

 

Per Share

 

Pretax

 

Net of Tax

 

Per Share

 

Change

GAAP diluted earnings per share

         

$     2.55

         

$     7.82

 

(67.4) %

Adjustments

                           

Gain on Dermstore sale

 

$        —

 

$         —

 

$        —

 

$    (335)

 

$     (269)

 

$   (0.54)

   

Other (a)

 

20

 

15

 

0.03

 

36

 

27

 

0.05

   

Adjusted diluted earnings per share

         

$     2.59

         

$     7.34

 

(64.8) %

Note: Amounts may not foot due to rounding.

(a)

Other items unrelated to current period operations, none of which were individually significant.

Earnings before interest expense and income taxes (EBIT) and earnings before interest expense, income taxes, depreciation and amortization (EBITDA) are non-GAAP financial measures. We believe these measures provide meaningful information about our operational efficiency compared with our competitors by excluding the impact of differences in tax jurisdictions and structures, debt levels, and, for EBITDA, capital investment. These measures are not in accordance with, or an alternative to, GAAP. The most comparable GAAP measure is net earnings. EBIT and EBITDA should not be considered in isolation or as a substitution for analysis of our results as reported in accordance with GAAP. Other companies may calculate EBIT and EBITDA differently, limiting the usefulness of the measures for comparisons with other companies.

EBIT and EBITDA

 

Three Months Ended

     

Six Months Ended

   

(dollars in millions) (unaudited)

 

July 30, 2022

 

July 31, 2021

 

Change

 

July 30, 2022

 

July 31, 2021

 

Change

Net earnings

 

$            183

 

$         1,817

 

(89.9) %

 

$         1,192

 

$         3,914

 

(69.6) %

 + Provision for income taxes

 

34

 

553

 

(93.8)

 

274

 

1,065

 

(74.3)

 + Net interest expense

 

112

 

104

 

8.0

 

224

 

212

 

5.8

EBIT

 

$            329

 

$         2,474

 

(86.7) %

 

$         1,690

 

$         5,191

 

(67.4) %

 + Total depreciation and amortization (a)

 

650

 

633

 

2.8

 

1,329

 

1,300

 

2.3

EBITDA

 

$            979

 

$         3,107

 

(68.5) %

 

$         3,019

 

$         6,491

 

(53.5) %

(a)   

Represents total depreciation and amortization, including amounts classified within Depreciation and Amortization and within Cost of Sales.

We have also disclosed after-tax ROIC, which is a ratio based on GAAP information, with the exception of the add-back of operating lease interest to operating income. We believe this metric is useful in assessing the effectiveness of our capital allocation over time. Other companies may calculate ROIC differently, limiting the usefulness of the measure for comparisons with other companies.

After-Tax Return on Invested Capital 

   

(dollars in millions) (unaudited)

       
   

Trailing Twelve Months

   

Numerator

 

July 30, 2022

 

July 31, 2021

   

Operating income

 

$         5,773

 

$           8,611

   

 + Net other income / (expense)

 

54

 

346

   

EBIT

 

5,827

 

8,957

   

 + Operating lease interest (a)

 

88

 

84

   

  - Income taxes (b)

 

1,282

 

1,918

   

Net operating profit after taxes

 

$         4,633

 

$           7,123

   

 

Denominator

 

July 30, 2022

 

July 31, 2021

 

August 1, 2020

Current portion of long-term debt and other borrowings

 

$         1,649

 

$           1,190

 

$            109

 + Noncurrent portion of long-term debt

 

13,453

 

11,589

 

14,188

 + Shareholders' investment

 

10,592

 

14,860

 

12,578

 + Operating lease liabilities (c)

 

2,823

 

2,695

 

2,448

  - Cash and cash equivalents

 

1,117

 

7,368

 

7,284

Invested capital

 

$       27,400

 

$         22,966

 

$       22,039

Average invested capital (d)

 

$       25,183

 

$         22,502

   

After-tax return on invested capital

 

18.4 %

 

31.7 %

   

(a) 

Represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases. Calculated using the discount rate for each lease and recorded as a component of rent expense within SG&A. Operating lease interest is added back to Operating Income in the ROIC calculation to control for differences in capital structure between us and our competitors.

(b) 

Calculated using the effective tax rates, which were 21.7 percent and 21.2 percent for the trailing twelve months ended July 30, 2022, and July 31, 2021, respectively. For the twelve months ended July 30, 2022, and July 31, 2021, includes tax effect of $1.3 billion and $1.9 billion, respectively, related to EBIT, and $19 million and $18 million, respectively, related to operating lease interest.

(c) 

Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities, respectively.

(d) 

Average based on the invested capital at the end of the current period and the invested capital at the end of the comparable prior period.

 

Target Logo (PRNewsfoto/Target Corporation)

 

 

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SOURCE Target Corporation

Contacts: John Hulbert, Investors, (612) 761-6627; Joe Poulos, Media, (612) 761-0042; Target Media Hotline, (612) 696-3400







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or
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1.800.794.9871
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TargetCorporation
1000 Nicollet Mall
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1.800.775.3110
investorrelations@target.com