Target (TGT) released fiscal fourth-quarter results ahead of the market on Tuesday, beating estimates as consumer spending moves away from discretionary categories.
The Minneapolis-based retailer saw same-store sales rise 0.7%, ahead of Wall Street’s estimate of -1.74%. Similar to Walmart’s (WMT’s) most recent quarterly results, consumer spending at Target appeared to be shifting toward essentials like groceries and away from categories like electronics, home, and apparel.
Target’s shares rose more than 3.5% in premarket trading after the report was released.
Target CEO Brian Cornell said the team was pleased with the revenue growth in what remains a “very challenging environment.”
Here’s what Target reported versus Wall Street estimates based on Bloomberg consensus data:
Revenue: $31.40 billion versus $30.46 billion expected
Adjusted earnings per share: $1.89 vs. $1.48 expected
Same Store Sales: 0.7% versus -1.74% expected
Cornell said offering multiple categories, including groceries and beverages (which it began offering in 2010 after the Great Recession), in addition to beauty and home items, served the retailer well last quarter, Cornell said.
“Strength in Food & Beverage, Beauty and Homeware offsets continued weakness in discretionary categories. This achievement underscores the benefit of our multi-category merchandise assortment, which is relevant to our guests in every setting and is a key reason we’ve increased traffic every quarter over the past year.”
Same-store sales beat estimates, rising 0.7% versus expectations for a 1.74% decline. Same-store sales at physical locations also rose 1.9%, while digital sales fell 3.6% in the fourth quarter.
At the end of the fourth quarter, inventory was 3% lower than 2021. Meanwhile, inventory in discretionary categories like electronics, household and apparel was nearly 13% lower than 2021, “partially offset by higher inventory levels in frequency categories.”
The story goes on
For full-year 2022 results, revenue increased $3 billion to $109 billion. Compared to 2019, sales have increased by more than $30 billion. For the full year, same-store sales increased 2.2% while traffic increased 2.1%.
Hiring banners, starting wage $17 an hour, Target Store, Boston, Massachusetts. (Photo by: Lindsey Nicholson/UCG/Universal Images Group via Getty Images)
“Plan our business carefully”
Looking ahead to fiscal 2023, Cornell said the retailer is focused on its long-term strategy and “continuous differentiation through affordability, range, usability and convenience” as it competes with other retailers for consumer discounts.
“At the same time, we are planning our business cautiously in the short-term to ensure we remain agile and responsive to the current operating environment…as we plan for the coming year, we will continue to make sound capital investments and continue to pursue efficiencies to support our long-term growth.”
For the first quarter of 2023, the Company expects same-business sales to be in a broad range, from a low single-digit decline to a low single-digit increase, and an operating profit margin of 4-5%. Adjusted EPS is expected to be between $1.50 and $1.90. For fiscal 2023, the Company expects same-business revenue to be flat, from a low single-digit to low single-digit increase, along with operating income of more than $1 billion and adjusted earnings per share of 7.75 to 8, $75.
Over the next three years, the company is aiming to surpass its 6% pre-pandemic operating margin and says it could potentially achieve that goal as early as fiscal 2024, “depending on the speed of recovery for the economy and consumer demand.”
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at [email protected].
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