Target said Tuesday that sales increased 9% in the fiscal fourth quarter as they overcame the challenges of the holiday supply chain and relied on e-commerce and customer profits during the pandemic.
The dissenter said he expects sales to continue to rise this year, even as buyers see food, fuel and other commodity prices rise. He predicts revenue growth with low to medium single digits and predicts adjusted earnings per share to increase with high single digits. These are above analysts’ expectations, according to Refinitiv.
Shares rose about 11% in pre-market trading.
The big retailer will spend its first day as a personal investor in New York since the start of the pandemic, a two-year period that has increased Target’s share price and earnings. Shares of the company jumped 84% since mid-March 2020, when Covid-19 was declared a pandemic. Its annual revenue has reached 106 billion dollars, which is almost 36% more in the last two years.
Investors will listen to Target compete for consumer money and time as people juggle more spending priorities in a reopening world and feel the sting of inflation.
CEO Brian Cornell said in a press release that Target would continue to differentiate “through accessibility, range, lightness and convenience”.
To do so, Cornell said in November that Target would protect low prices, even if it meant taking on some of the higher costs of transport, materials and labor.
The company is also targeting online services that have gained followers as safe, contactless ways to shop. From the fall, customers can make returns or pick up coffee from Starbucks without leaving the car in select stores – an advantage that can be enjoyed when people are again juggling fuller social calendars.
Sales through Target services for the same day – which include Drive Up, its option for pickup by the board; Ordering, retrieving online purchases in the store; and Shipt, its home delivery service, grew 45% in the fiscal year. This is after a growth of 235% in 2020.
Here is what Target reports for the fiscal fourth quarter ended January 29, compared to Refinitiv’s consensus estimates:
- Earnings per share: $ 3.19 adjusted against $ 2.86 expected
- Revenue: $ 31 billion versus expected $ 31.39 billion
Net income rose about 12% to $ 1.54 billion, or $ 3.21 per share, from $ 1.38 billion, or $ 2.73 per share, a year earlier. Excluding items, the retailer earned $ 3.19 per share, higher than the $ 2.86 per share expected by analysts surveyed by Refinitiv.
Total revenue rose to $ 31 billion from a year earlier, slightly lower analysts’ expectations of $ 31.39 billion.
Target faces challenging comparisons due to the pandemic. In the holiday quarter, for example, it rose from a year ago, when Americans had extra dollars in incentive checks to spend on holiday gifts, and some Americans chose to consolidate shopping trips to reduce risk.
Comparable sales, a key retail indicator that tracks online and in-store sales that have been open for at least a year, rose 8.9 percent in the fourth quarter. That’s lower than the 10.5 percent profit analysts had expected, according to StreetAccount.
Customers made more trips to Target’s stores and website in the fourth quarter than a year ago, the company said. Combined online and in-store traffic increased by 8.1%, but the average amount of transactions increased by less than 1% compared to a year earlier.
The challenges in the supply chain put pressure on the company’s profits as Target had more manpower and higher pay in its distribution centers and paid more for freight and goods. As the company prepared for the start of the holiday quarter, Target had more than $ 2 billion in inventory more than the previous year to make sure it had something to put on store shelves.
Labor costs are also rising. Target said Monday that it will spend $ 300 million more next year on salaries and health benefits. This is increased pay as retailers compete for employees in the narrow market. It says starting salaries will range from $ 15 to $ 25 per employee per hour, based on role and local market. About 20% more employees will qualify for medical benefits as it reduces the minimum average hours per week from 30 hours to 25 hours, the company said.
The company has been working for a higher minimum wage for the past five years, as lawmakers in some cities and states have called for more pay. From July, hourly workers began earning at least $ 15 an hour.
In fiscal 2023 and beyond, Target said it expects annual earnings growth on average single-digit numbers and adjusted earnings per share on high single-digit numbers. He said he plans to spend $ 4 billion to $ 5 billion on capital expenditures each year.
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