Comparable sales declined 4.4% in the quarter

MINNEAPOLIS — Target reported fourth-quarter sales and earnings that beat analyst expectations, boosting its shares in pre-market trading. But total sales for the year declined, the company said.

Target reported that GAAP and adjusted earnings per share of $2.98 was 57.6% higher than last year, and well-above the high end of the expected range of $1.90 to $2.60. Comparable sales and traffic trends improved sequentially for the second quarter in a row, the company said.

Full-year highlights included the fact that GAAP and Adjusted EPS of $8.94 were both nearly 50% higher than in 2022. Target’s operating income margin rate of 5.3% was nearly two percentage points higher than last year. Operating income dollars grew by nearly $2 billion compared with 2022, well-above expectations. The company’s efficiency efforts delivered savings of more than $500 million in 2023, and cash from operations more than doubled from $4.0 billion in 2022 to $8.6 billion in 2023. Target said it maintained appropriate inventory levels by category throughout the year, resulting in lower markdown rates, more effective operations, and stronger in-stock measures compared with 2022.

“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.”

Target’s total comparable sales declined 4.4% in the fourth quarter, reflecting comparable stores sales declines of 5.4% and a comparable digital sales decline of 0.7%. Total revenue of $31.9 billion grew 1.7% in the fourth quarter compared with 2022, driven by sales growth of 1.6% and a 9.8% 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% from $1.2 billion in 2022.

Full-year sales decreased 1.7% to $105.8 billion from $107.6 billion last year, reflecting a 3.7% 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% compared with 2022, reflecting a 1.7% decline in sales partially offset by a 5.1% increase in other revenue.

Fourth quarter operating income margin rate was 5.8% in 2023 compared with 3.7% in 2022. Fourth quarter gross margin rate was 25.6%, compared with 22.7% 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% from $3.8 billion last year. Full-year gross margin rate was 26.5 percent, compared with 23.6% 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% in 2023, compared with 18.1% in 2022. Full-year SG&A expense rate was 20.1% in 2023, compared with 18.9% 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.

For first quarter 2024, Target 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, ranging from flat to a 2% gain. GAAP EPS and Adjusted EPS are both expected to range from $8.60 to $9.60.