Target Reports Fourth Quarter and Full-Year 2019 Earnings

Target Corporation (NYSE: TGT) today announced its fourth-quarter and full-year 2019 results.  The Company reported GAAP earnings per share (EPS) from continuing operations of $1.63 in fourth quarter and $6.34 for full-year 2019, compared with $1.52 and $5.50 in 2018, respectively.  Fourth quarter Adjusted EPS were $1.69 and full-year Adjusted EPS were $6.39, compared with $1.53 and $5.39 in 2018, respectively. The attached tables provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.

“With eleven consecutive quarters of positive comparable sales growth, driven by healthy performance in both our stores and digital channels, Target’s results demonstrate that we’ve built a sustainable business model that drives strong topline growth and consistent bottom line performance,” said Brian Cornell, Chairman and CEO of Target. “The strategic investments we’ve made over the past several years to elevate the shopping experience, curate our multi-category assortment at scale, and deliver ease and convenience through our fulfillment capabilities are deepening our relationship with our guest. As we look ahead to 2020 and beyond, we are well positioned to build on this strong foundation to further differentiate Target and drive long-term, profitable growth.”

Fiscal 2020 Guidance

In first quarter 2020, Target expects a low-single digit increase in comparable sales and a mid-single digit increase in operating income. The Company expects both GAAP EPS from continuing operations and Adjusted EPS of $1.55 to $1.75.

For full-year 2020, Target expects a low-single digit increase in comparable sales and a mid-single digit increase in operating income. The Company expects both GAAP EPS from continuing operations and Adjusted EPS of $6.70 to $7.00.

First quarter and full-year 2020 GAAP EPS from continuing operations may include the impact of certain discrete items, which will be excluded in calculating Adjusted EPS. The Company is not currently aware of any such discrete items.

Operating Results

The Company’s total comparable sales grew 1.5 percent in the fourth quarter, reflecting comparable digital sales growth of 20 percent. Total revenue of $23.4 billion grew 1.8 percent compared with last year, reflecting sales growth of 1.8 percent and a 9.3 percent increase in other revenue. Operating income was $1,198 million in fourth quarter 2019, up 7.3 percent from $1,117 million in 2018.

Fourth quarter operating income margin rate was 5.1 percent in 2019 compared with 4.9 percent in 2018. Fourth quarter gross margin rate was 26.3 percent, compared with 25.7 percent in 2018. This increase reflected the benefit of merchandising efforts to optimize costs, pricing, promotions and assortment, combined with the benefit of favorable category sales mix. Fourth quarter SG&A expense rate was 19.3 percent in 2019, compared with 19.0 percent in 2018. Fourth quarter SG&A results reflected higher marketing expenses compared with last year, partially offset by lower net compensation expenses, including lower incentive compensation in 2019.

Full-year sales increased 3.6 percent to $77.1 billion from $74.4 billion last year, reflecting a 3.4 percent increase in comparable sales combined with sales from non-mature stores. Full-year revenue of $78.1 billion grew 3.7 percent compared with last year, reflecting sales growth of 3.6 percent and a 6.3 percent increase in other revenue.

Full-year operating income was $4,658 million in 2019, an increase of 13.3 percent from $4,110 million last year. Full-year gross margin rate was 28.9 percent, compared with 28.4 percent in 2018. This increase reflects merchandising efforts to optimize costs, pricing, promotions and assortment, combined with the benefit of favorable category sales mix, partially offset by higher supply chain and fulfillment costs. Full-year SG&A expense rate was 20.8 percent in 2019, approximately flat to last year. Store labor productivity and lower incentive compensation in 2019 offset pressure from wage growth.

Interest Expense and Taxes from Continuing Operations

The Company’s fourth quarter 2019 net interest expense was $118 million, compared with $110 million last year. Excluding the loss of $10 million related to the early retirement of debt in 2019, fourth quarter net interest expense was approximately flat to last year.

Full-year 2019 net interest expense was $477 million, compared with $461 million in 2018, driven primarily by the loss of $10 million related to the early retirement of debt in 2019.

Fourth quarter 2019 effective income tax rate from continuing operations was 20.7 percent, compared with 21.4 percent last year. The Company’s full-year 2019 effective income tax rate from continuing operations was 22.0 percent compared with 20.3 percent in 2018, when results included discrete benefits related to the Tax Cuts and Jobs Act of 2017 and the resolution of certain income tax matters unrelated to 2018 operations.

Shareholder Returns

The Company returned $940 million to shareholders in fourth quarter 2019, including:

• Dividends of $334 million, unchanged from $334 million in fourth quarter 2018, reflecting a decline in share count offset by a 3.1 percent increase in the dividend per share.
• Share repurchases totaling $606 million that retired 5.1 million shares of common stock at an average price of $117.81.

At the end of the fourth quarter, the Company had approximately $0.1 billion of remaining capacity under the $5 billion share repurchase program approved in 2016. In September 2019, Target’s Board of Directors authorized a new $5 billion share repurchase program. Repurchases through this program will begin upon completion of the 2016 program.

For the trailing twelve months through fourth quarter 2019, after-tax return on invested capital (ROIC) was 16.0 percent, compared with 14.7 percent for the twelve months through fourth quarter 2018. The tables of this release provide additional information about the Company’s ROIC calculation.

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