MINNEAPOLIS — Target Corp. on Tuesday posted fourth quarter sales and earnings growth that topped Wall Street’s expectations, the first time it has done so in a year. But the retailer was also cautious about the coming year, with a same-store sales growth forecast ranging from a slight decline to a small increase.
“We’re pleased that our business delivered comparable sales growth in the fourth quarter, in what continues to be a very challenging environment,” Target chairman and chief executive officer Brian Cornell said. “Strength in Food & Beverage, Beauty and Household Essentials offset ongoing softness in discretionary categories. This performance highlights the benefit of our multi-category merchandise assortment, which drives relevance with our guests in any environment, and is a key reason we grew traffic every quarter last year
“Looking ahead, we’re focused on executing our long-term strategy, including continued differentiation through affordability, assortment, ease and convenience. At the same time, we’re planning our business cautiously in the near term to ensure we remain agile and responsive to the current operating environment. We’re pleased that we entered the year in a very healthy inventory position, reflecting our conservative approach in discretionary categories and our commitment to reliability in our frequency businesses. As we plan for the year ahead, we will continue to make robust capital investments and pursue efficiency opportunities in support of our long-term growth. We’re proud of the loyalty and trust we’ve built with our guests, and want to thank our team for their ongoing commitment to delivering a truly exceptional and differentiated retail experience.”
The company’s total comparable sales grew 0.7 percent in the fourth quarter, reflecting comparable store sales growth of 1.9 percent and a comparable digital sales decline of 3.6 percent. Total revenue of $31.4 billion grew 1.3 percent in the fourth quarter compared with last year, driven by sales growth of 1.2 percent and an 8.4 percent increase in other revenue. Operating income was $1.2 billion in fourth quarter 2022, down 44.7 percent from $2.1 billion in 2021.
Full-year sales increased 2.8 percent to $107.6 billion from $104.6 billion last year, reflecting a 2.2 percent increase in comparable sales combined with sales from non-mature stores. Full-year total revenue of $109.1 billion grew 2.9 percent compared with 2021, reflecting sales growth of 2.8 percent and a 9.8 percent increase in other revenue.
Fourth quarter operating income margin rate was 3.7 percent in 2022 compared with 6.8 percent in 2021. Fourth quarter gross margin rate was 22.7 percent, compared with 25.7 percent in 2021, reflecting pressure from higher clearance and promotional markdown rates, higher net merchandise costs, and higher inventory shrink, partially offset by favorable category mix.
Full-year operating income of $3.8 billion in 2022 was down 57.0 percent from $8.9 billion last year. Full-year gross margin rate was 23.6 percent, compared with 28.3 percent in 2021, reflecting pressure from higher clearance and promotional markdown rates, higher net merchandise and freight costs, higher supply chain costs reflecting increased compensation and headcount in the Company’s distribution centers, and higher inventory shrink.
Looking ahead, Target expects comparable sales in a wide range, from a low-single digit decline to a low-single digit increase, for first quarter 2023. The company projects an operating income margin rate of 4 to 5 percent. First-quarter GAAP EPS and adjusted EPS are both expected to range from $1.50 to $1.90.
For the full year, the company expects comparable sales in a wide range from a low-single-digit decline to a low-single-digit increase. Operating income is expected to grow more than $1 billion, and GAAP EPS and adjusted EPS are both expected to range from $7.75 to $8.75.
Over the next three years, Target says expects its operating income margin rate will reach, and begin to move beyond, its pre-pandemic rate of 6 percent. The company says it believes it could reach an operating income margin rate of 6 percent as early as fiscal 2024, depending on the speed of recovery for the economy and consumer demand.
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