Target Corporation saw a return to top-line growth and strong profit performance in its fiscal second quarter ended August 3. Comp store sales growth came in at the high end of guidance on high-single-digit comp gains in the digital business and solid in-store traffic growth for the period.

The trendy value retailer reported that in the second quarter, comparable sales increased 2.0 percent year-over-year, reflecting a comparable store sales increase of 0.7 percent and a comparable digital sales increase of 8.7 percent.

Total revenue of $25.5 billion in the second quarter was 2.7 percent higher than the Q2 period last year, reflecting a total sales increase of 2.6 percent and a 10.8 percent increase in other revenue.

Second quarter gross margins were 28.9 percent of sales, compared with 27.0 percent in Q2 2023, reflecting the net impact of merchandising activities, including cost improvements that more than offset higher promotional markdown rates, combined with favorable category mix and lower book-to-physical inventory adjustments compared to the prior year, partially offset by higher digital fulfillment and supply chain costs.

SG&A expense rate was 21.2 percent of sales in Q2 2024, compared with 20.9 percent in Q2 2023, said to reflect the combined impact of higher costs, including continued investments in pay and benefits, partially offset by disciplined cost management.

Second quarter operating income increased 36.6 percent year-over-year to $1.6 billion, reportedly driven by sales growth and a higher gross margin rate.

Second quarter operating income margin rate was 6.4 percent of sales in the second quarter, compared with 4.8 percent in the 2023 Q2 period.

Interest Expense and Taxes
The company’s second-quarter 2024 net interest expense was $110 million, compared with $141 million last year, said to be primarily driven by an increase in interest income reflecting higher cash balances year-over-year.

Second quarter 2024 effective income tax rate was 22.9 percent, compared with the prior-year rate of 22.2 percent, reflecting higher pretax earnings and lower discrete benefits as compared to the prior year.

Net Income and EPS
GAAP and Adjusted EPS came in at $2.57 per diluted share in the second quarter, compared with $1.80 per share in Q2 2023. Adjusted EPS, a non-GAAP financial measure, excludes the impact of certain discretely managed items when applicable.

Capital Deployment and Return on Invested Capital
The company paid dividends of $509 million in the second quarter, compared with $499 million last year, reflecting a 1.9 percent increase in the dividend per share.

The company repurchased $155 million of its shares in the second quarter, retiring 1.1 million shares of common stock at an average price of $145.94. As of the end of the quarter, the company had approximately $9.5 billion of remaining capacity under the repurchase program approved by Target’s Board of Directors in August 2021.

For the trailing twelve months through the second quarter of 2024, the after-tax return on invested capital (ROIC) was 16.6 percent, compared with 13.7 percent for the trailing twelve months through the second quarter of 2023. The increase in ROIC reflects higher operating income, partially offset by higher average invested capital.

“We made a commitment to get back to growth in the second quarter, and the team delivered, all while expanding operating margins and growing EPS by more than 40 percent compared to last year,” said Brian Cornell, chair and CEO of Target Corporation. “Importantly, our growth was driven entirely by traffic in stores and our digital channels, with double-digit growth in our same-day delivery services. We also saw improving trends across our discretionary categories, most notably in apparel, and we’re seeing continued strength in beauty. Looking ahead, even as we maintain the measured outlook that has served us well, we are focused on building on this positive momentum by executing our strategy and providing the unique combination of newness and value that consumers can only find at Target.”

Guidance
For the third quarter, the company expects a 0 percent to 2 percent increase in its comparable sales and GAAP and Adjusted EPS of $2.10 to $2.40 per share.

While the company said it believes its full-year guidance range of a 0 percent to 2 percent increase in its comparable sales remains appropriate, it now thinks the increase will likely be in the lower half of that range.

However, based on strong profit performance in the front half of the year, the company said it now expects full-year GAAP and Adjusted EPS of $9.00 to $9.70 per share, up from the prior range of $8.60 to $9.60 per share.

Image courtesy Target Corporation