Target Corp. raised its earnings guidance for the year after reporting EPS from continuing operations reached $1.37 in the third quarter 2019, up 18.2 percent from $1.16 in third quarter 2018. Comparable sales growth was 4.5 percent and the discounter saw a 3.1 percent increase in comparable traffic.
Third quarter Adjusted EPS of $1.36 was 24.9 percent higher than $1.09 in third quarter 2018 and easily ahead of Wall Street’s consensus estimate of $1.19.
Brian Cornell, chairman and CEO of Target, said, “The Target team did an excellent job serving our guests and executing our strategy throughout the third quarter. Our third quarter results are further proof of the durability of our strategy, as we’re seeing industry-leading strength across multiple metrics, from the top line to the bottom line. Looking ahead, we have ushered in the holiday season with an unwavering commitment to guest service that complements our highly differentiated, value-driven assortment, our exceptional in-store shopping experience as well as an unmatched suite of easy and convenient fulfillment options.”
Fourth Quarter and Full-Year 2019 Guidance
For the fourth quarter, Target expects comparable sales growth of 3 to 4 percent, and GAAP EPS from continuing operations of $1.55 to $1.75 and Adjusted EPS of $1.54 to $1.74. For the full year, the company now expects GAAP EPS from continuing operations of $6.27 to $6.47 and Adjusted EPS of $6.25 to $6.45, compared with the prior range of $5.90 to $6.20. The difference between the GAAP and Adjusted ranges reflect an expected $0.01 impact from a discrete item in the fourth quarter and the $0.01 difference recognized through the third quarter.
Total revenue of $18.7 billion increased 4.7 percent from $17.8 billion last year, reflecting sales growth combined with an 8.8 percent increase in other revenue. Third quarter sales growth of 4.7 percent reflected comparable sales growth of 4.5 percent combined with the contribution from non-mature stores. Comparable digital sales grew 31 percent, contributing 1.7 percentage points to total comparable sales growth. Operating income was $1,002 million in third quarter 2019, up 22.3 percent from $819 million in third quarter 2018.
Third quarter operating income margin rate was 5.4 percent in 2019, compared with 4.6 percent in 2018. Third quarter gross margin rate was 29.8 percent, compared with 28.7 percent in 2018, reflecting the benefit of merchandising efforts to optimize costs, pricing, promotions and assortment, combined with favorable category sales mix. Third quarter SG&A expense rate was 22.3 percent in 2019, compared with 22.1 percent in 2018. This increase reflected higher marketing and compensation costs, partially offset by broad-based cost savings.
Interest Expense and Taxes
The company’s third quarter 2019 net interest expense was $113 million, compared with $115 million last year, reflecting lower average net debt balances compared to last year. Third quarter 2019 effective income tax rate from continuing operations was 21.7 percent, compared with 13.6 percent last year. Last year’s effective income tax rate included discrete benefits of the Tax Cuts and Jobs Act of 2017 (Tax Act).
The company returned $631 million to shareholders in third quarter 2019, including:
- Dividends of $337 million, compared with $337 million in third quarter 2018, reflecting a 3.1 percent increase in the dividend per share offset by a decline in share count.
- Share repurchases totaling $294 million that retired 3.0 million shares of common stock at an average price of $99.25.
- At the end of the third quarter, the company had approximately $0.3 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 third quarter 2019, after-tax return on invested capital (ROIC) was 15.0 percent, compared with 15.8 percent for the twelve months through third quarter 2018. Excluding the discrete impacts of the Tax Act, ROIC was 15.1 percent for the trailing twelve months ended November 2, 2019, compared with 13.9 percent in the comparable prior-year period. See the tables of this release for additional information about the company’s ROIC calculation.
Photo courtesy Target