Target Corp. announced its third-quarter 2020 financial results, which reflected continued, robust growth in both sales and profitability.
The company reported third-quarter GAAP earnings per share (EPS) from continuing operations of $2.01, up 46.3 percent from $1.37 in 2019. GAAP EPS included a 75-cents loss on debt extinguishment, which was excluded from Adjusted EPS. Third-quarter Adjusted EPS of $2.79 grew 105.1 percent compared with $1.36 in 2019.
“Our strong results in 2020 reflect the benefits of our multi-year effort to build a durable and flexible model, with a differentiated assortment and a suite of industry-leading fulfillment options — all brought to life through the passion and effort of our team. As a result, we’ve seen a deepening level of engagement and trust of our guests. The result is unprecedented market share gains and historically strong sales growth, both in our stores and our digital channels,” said Brian Cornell, chairman and chief executive officer of Target Corporation. “In preparation for the holiday season, we focused first on the safety of our guests and our team, making changes to eliminate crowds while enhancing our fast-growing, contactless options like in-store pickup, Drive Up and Shipt. In a holiday season that will feel different for our guests, we’re committed to helping them navigate the season safely, as they find new ways to celebrate with family and friends.”
Fiscal 2020 Guidance
During the first quarter, the company withdrew its guidance given the unusually wide range of potential outcomes, in light of the highly fluid and uncertain outlook for consumer shopping patterns and the impact of COVID-19.
The company’s total comparable sales grew 20.7 percent in the third quarter, reflecting comparable stores sales growth of 9.9 percent and digital sales growth of 155 percent. Total revenue of $22.6 billion grew 21.3 percent compared with last year, driven by sales growth of 21.3 percent and an 18.1 percent increase in other revenue. Operating income was $1.9 billion in third-quarter 2020, up 93.1 percent from $1.0 billion in 2019.
Third-quarter operating income margin rate was 8.5 percent in 2020 compared with 5.4 percent in 2019. Third-quarter gross margin rate was 30.6 percent, compared with 29.8 percent in 2019, reflecting the benefit of merchandising actions, primarily from exceptionally low markdown rates, partially offset by the impact of higher digital fulfillment and supply chain costs, along with unfavorable category mix. Third-quarter SG&A expense rate was 20.5 percent in 2020, compared with 22.3 percent in 2019, reflecting the benefit of leverage from strong sales growth, partially offset by the net impact of other factors, primarily investments in team member pay, benefits and safety.
Interest Expense and Taxes
The company’s third-quarter 2020 net interest expense was $632 million, compared with $113 million last year. The increase was driven primarily by a $512 million charge related to the early retirement of debt in the third-quarter 2020.
Third-quarter 2020 effective income tax rate was 21.9 percent, in line with 21.7 percent last year.
Capital Deployment and Return On Invested Capital
The company paid dividends of $340 million in the third quarter, compared with $337 million last year, reflecting a 3.0 percent increase in the dividend per share, partially offset by a decline in average share count.
The company has recently taken a number of actions in light of its strong operating performance and cash position.
- Today, the company announced it has lifted its share repurchase suspension, which it had announced on March 25, at a time of unusually high uncertainty following the onset of COVID-19. The company expects to resume share repurchases in 2021, consistent with its long-standing capital deployment policies and within the limits of its strong, middle-A credit ratings. As of the end of the third quarter, the company had approximately $4.5 billion of remaining capacity under the repurchase program approved by Target’s Board of Directors in September 2019.
- In October, the company executed a debt tender offer, deploying $2.3 billion in cash to retire $1.8 billion of long-term debt.
- In early November, the company terminated a supplementary 364-day credit facility, which had been secured in April given the uncertainty around COVID-19.
For the trailing twelve months through third quarter 2020, after-tax return on invested capital (ROIC) was 19.9 percent, compared with 15.0 percent for the twelve months through third quarter 2019. The increase to ROIC was driven primarily by increased profitability combined with a decrease in the base of invested capital. The tables in this release provide additional information about the company’s ROIC calculation.
Photo courtesy Target