Target Corp. reported a significant hike in first-quarter earnings as same-store sales ran up 22.9 percent.
Target reported first-quarter GAAP earnings per share (EPS) of $4.17, up 643.2 percent from $0.56 in 2020. First-quarter Adjusted EPS of $3.69, which excluded a $0.53 gain on the sale of Dermstore, grew 525.0 percent compared with $0.59 in 2020. Results on an adjusted basis were well above Wall Street’s consensus of $2.22.
“Our performance in the first quarter was outstanding on every measure and showcased the power of putting our stores at the center of our strategy. Store comp sales grew 18.0 percent in the quarter, even as they also fulfilled more than three-quarters of Target’s digital sales – including more than 90-percent growth of our same-day services. Importantly, market-share gains of more than $1 billion in the first quarter, on top of $1 billion in share gains a year ago, demonstrate Target’s continued relevance with our guests, even as they have many more shopping options compared with a year ago,” said Brian Cornell, chairman and CEO, Target Corporation.
“Given the trust we’ve built with our guests quarter after quarter and our commitment to adjusting along with them to the ongoing shifts in the macro-environment, we’re confident in continued comp growth in the second quarter and through the remainder of the year, as well as a healthy full-year operating margin rate.”
Fiscal 2021 Guidance
For the second quarter of 2021, the company expects mid- to high-single-digit growth in comparable sales. The company expects its second-quarter operating margin rate will be well above the second quarter 2019 rate of 7.2 percent, but likely not as high as last year’s unprecedented 10.0 percent.
The company expects positive single-digit comparable sales growth in the last two quarters of the year and expects its full-year operating margin rate will be well above the 2020 rate of 7.0 percent, with the potential to reach 8 percent or somewhat higher.
Operating Results
Comparable sales grew 22.9 percent in the first quarter, reflecting comparable store sales growth of 18.0 percent and comparable digital sales growth of 50 percent. Total revenue of $24.2 billion grew 23.4 percent compared with last year, driven by total sales growth of 23.3 percent and a 30.4 percent increase in other revenue. Wall Street’s consensus estimate for revenue had been $2.22 billion.
Operating income was $2.4 billion in first-quarter 2021, up 407 percent from $0.5 billion in 2020. First-quarter operating income margin rate was 9.8 percent in 2021 compared with 2.4 percent in 2020.
First-quarter gross margin rate was 30.0 percent, compared with 25.1 percent in 2020. This year’s gross margin rate reflected the benefit of favorable category mix and merchandising actions, primarily from low markdown rates, while last year’s gross margin rate reflected elevated inventory costs and impairment charges. First-quarter SG&A expense rate was 18.6 percent in 2021, compared with 20.7 percent in 2020, 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 first-quarter 2021 net interest expense was $108 million, compared with $117 million last year. The decrease was primarily due to a lower weighted-average interest rate on the company’s debt portfolio.
First-quarter 2021 effective income tax rate was 19.6 percent, compared with 13.9 percent last year. The rate increase was driven by significantly higher earnings, diluting the benefit of fixed and discrete tax items.
Capital Deployment and Return On Invested Capital
The company paid dividends of $340 million in the first quarter, compared with $332 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 resumed share repurchases in the first quarter 2021, consistent with its long-standing capital deployment policies and within the limits of its strong, middle-A credit ratings. Share repurchases of $1.2 billion retired 6.1 million shares of common stock at an average price of $190.77.
As of the end of the first quarter, the company had approximately $3.4 billion of remaining capacity under the repurchase program approved by Target’s Board of Directors in September 2019.
For the trailing twelve months through the first quarter 2021, the after-tax return on invested capital (ROIC) was 30.7 percent, compared with 13.4 percent for the trailing twelve months through the first quarter 2020. The increase in ROIC was driven primarily by increased profitability. The tables in this release provide additional information about the company’s ROIC calculation.
Logo courtesy Target
