Target Corp. reported comparable sales grew 12.7 percent in the third quarter on top of 20.7 percent growth last year. Both earnings and sales topped Wall Street’s expectations.

Highlights of the quarter include:

  • Third-quarter comparable sales grew 12.7 percent, on top of 20.7 percent growth last year.
    • Comparable sales growth was driven entirely by traffic;
    • Store comparable sales increased 9.7 percent, on top of 9.9 percent growth last year;
    • Digital comparable sales grew 29 percent, following a growth of 155 percent last year;
    • Same-day services (Order Pickup, Drive Up and Ship) grew nearly 60 percent this year, on top of 200 percent last year;
    • More than 95 percent of Target’s third-quarter sales were fulfilled by its stores; and
    • All five core merchandise categories delivered double-digit comparable sales growth, on top of strong sales performance last year.
  • Third-quarter GAAP EPS of $3.04 was 51.6 percent higher than last year, and Adjusted EPS1 of $3.03 was 8.7 percent higher than last year. Third-quarter GAAP and Adjusted EPS have both more than doubled since Q3 2019.

Adjusted EPS of $3.03 was ahead of Wall Street’s consensus for $2.82. Revenue of $25.65 billion was also ahead of Wall Street’s consensus for $24.61 billion.

“Following comp growth of nearly 21 percent a year ago, our third quarter comp increase of 12.7 percent was driven entirely by traffic and reflects continued strength in our store sales, same-day digital fulfillment services and double-digit growth in all five of our core merchandising categories. With a strong inventory position heading into the peak of the holiday season, our team and our business are ready to serve our guests and poised to deliver continued, strong growth, through the holiday season and beyond. The consistently strong growth we’re seeing in our business, quarter after quarter, is a testament to the passion and commitment our team brings to serving our guests and the trust we’ve built with them as a result,” said Brian Cornell, chairman and CEO, Target Corporation.

Fiscal 2021 Guidance
For the fourth quarter 2021, the company expects high-single-digit to low-double-digit growth in comparable sales, compared with the previous guidance for a high-single-digit increase.

The company continues to expect its full-year operating income margin rate will be 8 percent or higher.

Operating Results
Comparable sales grew 12.7 percent in the third quarter, reflecting comparable store sales growth of 9.7 percent and comparable digital sales growth of 29 percent. Total revenue of $25.7 billion grew 13.3 percent compared with last year, driven by total sales growth of 13.2 percent and a 22.3 percent increase in other revenue. Operating income was $2.0 billion in the third-quarter 2021, up 3.9 percent from $1.9 billion in 2020.

Third-quarter operating income margin rate was 7.8 percent in 2021 compared with 8.5 percent in 2020. Third-quarter gross margin rate was 28.0 percent, compared with 30.6 percent in 2020. This year’s gross margin rate reflected pressure from higher merchandise and freight costs, increased inventory shrink, and increased supply chain costs from increased compensation and headcount in the company’s distribution centers.  These pressures were partially offset by a slight benefit from a favorable category mix. Third-quarter SG&A expense rate was 18.9 percent in 2021, compared with 20.5 percent in 2020, driven by leverage on strong revenue growth.

Interest Expense and Taxes
The company’s third-quarter 2021 net interest expense was $105 million, compared with $632 million last year, which included a $512 million loss on early debt retirement.

Third-quarter 2021 effective income tax rate was 22.1 percent, in line with the prior year rate of 21.9 percent.

Capital Deployment and Return On Invested Capital
The company paid dividends of $440 million in the third quarter, compared with $340 million last year, reflecting a 32.4 percent increase in the dividend per share, partially offset by a decline in average share count.

The company repurchased $2.2 billion worth of its shares in third quarter 2021, retiring 8.8 million shares of common stock at an average price of $246.80.  As of the end of the third quarter, the company had approximately $14.6 billion of remaining capacity under the repurchase program approved by Target’s Board of Directors in August 2021.

For the trailing twelve months through third quarter 2021, after-tax return on invested capital (ROIC) was 31.3 percent, compared with 19.9 percent for the trailing twelve months through third 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.

Photo courtesy Target