Target Corp. reported fourth-quarter earnings rose 12.5 percent on an adjusted basis and exceeded Wall Street’s expectations. Fourth quarter comps grew 5.3 percent on traffic growth of 4.5 percent.
“We’re very pleased with our fourth quarter performance, which capped off an outstanding year for Target. Thanks to the dedication of Target’s team, we delivered our strongest traffic and comparable sales growth in well over a decade, and our 2018 Adjusted EPS set a new all-time record for the company,” said Brian Cornell, chairman and chief executive officer of Target Corporation. “We have been driving an ambitious agenda to transform our company, evolve with our guests and drive strong growth. On every count we’ve been successful, and as we enter 2019, we will continue to lead the industry by adapting, innovating and delivering more for our guests and shareholders.”
Fiscal 2019 Guidance
In first quarter 2019, Target expects a low- to mid-single digit increase in comparable sales, and both GAAP EPS from continuing operations and adjusted EPS of $1.32 to $1.52.
For full-year 2019, Target expects a low- to mid-single digit increase in comparable sales and a mid-single digit increase in operating income. The company expects both GAAP EPS from continuing operations and adjusted EPS of $5.75 to $6.05.
First quarter and full-year 2019 GAAP EPS from continuing operations may include the impact of certain discrete items, which will be excluded in calculating Adjusted EPS. The company is not currently aware of any such discrete items.
Comparable sales grew 5.3 percent in the fourth quarter. Stores comparable sales grew 2.9 percent in the fourth quarter, while comparable digital sales grew 31 percent, contributing 2.4 percentage points to comparable sales growth. Total revenue of $23.0 billion was essentially flat to last year. Operating income was $1,117 million in fourth quarter 2018, compared with $1,129 million in 2017. The year-over-year comparisons for both total revenue and operating income reflect the impact of an additional fiscal week in fourth quarter 2017.
Fourth quarter operating income margin rate was 4.9 percent in both 2018 and 2017. Fourth quarter gross margin rate was 25.7 percent, compared with 26.1 percent in 2017. This decline reflected higher digital fulfillment and supply chain costs, partially offset by the benefit of merchandising strategies. Fourth quarter SG&A expense rate was 19.0 percent in 2018, compared with 19.4 percent in 2017. Fourth quarter SG&A results reflected the benefit of cost efficiencies across a broad set of expense categories combined with the leverage benefit of strong comparable sales growth, partially offset by higher compensation expense.
Interest Expense and Taxes from Continuing Operations
The company’s fourth quarter 2018 net interest expense was $110 million, compared with $131 million last year, reflecting debt maturities that have resulted in lower average debt balances and a lower average coupon rate. Fourth quarter 2018 effective income tax rate from continuing operations was 21.4 percent, compared with (7.5) percent last year. Fourth quarter 2017 effective tax rate reflected a $343 million net benefit from the remeasurement of our net deferred tax liabilities following the enactment of the Tax Cuts and Jobs Act of 2017 (Tax Act).
Compared to Wall Street’s expectations:
- Earnings per share on an adjusted basis of $1.53 was just ahead of expectations of $1.52.
- Revenues of $22.98 billion was ahead of $22.96 billion expected
- Same-store sales lift of 5.3 percent topped growth of 5.1 percent expected
The company returned $951 million to shareholders in fourth quarter 2018, including:
Dividends of $334 million, compared with $337 million in fourth quarter 2017, reflecting a decline in share count partially offset by a 3.2 percent increase in the dividend per share.
Share repurchases totaling $617 million that retired 8.3 million shares of common stock at an average price of $74.72.
At the end of the fourth quarter, the company had approximately $1.6 billion of remaining capacity under its current $5 billion share repurchase program.
For the trailing twelve months through fourth quarter 2018, after-tax return on invested capital (ROIC) was 14.7 percent, compared with 15.4 percent for the twelve months through fourth quarter 2017. Excluding the discrete impacts of the Tax Act, ROIC was 14.6 percent for the trailing twelve months ended February 2, 2019, compared with 13.6 percent in 2017. See the tables of this release for additional information about the company’s ROIC calculation.