Target Q1 Revenue Declined by 3.1%, EPS Short of Expectations
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Target Q1 Revenue Declined by 3.1%, EPS Short of Expectations

Target Corporation reported its first quarter 2024 financial results, with a total revenue of $24.53 billion, a 3.1% decrease from the previous year.
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Target Corporation (NYSE: TGT) reported its first quarter 2024 financial results, reflecting a performance consistent with its expectations.

The company posted a total revenue of $24.53 billion, a 3.1% decrease from the previous year’s $25.32 billion. This decline was driven by a 3.2% drop in total sales, partially offset by a 3.9% increase in other revenue. The operating income for the quarter was $1.3 billion, down 2.4% from the prior year’s $1.33 billion, primarily due to lower sales volume.

The first quarter operating income margin rate improved slightly to 5.3% from 5.2% in the previous year. This improvement was attributed to a 140 basis point increase in the gross margin rate, which rose to 27.7% from 26.3% last year. The gross margin rate benefited from cost improvements that offset higher promotional markdown rates, favorable category mix, and lower book-to-physical inventory adjustments compared to the prior year.

Target Fails to Meet EPS Forecast in Q1, Revenue in Line with Expectations

Target’s performance in the first quarter matched the company’s projections but fell short of Wall Street expectations. The company reported a diluted earnings per share (EPS) of $2.03, slightly below the expected $2.06. This figure also represented a minor decline from the previous year’s EPS of $2.05. Despite the shortfall in EPS, the company’s revenue of $24.53 billion closely aligned with the forecasted $24.51 billion.

Comparable sales for the quarter declined by 3.7%, which aligned with the expectations. This decline included a 4.8% decrease in store-originated sales, partially offset by a 1.4% increase in digitally-originated sales.

Notably, same-day services grew nearly 9%, led by more than 13% growth in Drive Up. The company also saw continued growth in the Beauty category, which helped mitigate declines in discretionary categories.

Target Corporation Expects Q2 EPS to Range Between $1.95 and $2.35

Target Corporation provided guidance for the second quarter and the full fiscal year 2024. For the second quarter, the company expects a 0% to 2% increase in comparable sales and projects GAAP and adjusted EPS to range between $1.95 and $2.35.

For the full year, the company maintains its forecast of a 0% to 2% increase in comparable sales, with GAAP and adjusted EPS anticipated to be between $8.60 and $9.60.

The company’s leadership expressed optimism about returning to growth in the second quarter. Brian Cornell, chair and CEO of Target Corporation, highlighted the improved topline performance for the third consecutive quarter, driven by growth in the digital business, particularly in same-day fulfillment services.

Cornell emphasized the company’s commitment to delivering value and convenience to consumers, supported by the successful relaunch of the Target Circle loyalty program, which added over 1 million new members in the first quarter.

Target Paid Dividends of $508 Million, ROIC Improved

Target’s operational efficiency showed mixed results. The company’s SG&A expense rate increased to 21.1% from 19.8% the previous year, reflecting lower sales and higher costs, including pay, benefits, and marketing investments.

Despite these higher expenses, disciplined cost management helped mitigate the impact on the overall financial performance. The company’s net interest expense decreased significantly to $106 million from $147 million last year, primarily due to higher interest income from increased cash balances.

On the capital deployment front, Target paid dividends of $508 million, reflecting a 1.9% increase in the dividend per share. However, the company did not repurchase any stock during the quarter, leaving approximately $9.7 billion of remaining capacity under the repurchase program.

Additionally, the company’s after-tax return on invested capital (ROIC) improved to 15.4% from 11.4% in the prior year, driven by higher operating income and higher average invested capital.

Disclaimer: The author does not hold or have a position in any securities discussed in the article.