Why did earnings per share decline even though the operating margin improved?

Operating income fell 2.4% because sales volume declined 3.2%, which outweighed the margin gain. Operating margin rose only 10 basis points to 5.3%, and EPS fell slightly to $2.03 from $2.05. The lower net interest expense of $106 million, down from $147 million, cushioned the pre-tax decline, but a higher effective tax rate of 22.7% versus 21.1% also reduced net earnings, which fell 0.8% to $942 million.

What is driving the decline in store sales, and how is digital performing?

Stores-originated comparable sales fell 4.8%, with transactions down 1.9% and average transaction amount down 1.9%. Discretionary categories were the main source of weakness, though management said apparel improved by nearly 4 percentage points versus Q4 2023. Digitally originated comparable sales rose 1.4%, and same-day services grew nearly 9%. Digital now represents 18.3% of sales, up from 17.5% a year earlier.

Is Target's full-year 2024 outlook changing?

No. Target continued to expect full-year 2024 comparable sales growth of 0% to 2% and GAAP and Adjusted EPS of $8.60 to $9.60. The Q2 2024 outlook calls for comparable sales growth of 0% to 2% and EPS of $1.95 to $2.35. Management said the company's guidance does not currently reflect any discrete items that might be excluded from Adjusted EPS.

Did Target return cash to shareholders this quarter?

Yes, through dividends only. Target paid $508 million in dividends, up from $497 million, after raising the dividend per share 1.9% to $1.10. Target did not repurchase any stock during the quarter, leaving approximately $9.7 billion of remaining capacity under its August 2021 repurchase authorization. Share-based compensation withholding for taxes totaled $91 million.

What is the Target Circle relaunch, and why does it matter?

Target Circle is Target's loyalty program, which was relaunched as a free-to-join program in April 2024. The company added more than 1 million new members in the first quarter. Management cited early results from the relaunch as encouraging and expects it to support the return to growth in the second quarter. Target Circle Card penetration, however, declined to 18.0% from 19.0% a year earlier.

TGT 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed May 22, 2024. Cited figures are marked; the original filing is the authoritative source.

Target Corporation (TGT) reported first quarter 2024 results (quarter ended May 4, 2024) that management characterized as in line with its expectations.

Total revenue fell 3.1% to $24.5 billion^a, and comparable sales declined 3.7%, driven by a 4.8% decline in stores-originated comparable sales that was partially offset by a 1.4% increase in digitally originated comparable sales. GAAP and Adjusted diluted EPS were $2.03 versus $2.05 a year earlier, a 1.0% decline. Operating income fell 2.4% to $1.3 billion, but the operating income margin rate improved to 5.3% from 5.2%, supported by a 140 basis point gross margin rate improvement to 27.7%, which more than offset a 130 basis point rise in the SG&A rate to 21.1%.

Balance sheet and capital allocation were mixed. Inventory fell 7% year over year to $11.7 billion, and cash rose to $3.6 billion^b from $1.3 billion a year earlier. Long-term debt declined, though the current portion rose to $2.6 billion.

Target paid $508 million^c in dividends, raising the dividend per share 1.9% to $1.10, and did not repurchase any stock during the quarter, leaving about $9.7 billion of authorization remaining. Trailing twelve-month after-tax ROIC improved to 15.4% from 11.4%. Net interest expense fell 27.8% to $106 million, which helped offset the operating decline at the pre-tax line.

Looking ahead, Target guided to 0% to 2% comparable sales growth and GAAP/Adjusted EPS of $1.95 to $2.35^d for Q2 2024. For full-year 2024 it reaffirmed 0% to 2% comparable sales growth and EPS of $8.60 to $9.60.

Management highlighted the April relaunch of its free-to-join Target Circle loyalty program, which attracted more than 1 million new members in the quarter, as a driver of expected return to growth in the second quarter. Investors should weigh the margin improvement and ROIC gains against continued comparable sales declines and the flat-to-modest growth outlook.

02—Key points

Key Highlights

Total revenue declined 3.1% to $24.5 billion, with comparable sales down 3.7%; stores-originated comparable sales fell 4.8% while digital comparable sales grew 1.4%.
GAAP and Adjusted diluted EPS were $2.03, down 1.0% from $2.05 a year ago; operating income fell 2.4% to $1.296 billion.
Gross margin rate expanded 140 basis points to 27.7%, while the SG&A rate rose 130 basis points to 21.1%, leaving the operating income margin up slightly to 5.3% from 5.2%.
Inventory fell 7% year over year to $11.7 billion, and same-day services grew nearly 9%, led by more than 13% growth in Drive Up.
Net interest expense dropped 27.8% to $106 million, and trailing twelve-month after-tax ROIC improved to 15.4% from 11.4%.
Target paid $508 million in dividends (up 1.9% per share to $1.10) and made no share repurchases in the quarter, with about $9.7 billion of authorization remaining.
Q2 2024 guidance calls for 0% to 2% comparable sales growth and EPS of $1.95 to $2.35; full-year guidance was reaffirmed at 0% to 2% comparable sales growth and EPS of $8.60 to $9.60.

03—Questions

Frequently Asked Questions

Why did earnings per share decline even though the operating margin improved?
Operating income fell 2.4% because sales volume declined 3.2%, which outweighed the margin gain. Operating margin rose only 10 basis points to 5.3%, and EPS fell slightly to $2.03 from $2.05. The lower net interest expense of $106 million, down from $147 million, cushioned the pre-tax decline, but a higher effective tax rate of 22.7% versus 21.1% also reduced net earnings, which fell 0.8% to $942 million.
What is driving the decline in store sales, and how is digital performing?
Stores-originated comparable sales fell 4.8%, with transactions down 1.9% and average transaction amount down 1.9%. Discretionary categories were the main source of weakness, though management said apparel improved by nearly 4 percentage points versus Q4 2023. Digitally originated comparable sales rose 1.4%, and same-day services grew nearly 9%. Digital now represents 18.3% of sales, up from 17.5% a year earlier.
Is Target's full-year 2024 outlook changing?
No. Target continued to expect full-year 2024 comparable sales growth of 0% to 2% and GAAP and Adjusted EPS of $8.60 to $9.60. The Q2 2024 outlook calls for comparable sales growth of 0% to 2% and EPS of $1.95 to $2.35. Management said the company's guidance does not currently reflect any discrete items that might be excluded from Adjusted EPS.
Did Target return cash to shareholders this quarter?
Yes, through dividends only. Target paid $508 million in dividends, up from $497 million, after raising the dividend per share 1.9% to $1.10. Target did not repurchase any stock during the quarter, leaving approximately $9.7 billion of remaining capacity under its August 2021 repurchase authorization. Share-based compensation withholding for taxes totaled $91 million.
What is the Target Circle relaunch, and why does it matter?
Target Circle is Target's loyalty program, which was relaunched as a free-to-join program in April 2024. The company added more than 1 million new members in the first quarter. Management cited early results from the relaunch as encouraging and expects it to support the return to growth in the second quarter. Target Circle Card penetration, however, declined to 18.0% from 19.0% a year earlier.

04—Continue

← View all 8-K filings