Target Q4 Earnings and Margins Beat Estimates

Target saw comp sales climb 8.9% and traffic increase 8.1% in the fourth quarter of fiscal 2021, the company reported March 1, as the Minneapolis-based retailer posted adjusted earnings per share of $3.19—soundly beating analyst expectations.

The fourth-quarter comp sales gain was off slightly from analysts' estimates of about 10%. However, in the face of increased freight and labor costs in the company's fourth quarter, which ended Jan. 30, Target reported an operating income margin rate of 6.8% vs. 6.5% in the fourth quarter of 2020. The gross margin rate was 25.7% vs. 26.8% for the year-ago period. For the full year, a favorable mix and lower markdowns helped Target realize a gross margin rate of 28.3%, just below 2020's 28.4%.

"It’s now clear that the company has more control over costs than the Street gave it credit for," RBC Capital Markets analyst Steven Shemesh wrote in an initial take on Target's fourth-quarter earnings. Target's all-time-high adjusted earnings per share of $3.19 was more than 30 cents above analyst predictions of around $2.85 to $2.87.

"Our strong fourth-quarter performance capped off a year of record growth in 2021, reinforcing the durability of our business model and our confidence in long-term profitable growth," Target Chairman and CEO Brian Cornell said in a news release. On Monday, Target announced it was investing up to $300 million in its workforce in the year ahead and boosting starting wages to as much as $24 an hour.

The company's 8.1% increase in traffic in the fourth quarter didn't match the 12.9% gain recorded in the previous quarter, but it beat the 6.5% traffic growth tallied in the year-ago quarter. For the full fiscal year, comp sales were up 12.7% (vs. 19.3% in 2020) and traffic was up 12.3% (vs. 3.7% in 2020). Digital comp sales for the full year were up 21%, on top of 2020's 145% digital surge. 

Full-year revenue was $106 billion, up 35% since 2019, Target reported. Sales growth of $27 billion since 2019 included $14 billion in sales gains from stores and $13 billion in digital sales growth. Target's popular Drive Up service—which the company said last week will add new services starting this fall—saw sales grow more than 70% in 2021 on top of 600% growth in 2020.