General merchandise retailer Target (NYSE:TGT) reported results in line with analysts’ expectations in Q4 FY2023, with revenue up 1.7% year on year to $31.92 billion. It made a non-GAAP profit of $2.98 per share, improving from its profit of $1.89 per share in the same quarter last year.
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Target (TGT) Q4 FY2023 Highlights:
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Revenue: $31.92 billion vs analyst estimates of $31.85 billion (small beat)
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EPS (non-GAAP): $2.98 vs analyst estimates of $2.41 (23.5% beat)
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EPS (non-GAAP) Guidance for full year 2024 is $9.10 at the midpoint, below analyst estimates of $9.15
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Free Cash Flow of $2.44 billion, similar to the same quarter last year
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Gross Margin (GAAP): 26.7%, up from 23.7% in the same quarter last year
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Same-Store Sales were down 4.4% year on year
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Store Locations: 1,956 at quarter end, increasing by 8 over the last 12 months
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Market Capitalization: $69.48 billion
“Our team’s efforts changed the momentum of our business, further improving our sales and traffic trends in the fourth quarter while driving profitability well ahead of expectations,” said Brian Cornell, chairman and chief executive officer of Target Corporation.
With a higher focus on style and aesthetics compared to other large general merchandise retailers, Target (NYSE:TGT) serves the suburban consumer who is looking for a wide range of products under one roof.
Large-format Grocery & General Merchandise Retailer
Big-box retailers operate large stores that sell groceries and general merchandise at highly competitive prices. Because of their scale and resulting purchasing power, these big-box retailers–with annual sales in the tens to hundreds of billions of dollars–are able to get attractive volume discounts and sell at often the lowest prices. While e-commerce is a threat, these retailers have been able to weather the storm by either providing a unique in-store shopping experience or by reinvesting their hefty profits into omnichannel investments.
Sales Growth
Target is a behemoth in the consumer retail sector and benefits from economies of scale, an important advantage giving the business an edge in distribution and more negotiating power with suppliers.
As you can see below, the company’s annualized revenue growth rate of 8.3% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was mediocre despite not opening many new stores.
This quarter, Target grew its revenue by 1.7% year on year, and its $31.92 billion in revenue was in line with Wall Street’s estimates. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months, a deceleration from this quarter.
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Same-Store Sales
Target’s demand has been shrinking over the last eight quarters, and on average, its same-store sales have declined by 0.7% year on year. This performance is quite concerning and the company should reconsider its strategy before investing its precious capital into new store buildouts.
In the latest quarter, Target’s same-store sales fell 4.4% year on year. This decline was a reversal from the 0.7% year-on-year increase it posted 12 months ago. We’ll be keeping a close eye on the company to see if this turns into a longer-term trend.
Key Takeaways from Target’s Q4 Results
We were impressed by how significantly Target blew past analysts’ gross margin and operating profit expectations this quarter, which led to EPS outperformance versus Wall Street estimates. On the other hand, its earnings forecast for next quarter and the full year ending January 2025 missed analysts’ expectations. Zooming out, we think this was still a decent, albeit mixed, quarter. The stock is up 5.4% after reporting and currently trades at $158.5 per share, potentially showing the market had priced in a worse quarter. Larger market cap companies and high-profile stocks can see a slew of data intra-quarter from third-party providers (everything from credit card spend data to store traffic data), causing expectations to change more frequently.
So should you invest in Target right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.