Target Tops Q4 Estimates Overcoming Ongoing Softness In Discretionary Categories

Target Corp TGT reported fourth-quarter FY22 sales growth of 1.3% year-on-year to $31.39 billion, beating the consensus of $30.72 billion.
Comparable sales increased 0.7% on top of 8.9% growth last year.
Gross margin for the quarter contracted by 300 basis points to 22.7%. The gross margin rate reflected pressure from higher clearance and promotional markdown rates, higher net merchandise costs, and higher inventory shrink, partially offset by favorable category mix.
Operating margin was 3.7% versus 6.8% in the prior year, and operating income for the quarter declined 44.7% to $1.2 billion.
The company held $2.2 billion in cash and equivalents as of Jan. 28, 2023. Cash provided by operating activities for the year totaled $4 billion.
Inventory at the January end was $13.5 billion, down 3% Y/Y.
EPS of $1.89 beat the analyst consensus of $1.40.
The company paid dividends of $497 million in the fourth quarter, compared with $432 million last year.
As of Q4 end, TGT had approximately $9.7 billion remaining capacity under the prior August 2021 repurchase program.
"Strength in Food & Beverage, Beauty and Household Essentials offset ongoing softness in discretionary categories," said Brian Cornell, chairman and CEO of Target.
Outlook: Target sees FY23 EPS of $7.75 - $8.75 (consensus $9.23); expects comparable sales in a wide range from a low-single-digit decline to a low-single-digit increase.
It sees Q1 EPS of $1.50 - $1.90 against the Street view of $2.14; expects comparable sales in a wide range, from a low-single-digit decline to a low-single-digit growth.
Price Action: TGT shares are trading higher by 1.61% at $169.50 in premarket on the last check Tuesday.

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