Target earnings surge 58% amid lower costs, lean inventory

Target Corp. reported fourth-quarter sales and earnings above Street expectations amid lower markdowns and improved in-stocks, but warned of sluggish sales for the current year.

Separately, the retailer said it will launch a paid membership program, called Target Circle 360, in April. The program, announced at Target's investor day,  will include unlimited free same-day delivery for orders over $35 in as little as one hour and two free-day shipping, along with other perks.

The subscription tier, Target Circle 360,also said it will roll out a new Target Circle membership program as part of its strategy to meet consumers “where they are, reigniting sales, traffic and market share gains.”

Target’s net income rose 57.8% to $1.38 billion, or $2.98 a share, for the quarter ended Feb 3, up from $876 million, or $1.89 a share, in the year-ago period. Its results easily topped analysts’ projections of $2.42 per share.

Total revenue grew 1.7% to $31.92 billion, topping analysts estimates of $31.83 billion. Same-store sales fell 4.4%, less than expected, including a 5.4% drop at stores and a 0.7% decrease in digital sales.

Traffic for stores and online combined improved, falling 1.7% compared to a 4.1% drop in the third quarter.

Same-day services (in-store pickup, drive up, and Shipt), which represent more than 10% of total sales, increased 13.6% during the quarter, led by growth in Drive Up.

Target’s gross margin improved to 25.6% from 22.7%, fueled by lower markdowns and other inventory-related costs, lower freight costs and lower supply-chain and digital fulfillment costs.

“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," stated chairman and CEO Brian Cornell. “Looking ahead, we'll continue to invest in the strengths and differentiators that have delivered strong financial performance over time.”

Target has been putting an increased focus on value as consumers continue to cut back on spending,  In February, it launched a low-priced “everyday” private brand, Dealworthy. Prices start at less than $1, with most items under $10. 

“We'll also roll out fresh innovations, including our new Target Circle membership program, as part of our roadmap for growth aimed at meeting consumers where they are, reigniting sales, traffic and market share gains, and positioning Target for profitable growth in 2024 and beyond," Cornell stated.

For the full year, Target’s total revenue fell 1.6% to $107.4 billion, reflecting a 1.7% decline in sales partially offset by a 5.% increase in other revenue. The company opened 21 new stores and remodeled and enhanced 170 locations in 2023. It also opened four new supply chain facilities.

Looking ahead, Target expects adjusted earnings per share of $1.70 to $2.10 for the first quarter, less than the Street forecast. First-quarter same-store sales are expected to decline 3% to 5%. Analysts were looking for comps to rise 1.3%.

For the full-year, Target expected adjusted earnings per share of $8.60 to $9.60.