Target Corporation (TGT, Financial) announced its fourth-quarter earnings for fiscal 2015 last week. Though results were better than the company guided, they came in below consensus estimates.
Target missed estimates on both top and bottom lines, but there’s more to the company’s fourth-quarter results. Target saw impressive improvement in online sales.
By the numbers
Target generated $21.6 billion in revenue, missing the consensus estimate of $21.68 billion. That compares with a revenue of $21.75 billion recorded in the year-ago comparable period. The retailer registered quarterly earnings per share of $1.52 against analyst expectations of $1.54. After reporting a big loss in the year-ago quarter owing to the discounting of its operations in Canada, Target registered net income of $1.43 billion in the last quarter.
At the earnings call, Chairman and Chief Executive Officer Brian Cornell was happy to note that Target’s adjusted earnings per share of $4.69 for the fiscal came in over the high end of the range guided by the company last year in March. This indicates the retailer is on the growth track and is poised to reach its long-term financial target.
Digital channels recorded strong sales growth of 34%, pulling in greater store traffic. Digital sales are growing at a fast pace. They grew 20% in the third quarter of fiscal 2015. In fact, Target expected its digital channels to grow even more – around 40%.
During the quarter, Target rewarded investors with $1.60 billion in the form of share buybacks and dividends. The company declared the payment of $345 million in dividends, which is 4.4% higher than the $330 million paid last year. In addition, Target repurchased 17.3 million equity shares.
Comp sales
One of the key metrics to watch for in the results was same-store sales performance. Cornell said traffic improved in the past fiscal, helping its comparable sales and operating margin to move north. This was primarily driven by Target’s signature categories.
The company’s comparable store sales rose 1.9% in the last quarter. Target’s comp sales were aided by its broad product categories and attractive promotional strategies. The company recorded an increase in the number of transactions, an important metric measuring traffic, for the fifth straight quarter.
Cornell said, "With traffic growing for five consecutive quarters and our signature categories of Style, Baby, Kids and Wellness leading our growth, Target's results demonstrate that we are focused on the right strategic priorities." Transactions were up 1.3% in the fourth quarter compared with a year earlier.
What to expect
In Cornell's words, “While we have made a great deal of progress in 2015, we are excited about the opportunity in front of us to provide a more seamless experience and accelerate profitable growth.”
Target expects to record earnings per share in the range of $5.20 to $5.40 for fiscal 2016. In contrast, analysts expect the earnings per share to come in around $5.17. For the first quarter of 2016, Target forecasts earnings per share in the range of $1.15 to $1.25, which is in tandem with analyst expectations of $1.20.
Target’s competitors, Macy’s (M, Financial) and Walmart (WMT, Financial), recently announced their fourth-quarter financials and reported dull sales despite the holiday season. Walmart’s results were adversely affected by unfavorable foreign currency translations. However, Target was saved from the unpredictable foreign market since it only operates in the U.S.
Target’s fourth-quarter results may not have been that amazing, but they surely reflected the company’s strength in multiple areas with a sound financial position. While industry biggies struggled in the holiday season, Target registered impressive growth in online sales, thanks to its promotional tactics such as free shipping and discounts. Overall, the company looks positioned to drive growth and maximize returns to its investors.
