Target Corporation (NYSE: TGT) today announced its first-quarter 2020 results, which reflect the impact of rapidly-evolving shopping patterns and significant investments in response to the COVID-19 pandemic. The Company reported GAAP earnings per share (EPS) from continuing operations of $0.56 in first quarter, compared with $1.53 in 2019. First quarter Adjusted EPS were $0.59, compared with $1.53 in 2019. The attached tables provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.
“Throughout the first quarter, our team and guests faced unprecedented challenges arising from the spread of COVID-19. In the face of those challenges, our team showed extraordinary resilience as guests relied on Target as a trusted resource for their families. With our stores at the center of our strategy, and a significant investment in the safety of our team and guests, our operations had the agility and flexibility needed to meet the changing needs of our business,” said Brian Cornell, chairman and chief executive officer of Target Corporation. “With the dedication of our team, the benefit of a sustainable business model and a strong balance sheet, we are confident Target will emerge from this crisis an even stronger retailer, with higher affinity and trust from our guests.”
Fiscal 2020 Guidance
On March 25th, the Company withdrew its first quarter and full-year guidance given the unusually wide range of potential outcomes as a result of the highly fluid and uncertain outlook for consumer shopping patterns and government policies related to COVID-19. As a result of continued uncertainty, the Company did not provide second-quarter or updated full-year guidance.
Operating Results
The Company’s total comparable sales grew 10.8 percent in the first quarter, reflecting comparable digital sales growth of 141 percent. Total revenue of $19.6 billion grew 11.3 percent compared with last year, reflecting sales growth of 11.3 percent and a 7.7 percent increase in other revenue. Operating income was $468 million in first quarter 2020, down 58.7 percent from $1,135 million in 2019.
First quarter operating income margin rate was 2.4 percent in 2020 compared with 6.4 percent in 2019. First quarter gross margin rate was 25.1 percent, compared with 29.6 percent in 2019. This decrease reflected the net impact of actions taken by the Company’s merchandising teams, including costs and inventory impairments related to the rapid slowdown in Apparel & Accessories sales, unfavorable category mix as guests stocked up on lower-margin categories like Essentials and Food & Beverage, and higher digital and supply chain costs, driven by unusually strong digital volume as well as investments in team member wages and benefits. First quarter SG&A expense rate was 20.7 percent in 2020, compared with 20.8 percent in 2019. First quarter SG&A results reflected higher compensation costs, including investments in wages and benefits, which were more than offset by the net impact of other factors, including leverage from strong sales growth.
Interest Expense and Taxes from Continuing Operations
The Company’s first quarter 2020 net interest expense was $117 million, compared with $126 million last year, reflecting lower average floating benchmark interest rates associated with the Company’s debt portfolio.
First quarter 2020 effective income tax rate from continuing operations was 13.9 percent, compared with 22.4 percent last year. First quarter 2020 effective income tax rate from continuing operations reflects the impact of lower pre-tax earnings and a larger impact from discrete tax benefits compared with last year.
Shareholder Returns
The Company returned $941 million to shareholders in first quarter 2020, including:
- Dividends of $332 million, compared with $330 million in first quarter 2019, reflecting a decline in share count offset by a 3.1 percent increase in the dividend per share.
- Share repurchases totaling $609 million that retired 5.7 million shares of common stock at an average price of $107.58.
Early in the first quarter, the Company exhausted the remaining capacity under the $5 billion share repurchase program approved in 2016 and began repurchasing shares under the new $5 billion repurchase program approved by Target’s Board of Directors in September 2019. As of the end of the first quarter, the Company had approximately $4.5 billion of remaining capacity under the 2019 repurchase program.
On March 25, 2020, the Company announced that it had suspended share repurchase activity as a result of the current environment and the Company’s commitment to maintain its strong investment-grade credit ratings.
For the trailing twelve months through first quarter 2020, after-tax return on invested capital (ROIC) was 13.4 percent, compared with 14.3 percent for the twelve months through first quarter 2019. The tables of this release provide additional information about the Company’s ROIC calculation.
