Target Corp. on Tuesday reported fiscal 2022 fourth-quarter results that exceeded Wall Street estimates, driven by better-than-expected sales traffic in its stores.
The Minneapolis-based retailer also announced plans to spend up to $5 billion this year across a variety of disciplines, including an expansion of its supply chain facilities.
Earlier this month, Target (NYSE: TGT) said it would invest $100 million through 2026 to add more than half a dozen additional sortation facilities to its U.S. network. Its goal is to reach 15 sort centers within the next four years, up from the current level of nine.
These facilities, erected next to or near Target locations, would take distribution pressure off the stores and allow employees to focus more time on serving customers.
Sortation centers, which launched in Minneapolis in 2020, are part of Target’s “stores-as-hubs “strategy, which leverages brick-and-mortar stores to fulfill online orders.
Sortation hubs, the next phasse of that model, allow stores to ship their e-commerce orders to these facilities to be batched and routed for deliveries. The hubs also create a central repository for Shipt to retrieve orders for delivery.
Starting in the spring, Target will expand an offering known as Drive Up Returns that allows customers to return new, unopened items from their car at no charge. Drive Up Returns will be available on purchases made through Target.com accounts, the retailer said.
The objective, according to Target, is to build in more efficiencies to the returns process and reduce the costs and inconvenience of handling mail-in returns.
Adjusted earnings per share for the Minneapolis-based retailer reached $1.89, well above the $1.39 analysts projected. Same-store sales increased 0.7% year on year, compared to a minus-1.74% projected decline.
Total revenue of $31.4 billion grew 1.3% in the fourth quarter compared with last year, driven by sales growth of 1.2% and an 8.4% increase in other revenue. Operating income was $1.2 billion in Q4 2022, down 44.7% from $2.1 billion in 2021.
Same-day services such as in-store pickup, store drive-up pickups and its Shipt delivery service, rose 4.3% in the quarter. Those services accounted for 10% of Target’s $31.4 billion in quarterly revenue.
Inventory at the end of the quarter was 3% lower than the same period of 2021. Inventory in higher-margin discretionary categories like electronics was approximately 13% lower than a year ago. That figure was partially offset by higher inventories in so-called frequency categories like food as consumers pressured by higher costs focused more of their spending on basic every-day items.
“We’re pleased that we entered the year in a very healthy inventory position, reflecting our conservative approach in discretionary categories and our commitment to reliability in our frequency businesses,” said Target Chairman and CEO Brian Cornell.
Cornell called last year’s operating environment the most “expensive we’ve seen in decades.”
Target and rival Walmart Inc. (NYSE: WMT) were badly burned during 2022 for holding too much discretionary product inventory just as consumers’ needs began to change. Target was able to adjust quickly, however, to reposition its inventory, even if it meant absorbing markdowns to move higher-margin goods quickly out the door.
That strategy was reflected in the company’s fourth-quarter operating income margin rate, which stood at 3.7%, compared with 6.8% in 2021. Target’s Q4 gross margin rate was 22.7%, compared with 25.7% in ’21.
More than half way through Tuesday’s trading session, Target’s shares were up 2.85% to $171.60