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Target's (TGT) Q4 Earnings Beat Estimates, Digital Sales Surge

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Target Corporation (TGT - Free Report) continued with its stellar performance in fourth-quarter fiscal 2020, wherein both the top and the bottom lines not only surpassed the Zacks Consensus Estimate but also grew year over year. The quarter marked fourth straight sales and earnings beat. Notably, comparable sales increased for the 15th successive quarter. The metric gained from strength in the digital channel, given customers’ increased shift to online shopping amid coronavirus-led social distancing.

The company has been focusing on store refurbishments, enhancing digital capabilities and expanding same-day fulfillment options, keeping in mind speed and convenience. Again, robust holiday season and recent stimulus checks of $600 to individuals also contributed to the upbeat performance.

In spite of stronger-than-anticipated results, management refrained from providing sales and earnings projection for fiscal 2021 and beyond citing uncertain outlook for consumer shopping patterns amid the ongoing pandemic.

We note that shares of this Minneapolis, MN-based company have increased 28.5% in the past six months compared with the industry’s gain of 11.7%.

Let’s Delve Deeper

Target reported adjusted earnings of $2.67 per share that outshone the Zacks Consensus Estimate of $2.53, and rose sharply from $1.69 per share reported in the year-ago period.

This general merchandise retailer generated total revenues of $28,339 million that increased 21.1% from the year-ago period and outpaced the Zacks Consensus Estimate of $27,513 million. We note that sales jumped 21% to $27,997 million, while other revenues were up 28.7% to $342 million.

Markedly, Target witnessed sturdy market-share gains in all five core merchandise categories owing to strong demand. We note that stores fulfilled more than 95% of the company’s sales in the quarter. Same-day services (Order Pick Up, Drive Up and Shipt) surged 212%. Sales through Drive-Up were up more than 500% during the quarter under review.

Target Corporation Price, Consensus and EPS Surprise

Target Corporation Price, Consensus and EPS Surprise

Target Corporation price-consensus-eps-surprise-chart | Target Corporation Quote

Meanwhile, comparable sales for the quarter increased 20.5%, backed by 13.1% jump in average ticket. Comparable traffic grew 6.5%. Digital comparable sales soared 118% and accounted for two-third of the overall comp growth. Comparable stores sales grew 6.9% during the quarter.

Gross margin expanded 50 basis points to 26.8% during the quarter, gaining from merchandising actions, mainly from exceptionally low markdown rates. This was partly offset by increased digital fulfillment and supply chain costs as well as the impact of category mix. Again, operating margin grew 140 basis points to 6.5%.

Target’s debit card penetration remained flat at 12.4%, while credit card penetration fell 160 basis points to 9.3%. Total REDcard penetration declined to 21.7% from the year-ago quarter’s 23.3%.

Other Financial Details

During the fourth quarter, Target paid dividends of $341 million but did not repurchase shares.  At the end of the quarter, the company had $4.5 billion remaining under its $5-billion share-buyback program approved in September 2019. Notably, management informed that the company has resumed share repurchases in fiscal 2021.

This Zacks Rank #2 (Buy) company ended the quarter with cash and cash equivalents of $8,511 million, long-term debt and other borrowings of $11,536 million and shareholders’ investment of $14,440 million.

3 More Stocks Hogging the Limelight

Dollar Tree (DLTR - Free Report) has a long-term earnings growth rate of 10.9%. The stock carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Grocery Outlet (GO - Free Report) , a Zacks Rank #2 stock, has a long-term earnings growth rate of 14.7%.

Tapestry (TPR - Free Report) has a long-term earnings growth rate of 10%. Currently, it carries a Zacks Rank #2.

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