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Target Tops Forecasts - Sales Surge 21%

March 3, 2021

Target reported its fourth-quarter and full-year 2020 results. The company reported GAAP earnings per share (EPS) from continuing operations of $2.73 in fourth quarter and $8.64 for full-year 2020, compared with $1.63 and $6.34 in 2019, respectively. Adjusted EPS was $2.67 for the fourth quarter and $9.42 for the full-year, compared with $1.69 and $6.39 in 2019, respectively. Full-year GAAP EPS included a $0.75 loss on debt extinguishment, which was excluded from Adjusted EPS. The attached tables provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.

The firm's earnings per share of $2.67 adjusted topped the $2.54 per share which was expected. As to revenue, Target took in $28.34 billion with only $27.48 billion expected.

"Following years of investment to build a durable, scalable and sustainable business model, we saw record growth in 2020, as our guests turned to Target to safely provide for their families throughout the pandemic," said Brian Cornell, chairman and chief executive officer of Target Corporation. "With the strength of our unique, multi-category assortment and the flexibility we offer through our reliable and convenient fulfillment options, we gained nearly $9 billion in market share in 2020, and grew our revenue by $15 billion, which is more than the 11 prior years combined. As we look ahead to 2021 and beyond, we see continued opportunity to invest in our business and our team, building on the strong foundation we've established to drive market share gains and deliver profitable growth for years to come."

Fiscal 2021 Guidance

In the first quarter of 2020, the Company withdrew its guidance, in light of the highly fluid and uncertain outlook for consumer shopping patterns and the impact of COVID-19. In the face of continued uncertainty, the company is not providing sales and EPS guidance for Fiscal 2021 and beyond.

Operating Results

The Company's total comparable sales grew 20.5 percent in the fourth quarter, reflecting comparable stores sales growth of 6.9 percent and digital sales growth of 118 percent. Total revenue of $28.3 billion grew 21.1 percent compared with last year, driven by sales growth of 21.0 percent and a 28.7 percent increase in other revenue. Operating income was $1.8 billion in fourth quarter 2020, up 53.2 percent from $1.2 billion in 2019.

Fourth quarter operating income margin rate was 6.5 percent in 2020 compared with 5.1 percent in 2019. Fourth quarter gross margin rate was 26.8 percent, compared with 26.3 percent in 2019, reflecting the benefit of merchandising actions, most notably the unusually low markdown rates, partially offset by the impact of higher digital fulfillment and supply chain costs, along with the impact of category mix. Fourth quarter SG&A expense rate was 19.2 percent in 2020, in line with 19.3 percent in 2019, as investments in safety and team member pay and benefits were offset by leverage resulting from strong revenue growth.

Full-year sales increased 19.8 percent to $92.4 billion from $77.1 billion last year, reflecting a 19.3 percent increase in comparable sales combined with sales from non-mature stores. Full-year revenue of $93.6 billion grew 19.8 percent compared with 2019, reflecting sales growth of 19.8 percent and an 18.2 percent increase in other revenue.

Full-year operating income was $6.5 billion in 2020, an increase of 40.4 percent from $4.7 billion last year. Full-year gross margin rate was 28.4 percent, compared with 28.9 percent in 2019. This rate decline reflects unfavorable category sales mix and higher supply chain and fulfillment costs from channel mix, partially offset by markdown favorability. Full-year SG&A expense rate was 19.9 percent in 2020, compared with 20.8 percent in 2019, reflecting significant leverage on fixed costs that offset investments in team member pay, benefits, and safety.

Interest Expense and Taxes

The Company's fourth quarter 2020 net interest expense was $106 million, compared with $118 million last year. The decrease was primarily due to a $10 million charge recognized for the early retirement of debt in the fourth quarter of 2019.

Full-year 2020 net interest expense was $977 million, compared with $477 million in 2019. The increase was driven primarily by a $512 million charge related to the early retirement of debt in third quarter 2020.

Fourth quarter 2020 effective income tax rate was 20.2 percent, a decrease from 20.7 percent last year. The Company's full-year 2020 effective income tax rate from continuing operations was 21.2 percent compared with 22.0 percent in 2019, which reflects a larger rate benefit from discrete items, primarily related to share-based payments and resolution of certain income tax matters, partially offset by the rate impact of higher earnings, compared with the prior year.

Capital Deployment and Return on Invested Capital

The Company paid dividends of $341 million in the fourth quarter, compared with $334 million last year, reflecting a 3.0 percent increase in the dividend per share, partially offset by a decline in average share count.

Target did not repurchase any of its shares in the fourth quarter. The Company has resumed share repurchases in fiscal 2021, consistent with its long-standing capital deployment policies and within the limits of its strong, middle-A credit ratings. As of the end of the fourth quarter, the Company had approximately $4.5 billion of remaining capacity under the repurchase program approved by Target's Board of Directors in September 2019.

For the trailing twelve months through fourth quarter 2020, after-tax return on invested capital (ROIC) was 23.5 percent, compared with 16.0 percent for the twelve months through fourth quarter 2019. This increase was driven primarily by higher profitability combined with a decrease in the base of invested capital. The tables in this release provide additional information about the Company's ROIC calculation.

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