Target Sees Blow Out Q2 with Profits
August 19, 2020
Target reported second quarter 2020
results, which reflect the continuation of heightened sales volume and
significant investments in response to the COVID-19 pandemic. The
Company reported GAAP earnings per share (EPS) from continuing
operations of $3.35 in the second quarter, an increase of 84.4 percent
from $1.82 in 2019. Second quarter Adjusted EPS of $3.38 grew 85.7
percent compared with $1.82 in 2019.
Target's adjusted EPS of $3.38 was far
better than the $1.62 which was expected. The firm's revenue of $23
billion bested the $20.09 billion that investors sought. On the
same-store sales front, growth was 24.3% with only 7.6% expected.
"Our second quarter comparable sales growth of 24.3 percent is the
strongest we have ever reported, which is a true testament to the
resilience of our team and the durability of our business model. Our
stores were the key to this unprecedented growth, with in-store comp
sales growing 10.9 percent and stores enabling more than three-quarters
of Target's digital sales, which rose nearly 200 percent. We also
generated outstanding profitability in the quarter, even as we made
significant investments in pay and benefits for our team," said Brian
Cornell, chairman and chief executive officer of Target Corporation. "We
remain steadfast in our focus on investing in a safe and convenient
shopping experience for our guests, and their trust has resulted in
market share gains of $5 billion in the first six months of the year.
With our differentiated merchandising assortment, a comprehensive set of
convenient fulfillment options, a strong balance sheet, and our deeply
dedicated team, we are well-equipped to navigate the ongoing challenges
of the pandemic, and continue to grow profitably in the years ahead."
Fiscal 2020 Guidance
During the first quarter, the Company withdrew its guidance given the
unusually wide range of potential outcomes, in light of the highly fluid
and uncertain outlook for consumer shopping patterns and government
policies related to COVID-19.
The Company's total comparable sales grew 24.3 percent in the second
quarter, reflecting comparable stores sales growth of 10.9 percent and
digital sales growth of 195 percent. Total revenue of $23.0 billion grew
24.7 percent compared with last year, reflecting sales growth of 24.8
percent and a 16.6 percent increase in other revenue. Operating income
was $2.3 billion in second quarter 2020, up 73.8 percent from $1.3
billion in 2019.
Second quarter operating income margin rate was 10.0 percent in 2020
compared with 7.2 percent in 2019, driven primarily by strong expense
leverage on robust topline performance. Second quarter gross margin rate
was 30.9 percent, compared with 30.6 percent in 2019. This increase
reflected sales strength across our entire multi-category assortment and
lower discounts driven by high sell through rates. Second quarter SG&A
expense rate was 19.4 percent in 2020, compared with 21.2 percent in
2019, reflecting higher compensation costs, including investments in
wages and benefits, which were more than offset by the net impact of
other factors, most prominently the leverage from strong sales growth.
Interest Expense and Taxes
The Company's second quarter 2020 net interest expense was $122 million,
compared with $120 million last year.
Second quarter 2020 effective income tax rate was 22.8 percent, compared
with 23.0 percent last year, reflecting a larger rate benefit from
discrete items, primarily related to share-based payments, compared with
the prior year.
Company paid dividends of $330 million, compared with $328 million in
second quarter 2019, reflecting a 3.1 percent increase in the dividend
per share, partially offset by a decline in average share count.
On March 25, 2020, the Company announced that it had suspended share
repurchase activity as a result of the high level of uncertainty in the
current environment. As of the end of the second quarter, the Company
had approximately $4.5 billion of remaining capacity under the
repurchase program approved by Target's Board of Directors in September
For the trailing twelve months through second quarter 2020, after-tax
return on invested capital (ROIC) was 17.2 percent, compared with 15.2
percent for the twelve months through second quarter 2019. The increase
to ROIC was driven primarily by increased profitability combined with a
small decrease in capital base. The tables in this release provide
additional information about the Company's ROIC calculation.