Target Corporation Q1, F.Y. 2020 Report

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Target Corporation Q1, F.Y. 2020 Report

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Target Corporation (NYSE: TGT) reported first-quarter 2020 earnings results on 20th MAY 2020. Target Corporation is an American retail corporation, it is the 8th-largest retailer in the United States, and is a component of the S&P 500 Index. Their retail formats include the discount store Target, the hypermarket Super Target, and “small-format” stores previously named City Target and Target Express before being consolidated under the Target branding. Target stores have remained open across the country during the coronavirus pandemic, but the crisis has emphasized the challenge of making money from e-commerce.

Earnings Review

The Revenue reported is $19.62 Billion which has grown 11.3% compared to Q1 F.Y 2019, but has reduced to 16.17 percentage when compared to last quarter Q4 F.Y.2019 due to the COVID- 19 pandemic around the globe, the other revenue grew 7.7 percentage compared to last year. The Company’s total comparable sales grew 10.8% in the first quarter, reflecting comparable digital sales growth of 141 %. The cost of sales reported is $14.5 Billion which has increased by 18.5% compared to last year which is due to the increased wages, store cleaning and other expenses related to the pandemic, that includes $2 per hour wage increases and improved benefits that will be paid through July 4.

The EBITDA has decreased by 39.3 percentage to $1.09 Billion from $1.7 Billion. The Operating income reported is $468 million in first-quarter 2020 which has reduced  58.7 percentage compared to $1,135 million in the same quarter 2019. The Net interest expense contracted by 6.8%, the Consolidated income reported is $284 million which has fallen by a 64.3 percentage compared to a later year in the same quarter due to the increase in operating expenses.

The Company reported GAAP earnings per share (EPS) from continuing operations of $0.56 in the first quarter, compared with $1.53 in 2019. First-quarter Adjusted EPS is $0.59, compared with $1.53 in 2019. The company has repurchased 5.7M shares at an average price of $107.58 for a total consideration of $609M during the quarter. The company reported 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 (DPS). On March 25, 2020, the Company announced that it had suspended share repurchase activity as a result of the current environment and has committed to maintaining its strong investment-grade credit ratings.

The Q1 2020 operating income margin rate reported is 2.4 percentage which has reduced by 35.1% compared with 6.4% in 2019, the gross margin rate for Q1,2020 has reduced to 25.1%  from 29.6 percent in Q1, 2019, this decrease reflected the net impact including costs and inventory impairments related to the rapid slowdown in Apparel & Accessories sales, and the consumers stocked up on lower-margin categories like Essentials and Food & Beverage, also higher digital and supply chain costs, driven by investments in team member wages and benefits.

The company has reported a Cash & cash equivalent of $4.5 Billion which has increased by a sharp rise of 289.25% compared to $1.17 Billion in 2019 the same quarter. The long term debt & borrowings reported is $14.07 Billion which has increased by 23.91% compared to $11.35 Billion in 2019.

Management Comments

The CEO of the company, Mr. Brain Cornell has said despite higher costs, the company is attracting new customers and inspiring loyalty that will pay off for the long term. He said 5 million new customers shopped at Target.com and over 2 million tried its drive-up service for the first time in the quarter. He added that over 70 million people have now signed up for Target Circle, its smartphone app, as the company tries to position itself as a safer place to shop. This will have an effect on the next quarterly results of the target group has risen in digital app users might add to the cost of the company to pack and deliver the goods which will increase the expense of the company, but this can be offset if the sales of higher-margin products increases and the company should try to retain its current customers using its loyalty programs.

Final Take

As the Pandemic effect will continue for at least till next quarter the company should focus on reducing its admin and operational expenses by a small percentage and try to create a balance between the in-store retail sales and its expenses and the digital sales and its expenses in near future.  

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