Target Sales, Traffic Exceed Expectations in Q4, Fiscal Year 2023
Digital business improvement, growth in Drive Up sales and increased foot traffic all helped Target Corp. drive improved sales during its fourth quarter and full fiscal year 2023, highlighting what the retailer calls a rally to change its business momentum.
In Q4, total year-over-year comparable sales declined 4.4%, while total revenue of $31.9 billion was driven by sales growth of 1.6% and a 9.8% increase in other revenue. Comparable-store sales were down 5.4% and digital comparable sales were down 0.7%, but up more than 5 percentage points from the previous quarter. Operating income was $1.9 billion, an increase of 60.9% over 2022.
Gross margin rate for Q4 was 25.6%, compared with 22.7% in 2022, which the company said reflects lower markdowns and other inventory-related costs, lower freight costs, lower supply chain and digital fulfillment costs, and favorable category mix. Target says shrink costs were lower than they were last year, considering continued increases in store loss rates were offset by the timing of inventory accruals compared with 2022.
[RELATED: Behind Target’s ‘Winning Retail Formula’]
According to Placer.ai, Target’s visits during Q4 were up 1.6%, and were also up every quarter of 2023 compared to its 2022 baseline. Target also experienced a significant holiday peak, with a 33.9% increase in monthly visits compared to its 2023 monthly average.
"Our team's efforts changed the momentum of our business, further improving our sales and traffic trends in the fourth quarter while driving profitability well ahead of expectations," said Brian Cornell, chairman and CEO. "Throughout the season, guests responded to newness, value, and the inspiration and ease of our in-store and digital shopping experience. Looking ahead, we'll continue to invest in the strengths and differentiators that have delivered strong financial performance over time.”
Cornell also said Target will roll out fresh innovations as part of its roadmap for growth aimed at meeting consumers where they are, reigniting sales, traffic and market share gains, and positioning Target for profitable growth in 2024 and beyond.
As for FY23, operating income grew 48.3% to $5.7 billion, and full-year gross margin rate was 26.5% compared with 23.6% in 2022. The retailer saw a 5.3% operating income margin rate compared to 3.5% in FY22, and GAAP EPS was up nearly 50% over the previous fiscal year.
Target reports that it saved more than $500 million through efficiency initiatives during FY23, and saw more than 8% sales growth in same-day services during the year, led by double-digit growth in Drive Up, with Starbucks and returns rolling out nationwide during the reporting period.
Further, the retailer invested $4.8 billion in capital expenditures during 2023, opening 21 new stores, remodeling and enhancing 170 stores, and opening four new supply chain facilities. Target also refreshed or added more shop-in-shops, including 155 Ulta Beauty locations, 100 Starbucks Cafés, 50 Apple Shops and 20 Disney Clubhouses.
For Q1 of 2024, Target expects a comparable sales decline of 3% to 5%, with GAAP and adjusted EPS both expected to range from $1.70 to $2.10. For the full year, the retailer anticipates a modest increase in comparable sales in a range from flat to 2%.
Minneapolis-based Target Corp. is No. 6 on The PG 100, Progressive Grocer’s 2023 list of the top food and consumables retailers in North America, with nearly 2,000 locations. PG also included the company on its Retailers of the Century list.
