Despite an increasingly challenging environment, Target reported continued traffic and sales growth in the first quarter of 2023.
First quarter GAAP earnings per share were $2.05, down 4.8% from $2.16 in 2022. First quarter adjusted EPS was $2.05, a decrease of 6.2% compared with $2.19 in 2022.
Brian Cornell, chair and CEO of Target said, "We came into the year clear-eyed about the challenges consumers are facing, and we were determined to build on the trust we've established with our guests. It's required agility and the ability to flex across our multi-category portfolio as we lean into value and the product categories our guests need most right now. Thanks to the team's dedication, we saw an increase in guest traffic in Q1, with total sales increasing and profitability ahead of expectations."
Cornell continued, "As we look ahead, we now expect shrink will reduce this year's profitability by more than $500 million compared with last year. While there are many potential sources of inventory shrink, theft and organized retail crime are increasingly important drivers of the issue. We are making significant investments in strategies to prevent this from happening in our stores and protect our guests and our team. We're also focused on managing the financial impact on our business so we can continue to keep our stores open, knowing they create local jobs and offer convenient access to essentials."
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Cornell added, "For the full year, we are maintaining our full-year financial guidance, based on the expected benefit from efficiency and cost-savings efforts and our team's continued focus on agility, flexibility and retail fundamentals in the face of continued challenges including inventory shrink. At the same time, we will continue making long-term investments in our stores, supply chain and our team, positioning Target for profitable growth and market-share gains in the years ahead."
Based on softening sales trends in the first quarter, Target is planning for a wide range of sales outcomes in the second quarter, centered around a low-single digit decline in comparable sales. GAAP EPS and adjusted EPS are both expected to range from $1.30 to $1.70.
For the full year, Target is maintaining its prior guidance, which includes expected comparable sales in a wide range from a low-single digit decline to a low-single digit increase, operating income growth of more than $1 billion, and both GAAP EPS and adjusted EPS of $7.75 to $8.75.
The retailer's comparable sales were flat to last year in the first quarter, reflecting comparable store sales growth of .7% and comparable digital sales down 3.4%. Total revenue of $25.3 billion grew .6% compared with last year, reflecting total sales growth of .5% and a 10.2% increase in other revenue. Operating income of $1.3 billion in first quarter 2023, was down 1.4% from last year, driven by an increase in the company's SG&A expense rate.
Target's first quarter operating income margin rate was 5.2% in 2023, compared with 5.3% in 2022. The retailer's first quarter gross margin rate was 26.3%, compared with 25.7% in 2022. This year's gross margin rate reflected the benefit of lower freight costs, retail price increases, lower clearance markdown rates and lower digital fulfillment costs driven by lower digital volume and a favorable mix of lower-cost same-day services, the company said. These benefits were partially offset by higher inventory shrink.
First quarter SG&A expense rate was 19.8% in 2023, compared with 18.9% in 2022, reflecting the impact of cost inflation across multiple parts of the business, including investments in team member pay and benefits, Target noted.