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Bloomberg
Target Corp soared after unveiling a forecast for new profit gains on top of the pandemic-related boom that has already sparked robust growth.
Operating profit will post a percentage increase in the low single digits this year, the retailer said, bucking Wall Street’s expectations that the closely watched number would decline. Target also predicted steady financial gains beyond 2022 as it expands e-commerce capabilities and bolsters its store network.
“We see a growth horizon for years to come,†Chief Executive Officer Brian Cornell said.
The upbeat outlook signaled that Target expects to build on the extraordinary sales boom of the last two years while protecting profit margins from supply-chain snarls and rising wages that are stoking the highest inflation rate in four decades. The company vowed to limit price increases as it seeks to make further inroads against rivals.
“The highlight of the release is the 2022 guidance,†Michael Baker, an analyst at DA Davidson, said in a note to clients. “This shows that the operational improvements, which were taking hold prior to the pandemic, along with the share gains over the last two years, are proving to be sustainable.â€
Long-Term View
Target’s new “financial algorithm†brings back a long-term view that the company abandoned during the pandemic. Starting next year and beyond, the company envisions revenue growth in the mid-single digits, compared with an expectation in the low-single digits under the old framework.
After taxes, return on invested capital will be “in the high 20% to 30% range†instead of the mid- to high-teens, Chief Financial Officer Michael Fiddelke said. The improved outlook underscores Target’s ability to use its stores to ship products to nearby customers and serve as pickup points for online purchases.
“This change highlights the asset efficiency of our stores-as-hubs model, which has unlocked the full potential of our store locations to flexibly serve our guests,†he said. Operating income is expected to rise in the mid-single digits over the long term, with adjusted earnings climbing in the high-single digits.