Target (NYSE:TGT) removed some of the mystery from its fourth-quarter report when the retailer shared holiday-season sales figures in mid-January. As a result, investors already expected sales growth to slow significantly when compared to the pace Target enjoyed through most of 2019.
But its actual results on Tuesday were still packed with plenty of important news for shareholders, including management's official outlook for 2020. Let's take a look.
As expected, comparable-store sales growth slowed to 1.5% to meet the updated outlook CEO Brian Cornell and his team issued back in January. That result still allowed Target to achieve 3.4% comps growth for the full fiscal year, marking a decline from the 5.0% growth the company posted in fiscal 2018. The number of transactions increased both during quarter and for the year, but the annual figure slowed to 2.7% from 5.0% the prior year.
Among the positive highlights stood Target's strong digital sales, especially those that involved rapid fulfillment. Same-day services made up over 80% of the retailer's digital growth this past quarter. "With 11 consecutive quarters of positive comparable-sales growth, driven by healthy performance in both our stores and digital channels," Cornell said in a press release, "Target's results demonstrate that we've built a sustainable business model that drives strong top-line growth." Comps for the e-commerce business were up an impressive 29% for the year.
Still, the company's holiday results trailed those of industry peers, including Walmart and TJX Companies.
The news was almost uniformly good on the financial side of the ledger. Gross margin and operating margin both ticked up in the fourth quarter, allowing operating income to rise 7.3%. That metric was up 13.3% for the full year to $4.7 billion. Operating margin expanded 50 basis points to 6% of sales, marking Target's first profitability increase in three four years.
Other financial metrics told a similar story of a strengthening business. Operating cash flow rose to $7.1 billion from $6.0 billion, and return on invested capital landed at 16.0% compared to 14.7% a year ago, which supported record adjusted earnings growth. "The strategic investments we've made over several years," Cornell said, "are deepening our relationship with our guests."
Saying the chain is "well positioned" to push this positive momentum into another fiscal year, Target issued encouraging guidance for fiscal 2020. The retailer sees comps rising in the low single-digit range during the first quarter and for the full year. Operating income should rise at a slightly faster clip.
That profitability boost is being driven by a continued shift toward quick fulfillment methods like same-day home delivery. It's also helping that Target's elevated spending pace is slowing. The consumer staples chain sees adjusted earnings reaching $6.70 per share to $7.00 per share, up from $6.39 per share last year and $5.39 per share in 2018.
Overall, the outlook implies more operating and financial records ahead, and it suggests that the holiday season slowdown was just a temporary issue. Now, it's up to Target to show investors that it can quickly return to a faster pace of growth starting in early 2020.