Target Corp. soared after reporting a jump in fourth-quarter earnings and saying its results will continue to improve on top of the pandemic-related boom that has already sparked robust gains. 

Operating profit in the current fiscal year will post a percentage gain in the low single digits, the retailer said in a statement Tuesday, bucking Wall Street’s expectations that the closely watched number would decline. Adjusted earnings will expand in the high single digits after exceeding analyst estimates in the fiscal year that ended Jan. 29. 

“The highlight of the release is the 2022 guidance,” Michael Baker, an analyst at D.A. 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.”

Target also unveiled a longer-term outlook beyond 2022, in which it pledged to build on the extraordinary sales gains of the last two years as it expands e-commerce offerings, builds new stores and remodels others. While growth will slow, Target said operating income and total revenue is expected to rise in the mid-single digits and adjusted earnings will increase in the high single digits. 

“We’re going to keep growing,” Chief Executive Officer Brian Cornell told analysts and investors at a financial community meeting in New York. 

The shares jumped as much as 14 per cent in New York trading on Tuesday -- the most intraday since 2019. The gain virtually erased the company’s 14 per cent decline this year through Monday, which was slightly worse than the 12 per cent drop in an S&P 500 retail index over the same period. The shares advanced 31 per cent last year compared with a 19 per cent gain in the index.
 

COST CONTROL

Operating income will amount to at least 8 per cent of sales this year, Target said. That outlook eased worries expressed by analysts including Steven Shemesh of RBC Capital Markets, who had warned before the report of a risk that Target would reset expectations with a lower forecast. Margins have come under scrutiny in recent quarters amid a stubborn bout of inflation that has raised prices across the supply chain.

“It’s now clear that the company has more control over costs than the Street gave it credit for,” Shemesh said in a note to clients after Target reported results. 

The Minneapolis-based retailer expects profit to vary from one quarter to the next “and generally improve as the year progresses.” That echoes Walmart Inc.’s outlook and signals Target’s belief that demand will hold in spite of the highest inflation rate in four decades and slumping consumer confidence. 

In the fourth quarter, earnings excluding some items climbed to US$3.19 a share, topping the US$2.88 average of analyst estimates compiled by Bloomberg. Comparable sales rose 8.9 per cent, trailing expectations for a gain of more than 10 per cent. Most of the gain came from an increase in traffic, while the average transaction amount rose less than 1 per cent. 

“We certainly see the inflationary cost pressure,” Target Chief Financial Officer Michael Fiddelke said in an interview with Bloomberg TV. “We have a lot of levers to pull within our business to make sure we’re protecting value for our guests. Price is the lever we pull last.”