Michael Fiddelke
Executive Vice President and Chief Financial Officer at Target
Thanks, John. Overtime, we've emphasized our commitment to making the appropriate investments in our business, ones that will deepen Target's relationship with our guests, driving engagement, which ultimately leads them to shop at Target more often. And while it's our job to focus on driving performance every day, we've committed to making investment decisions with a long-term perspective, not limiting our horizon to a month, a season, a quarter or even a year, but thinking about how to position Target as a leading retailer for generations. That's how I think about our third quarter.
In the face of multiple challenges in the external environment, we maintained our focus on our guests and took specific actions to ensure we have a healthy inventory position going into the holidays, even though those actions involve some incremental costs. And importantly, as we face those decisions, we had the resources we needed, including the best team in retail, a sophisticated global supply chain, and a durable model that could accommodate those guest-focused investments. And while we're making these decisions with a focus on the long term, we've already seen the benefit of this year's inventory investments, given that they help to power third quarter traffic in sales growth that exceeded our expectations. In addition, given strong expense discipline across the organization, we've benefited from a compelling amount of leverage on our SG&A and DNA expenses, resulting in solid EPS growth, despite the sizeable investments we were choosing to make.
As Brian mentioned, our 12.7% comp in the third quarter came on top of a nearly 21% increase a year ago. As expected, within the quarter, we saw a shift in a portion of our back-to-school sales back into August, given that most schools across the country begin the school year with in-person learning. As a result, our August comp was our strongest of the quarter, our September comp dipped down to about 10%, and we accelerated back into the low-teens in October. Among the component drivers of our sales, growth continues to be driven by traffic, even as we retain nearly all of the basket growth that happened a year ago. Specifically, third quarter traffic increased 12.9% on top of a 4.5% increase last year, while average ticket declined only slightly about 20 basis points after growing more than 15% a year ago.
Among our sales channels, stores comparable sales grew 9.7% in the quarter on top of 9.9% last year, while digital comp sales grew 29% on top of 155% growth a year ago. Within our digital fulfillment, sales on order ship-to-home increased slightly over last year, while same-day services grew about 60% on top of a more than 200% increase a year ago. Among those same-day options, both in-store pickup and shipped grew more than 30% in the quarter, while drive up grew more than 80% on top of more than 500% a year ago. Put another way, since 2019, sales through drive up have expanded more than 10 times for about $1.4 billion in the third quarter alone.
Moving down the P&L, our third quarter gross margin rate of 28% was 2.6 percentage points lower than a year ago. Among the drivers, core merchandising accounted for 2 percentage points, or more than three quarters of the rate decline, driven primarily by incremental freight and other inventory costs. Among the other gross margin drivers, payroll growth in our supply chain accounted for about 70 basis points of pressure, while category sales mix contributed about 10 basis points of benefit. Notably, digital fulfillment had an approximately neutral impact on gross margin rate in the quarter, as the cost associated with higher digital volume were offset by the benefit of a shift in fulfillment mix towards our same-day options, which has meaningfully lower average unit costs compared with traditional e-commerce.
On the SG&A expense line, we saw about a 160 basis points of improvement in the third quarter, reflecting disciplined cost management combined with the leverage benefit of unexpectedly strong sales. On the D&A line, we saw about 20 basis points of rate improvement as sales growth more than offset the impact of higher accelerated depreciation, which reflects the continued ramp up in our remodel program. Altogether, our third quarter operating margin rates of 7.8% was about 70 basis points lower than a year ago, but more than 2 percentage points higher than two years ago. On a dollar basis, operating income was 3.9% higher than a year ago, and double the number recorded in the third quarter of 2019.
Moving to the bottom of the P&L, our third quarter GAAP EPS of $3.04 was 52% higher than last year, when we recorded more than $500 million of interest expense on early debt retirement. On the adjusted EPS line, where we excluded early debt retirement expense, we earned $3.03 in the quarter, representing an 8.7% increase from a year ago. Compared with two years ago, both GAAP and adjusted EPS have increased more than 120%.
Turning now to capital deployment, I'm going to start as always with our long-term priorities. First, we look to fully invest in our business, in projects that meet our strategic and financial criteria. Next, we support the dividend and look to build on our long history of annual increases, which we've maintained every year since 1971. And finally, we return any excess cash within the limits of our middle-A credit rating through share repurchases over time. On the capex line, we'd invested $2.5 billion through the first three quarters of 2021, and expect to reach about $3.3 billion for the full year. As I mentioned last quarter, this is somewhat lower than our expectation going into the year, and reflects a retiming of projects spending into next year, given that we've experienced delays on some projects relating to external factors like permitting and inspections in some communities.
However, as John mentioned earlier, we're eager to invest in a long list of productive growth opportunities over the next few years, adding new stores, re-modeling existing stores, building replenishment capacity in our supply chain, and rolling out additional sortation centers. As of today, we continue to believe these investments will amount to capex in the $4 billion to $5 billion range in 2022. And we'll continue to refine our view in the months ahead.
Turning now to dividends, we paid $440 million in dividends in the third quarter, up $100 million from last year. This increase reflects a 32% increase in the per-share dividend, partially offset by a decline in share count. I want to pause here and take note of the fact that with the payment of our December dividend, we'll officially achieve our 50th consecutive year of annual increases in the per-share dividend, something very few companies have achieved.
And lastly, given our cash position and strong cash generation by our operations, we continue to have ample capacity for share repurchases within the limits of our middle-A ratings, even after we've made robust investments in capex and dividends. In the third quarter, we deployed $2.2 billion to repurchase 8.8 million of our shares, bringing our year-to-date total up to $4.9 billion.
As I've mentioned in prior quarters, given our continued strong financial performance, our debt leverage has been lower, and cash on the balance sheet has been higher than we'd expect to maintain over the longer term. As a result, going forward, we expect to increase our leverage and reduce our cash position at a pace that's consistent with our financial expectations, credit rating goals, and assessment of the external environment. I've mentioned before that the timeline to move those metrics fully back to historical levels will likely be a multi-year journey. And the rapidly changing conditions we've seen over the last two years, demonstrate why it's prudent to maintain a thoughtful pace.
As always, I'll end my review of performance with our after-tax return on invested capital, which measures the quality of our current performance in the context of the investments we've made over time. For the trailing 12 months through the end of Q3, our business generated an after-tax ROIC of 31.3%, compared with 19.9% a year ago. This is incredibly robust performance and demonstrates why we are enthusiastically planning to continue investing in our business.
Now, let me turn to our expectations for the fourth quarter and full year. 90 days ago, we said we were planning for high single-digit growth in our comparable sales over the back half of the year. While we still believe that's in the range of possible outcomes for the fourth quarter, we just exceeded that expectation in Q3. As such, we're planning for a Q4 comp in the high single-digit to low double-digit range consistent with the range we've seen over the last two quarters. In terms of profitability, we continue to expect that our business will deliver a full year operating margin rate of 8% or higher, up significantly from 7% in 2020. This rate favorability, combined with the full year sales growth we're positioned to deliver, would translate into another incredibly strong year of profit growth, following a record year in 2020.
So now, as I get ready to turn the call back over to Brian, I want to pause and address a question that I'm certain you'll be asking, which is, how much of the current cost pressures will turn out to be temporary? And how much will turn out to be structural? And I'll give you the honest answer, which is that it's almost certainly some of both, and no one knows the precise answer. That said, there is no doubt that supply chain bottlenecks should ease overtime. However, beyond the supply chain, we're also facing product cost increases from some vendors driven by higher costs in their businesses. And while you heard from John that we're extremely well positioned given our team investments over the last few years, the labor market remains very tight across the country.
So how do we think about the future? From a financial standpoint, we focus first on serving our guests and translating that focus into further growth, an area where we see a lot of runways. As you've seen with the investments we've made and continue to make, we're earning deeper trust and engagement from our guests. This trust leads to more trips and broader shopping across our merchandise assortment and fulfillment services. With a skilled and agile team focused on driving guest engagement, further growth and market share gains, we're confident that our durable model can continue to offer compelling value for our guests, accommodate continued investments in our team, and deliver outstanding financial performance, even in the face of a challenging external environment, like we're facing today. This is one more example of the power of and.
So now, I want to pause and thank our entire team for delivering a great Q3, which came on top of years of already strong performance. The financial results, I have the privilege of sharing quarter-after-quarter, wouldn't be possible if Target didn't have the best team in retail.
With that, I'll turn the call back over to Brian.
