Michael Fiddelke
Executive Vice President and Chief Financial Officer at Target
Thanks, John. Before I begin my formal remarks, I want to thank you for the positive impact you've made on this Company, our strategy, our team and on me personally. I've been fortunate to work with you and learn from you since I first arrived at Target 20 years ago.
In the third quarter, total revenue was down 4.2%, reflecting a 4.3% decline in total sales and a 0.6% decline in other revenue. Within the other revenue line, declines in credit card revenue and a few smaller items were nearly offset by growth in Roundel ad revenue. Among the drivers of our third quarter comparable sales, traffic was down 4.1%, combined with a 0.8% decrease in average ticket. While we're encouraged that our Q3 comp trend improved 0.5 point compared with Q2 and the traffic trend recovered a little bit faster, we're not at all satisfied with this result, and we're laser-focused on moving both traffic and sales trends back into positive territory.
As Christina mentioned, our guests continue to shop around seasonal moments. So, not surprisingly, Q3 comp performance was strongest around the back-to-school and back-to-college seasons. For the remainder of the quarter, we saw variability week by week, with periods of relative strength around promotions.
Our third quarter gross margin rate of 27.4% was more than 2.5 points better than last year, driven by multiple benefits within merchandising, including meaningfully lower freight costs and favorable clearance markdowns. In addition, we benefited from year-over-year favorability in digital fulfillment and supply chain costs. And perhaps, surprisingly, merchandise mix drove a small rate benefit compared with last year as we continue to benefit from growth in higher-margin categories like Beauty and we saw the softest performance in very low-margin categories like electronics. Partially offsetting these tailwinds, the rising cost of inventory shrink represented a 40 basis point headwind to our third quarter gross margin rate. While we're encouraged that this impact was smaller than expected and better than we faced earlier in the year, growth in shrink remains a significant financial headwind and we're determined to continue making progress in the years ahead.
While our Q3 guidance anticipated significant improvement in our gross margin rate, our actual performance was well above our expectations as the team delivered greater-than-expected progress on several fronts. At the top of that list is their continued agility in managing inventory, which delivered compelling benefits on both the gross margin and SG&A expense lines. In addition, our teams' ongoing efforts to identify long-term efficiency opportunities is already contributing to this quarter's better-than-expected performance. Beyond those drivers, a couple of macro factors came in better than expected, including freight costs and the impact of inventory shrink.
On the SG&A line, our third quarter rate of 20.9% was just over 1 percentage point higher than last year. This growth reflected cost increases throughout our business, including continued investments in our team, along with the deleveraging impact of lower sales, partially offset by disciplined cost management throughout the organization. Our Q3 depreciation and amortization expense rate of 2.4% was about 10 basis points higher than a year ago, reflecting dollar growth of about 3%.
Altogether, our third quarter operating margin rate of 5.2% was more than 1 percentage point higher than last year. And notably, this year's rate was only about 20 basis points lower than the 5.4% our business delivered prior to the pandemic in the third quarter of 2019 despite the cumulative 110 basis point drag from shrink we faced since then. Also important, given the growth in revenue that our team has delivered over that four-year period, this year's Q3 operating margin dollars were more than 30% higher than in 2019. As a result, on the bottom-line, both GAAP and adjusted earnings per share of $2.10 in this year's third quarter were more than 36% ahead of last year and more than 50% higher than in 2019.
Important to note, while the backdrop today remains tough, because of the long-term investments we continue to make and the efforts of our team to identify efficiency opportunities throughout our business, we have a lot more opportunity to grow both our top-line and increase our profitability in the years ahead. And our team is already delivering strong profit performance, both compared to a year ago and versus our longer-term history as well.
Now, I'll turn to capital deployment and reiterate our priorities which have remained consistent for decades. We first look to fully invest in projects that meet our strategic and financial criteria. Then, we look to support the dividend and build on our record of annual increases, which we've maintained for more than 50 years. And finally, we deploy any excess cash within the limits of our middle A credit ratings through share repurchase over time.
Regarding the first priority, capital investment through the first three quarters of the year was just under $4 billion, and we expect full year capex will be near the high end of the $4 billion to $5 billion range we laid out for the year. While we're still in the early stages of developing next year's capital plan, our current expectation is that next year's capex will be somewhat lower than this year in the $3 billion to $4 billion range, reflecting our current view of the optimal timing for key investments we're planning over the next several years.
Regarding our second capital priority, we paid dividends of just over $0.5 billion in Q3, $10 million higher than last year, reflecting a per share dividend increase of 1.9%.
Regarding the last priority, we didn't repurchase any shares in the third quarter as we continue to focus on strengthening our balance sheet and restoring our debt metrics to levels that support our middle A credit ratings, and we continue to make meaningful progress on that journey, as the combined benefits of higher profits and lower working capital have led a meaningful improvement in operating cash flow. More specifically, our operations have generated more than $5.3 billion in cash through the first three quarters of the year, up dramatically from about $550 million through the first three quarters of 2022.
As always, I'll conclude my review of the quarter with our trailing 12-month after tax ROIC, which was 13.9% in the third quarter, down from 14.6% a year ago. While an after tax return in the low-teens is quite healthy in absolute terms, it's meaningfully lower than the returns we expect to deliver over time. Importantly, we've seen sequential improvement in this metric over the last couple of quarters and we're focused on continuing that momentum in the years ahead.
Now, I'll turn to our guidance for the fourth quarter. On the top-line, our expectations reflect our continued near-term caution, leading us to maintain our prior guidance for a mid-single-digit decline in Q4 comparable sales. On the bottom-line, we're also maintaining a cautious posture, particularly because the fourth quarter is typically a very promotional season. As such, we're planning a wide range for our fourth quarter EPS of $1.90 to $2.60, which represents approximately flat growth to last year on the low end and growth of about 37% on the high end.
I also want to note that 2023 is a 53-week year. So, the fourth quarter will include an extra week of sales and profits. We estimate that extra week will add about $1.7 billion in sales and result in about 30 basis points of operating margin rate leverage on the quarter. Note that it will not affect our comparable sales as we base that calculation on periods of equal length.
On top of the results, our team has already delivered through Q3, our fourth quarter guidance implies a full year EPS range that's very close to the original guidance range we provided at the beginning of the year, with a midpoint less than $0.05 from the center of the original range. That's an amazing outcome against the backdrop of a tougher-than-expected top-line and it's a testament to the tireless efforts of our team to stay nimble and successfully navigate through a volatile and unpredictable period. In fact, given how strong our profit rate performance has been so far this year, we've been getting some questions about whether we're only focused on increasing our profit rate, and I want to pause and address that question head on.
As John mentioned earlier, coming into this year, we were confident our team would deliver a significant increase in our profit rate by achieving better alignment between our inventory and our sales. In addition, a year ago, we first talked about the significant long-term efficiency opportunities we're pursuing, given that we've grown our revenue to more than $100 billion per year. While that work is still in its early stages, the team has already delivered hundreds of millions of dollars of efficiency savings so far this year, significantly benefiting our profitability.
But I want to make it clear, we are focused on growing profit dollars. And if we saw an opportunity to invest a portion of our current profit rate to gain sustainable long-term growth in dollars, we would gladly do that. Even more fundamentally, our first priority is to deliver long-term top-line growth, because the only way a retailer can sustainably deliver bottom-line growth is by delivering top-line growth as well. At the same time, we're not interested in making any investments that might boost the top-line in the short term, but which wouldn't lead to any sustainable growth. In fact, our experience has shown that many times, those kinds of short-term decisions are actually harmful over time.
So, today, we remain focused on the long-term strategies that have been so successful in driving top-line growth over the last half decade, including our work to enhance our assortment of both owned brands and national brands, our investments in our store assets and our team to deliver a reliable and differentiated shopping experience, investments in new stores and markets we've not previously served and in existing stores to keep them fresh and enhancing our digital experience, beginning with the website and Target app, all the way through to the fulfillment services we provide.
As we pursue those long-term initiatives, we also have opportunity to further grow our operating margin rate in the years ahead, and we don't believe those efforts are incompatible with each other. But more directly, based on where we are today, we believe we can successfully deliver both top-line growth and rate improvement over time.
And as always, the basis for my confidence starts and ends with the Target team. They have delivered unprecedented growth over the last several years. And this year, they've made amazing progress in moving our profitability back toward the optimal level, all while focusing on building and maintaining long-term relationships with our guests. Our team is truly the best team in retail.
Now, I'll turn the call back over to Brian.
