Target Corporation (NYSE:TGT) today reported net earnings of $436
million for the third quarter ended October 31, 2009, compared with $369
million in the third quarter ended November 1, 2008. Earnings per share
in the third quarter increased 18.6 percent to $0.58 from $0.49 in the
same period a year ago. All earnings per share figures refer to diluted
earnings per share.
"We're very pleased with our third quarter earnings performance, which
reflects strong execution and a commitment to continued innovation by
teams throughout the company," said Gregg Steinhafel, chairman,
president and chief executive officer of Target Corporation.
"Profitability in our retail segment during the third quarter was well
above expectations, and credit card segment profitability also improved
due to continued thoughtful portfolio management in a challenging credit
environment. As we look ahead, we remain keenly focused on delighting
our guests with exciting merchandise, exceptional prices and superior
service during the holiday season and believe we are well-positioned to
capture profitable market share."
Retail Segment Results
Sales increased 1.4 percent in the third quarter to $14.8 billion in
2009 from $14.6 billion in 2008, due to the contribution from new store
expansion, partially offset by a 1.6 percent decline in comparable-store
sales. Retail segment earnings before interest expense and income taxes
(EBIT) were $791 million in the third quarter of 2009, a 2.4 percent
increase from $772 million in 2008.
Third quarter gross margin rate increased to 30.8 percent from 30.6
percent in 2008, due to gross margin rate improvements within
categories, partially offset by a smaller-than-expected mix impact of
faster sales growth in non-discretionary lower margin rate categories.
Third quarter selling, general and administrative (SG&A) expense dollars
were up 0.5 percent compared to 2008, as the expense related to
operating additional stores was substantially offset by productivity
improvements. At quarter-end, the company was operating 59 more stores
than a year ago.
Depreciation and amortization was $533 million in the third quarter, up
14.8 percent from $465 million in 2008. More than half of this increase
was driven by the recognition of accelerated depreciation on store
assets that are expected to be replaced as part of the company's 2010
store remodel program.
Credit Card Segment Results
Average credit card receivables in the quarter decreased $547 million,
or 6.3 percent, from the third quarter of 2008, and quarter-end
receivables decreased $717 million, or 8.2 percent, from the same period
a year ago.
Credit card segment profit in the quarter increased to $60 million from
$35 million last year as a result of improved portfolio performance that
more than offset the impact of lower floating interest rates. Target's
pretax return on invested capital (ROIC) from its investment in the
credit card segment increased to 9.0 percent in the third quarter from
4.3 percent in 2008.
Net write-offs in the quarter were $280 million, in line with
expectations. The allowance for doubtful accounts was $1,025 million at
quarter-end, compared with $1,004 million at the end of the second
quarter.
Other Expenses
Net interest expense for the quarter decreased $43 million from third
quarter 2008 to $191 million, reflecting a lower average portfolio
interest rate combined with lower average debt balances.
The company's effective income tax rate for the third quarter was 36.1
percent in 2009, down from 41.7 percent in 2008, primarily due to a
decrease in the amount of reserves recorded for tax uncertainties and a
higher proportion of earnings that are not subject to tax. For the full
year, the company now expects an effective income tax rate in the range
of 36.5 to 37.5 percent.
Fourth Quarter Outlook
In light of the current and projected economic environment and
expectations for a highly promotional holiday season, Target remains
cautious about fourth quarter performance and is planning conservatively
in both business segments.
Miscellaneous
Target Corporation will webcast its third quarter earnings conference
call at 9:30 a.m. CST today. Investors and the media are invited to
listen to the call through the company's website at www.target.com/investors
(click on "webcasts"). A telephone replay of the call will be available
beginning at approximately 11:30 a.m. CST today through the end of
business on November 19, 2009. The replay number is (800) 642-1687
(passcode: 73959981).
The statements on the expected tax rate and fourth quarter outlook are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements speak only as of the date
they are made and are subject to risks and uncertainties which could
cause the company's actual results to differ materially. The most
important risks and uncertainties are described in Item 1A of the
company's Form 10-K for the fiscal year ended January 31, 2009.
Target Corporation's retail segment includes large, general merchandise
and food discount stores, and a fully integrated on-line business called
Target.com. In addition, the company operates a credit card segment that
offers branded proprietary and Visa credit card products. At
quarter-end, the company operated 1,743 Target stores in 49 states.
Target Corporation news releases are available at www.target.com.
TARGET CORPORATION
Consolidated Statements of Operations
Three Months Ended Nine Months Ended
October 31, November 1, October 31, November 1,
(millions, except per share data) 2009 2008 Change 2009 2008 Change
(unaudited) (unaudited) (unaudited) (unaudited)
Sales $ 14,789 $ 14,588 1.4 % $ 43,717 $ 43,861 (0.3 ) %
Credit card revenues 487 526 (7.5 ) 1,459 1,527 (4.5 )
Total revenues 15,276 15,114 1.1 45,176 45,388 (0.5 )
Cost of sales 10,229 10,130 1.0 30,080 30,332 (0.8 )
Selling, general and administrative expenses 3,255 3,245 0.3 9,405 9,436 (0.3 )
Credit card expenses 381 403 (5.5 ) 1,153 1,023 12.7
Depreciation and amortization 537 469 14.5 1,487 1,352 9.9
Earnings before interest expense and income taxes 874 867 0.9 3,051 3,245 (6.0 )
Net interest expense
Nonrecourse debt collateralized by credit card receivables 23 60 (60.6 ) 74 126 (41.4 )
Other interest expense 168 180 (6.8 ) 517 550 (6.1 )
Interest income - (6 ) (96.4 ) (3 ) (24 ) (89.2 )
Net interest expense 191 234 (18.3 ) 588 652 (9.8 )
Earnings before income taxes 683 633 8.0 2,463 2,593 (5.0 )
Provision for income taxes 247 264 (6.5 ) 911 988 (7.7 )
Net earnings $ 436 $ 369 18.4 % $ 1,552 $ 1,605 (3.3 ) %
Basic earnings per share $ 0.58 $ 0.49 18.7 % $ 2.06 $ 2.07 (0.2 ) %
Diluted earnings per share $ 0.58 $ 0.49 18.6 % $ 2.06 $ 2.06 0.0 %
Weighted average common shares outstanding
Basic 751.8 753.5 752.0 776.4
Diluted 755.7 756.6 754.3 780.1
Subject to reclassification
TARGET CORPORATION
Consolidated Statements of Financial Position
October 31, January 31, November 1,
(millions) 2009 2009 2008
Assets (unaudited) (unaudited)
Cash and cash equivalents, including marketable securities of $273, $ 864 $ 864 $ 918
$302 and $397
Credit card receivables, net of allowance of $1,025, $1,010 7,023 8,084 7,999
and $765
Inventory 9,382 6,705 9,050
Other current assets 2,314 1,835 2,272
Total current assets 19,583 17,488 20,239
Property and equipment
Land 5,754 5,767 5,727
Buildings and improvements 22,250 20,430 20,454
Fixtures and equipment 4,732 4,270 4,212
Computer hardware and software 2,599 2,586 2,610
Construction-in-progress 291 1,763 1,320
Accumulated depreciation (10,035 ) (9,060 ) (8,798 )
Property and equipment, net 25,591 25,756 25,525
Other noncurrent assets 805 862 1,277
Total assets $ 45,979 $ 44,106 $ 47,041
Liabilities and shareholders' investment
Accounts payable $ 7,641 $ 6,337 $ 7,590
Accrued and other current liabilities 3,117 2,913 3,057
Unsecured debt and other borrowings 577 1,262 2,849
Nonrecourse debt collateralized by credit card receivables 1,063 - -
Total current liabilities 12,398 10,512 13,496
Unsecured debt and other borrowings 11,432 12,000 11,966
Nonrecourse debt collateralized by credit card receivables 4,463 5,490 5,478
Deferred income taxes 804 455 589
Other noncurrent liabilities 1,911 1,937 1,932
Total noncurrent liabilities 18,610 19,882 19,965
Shareholders' investment
Common stock 63 63 63
Additional paid-in capital 2,866 2,762 2,725
Retained earnings 12,559 11,443 10,967
Accumulated other comprehensive loss (517 ) (556 ) (175 )
Total shareholders' investment 14,971 13,712 13,580
Total liabilities and shareholders' investment $ 45,979 $ 44,106 $ 47,041
Common shares outstanding 752.2 752.7 752.8
Subject to reclassification
TARGET CORPORATION
Consolidated Statements of Cash Flows
Nine Months Ended
October 31, November 1,
(millions) (unaudited) 2009 2008
Operating activities
Net earnings $ 1,552 $ 1,605
Reconciliation to cash flow
Depreciation and amortization 1,487 1,352
Share-based compensation expense 72 43
Deferred income taxes 451 (32 )
Bad debt provision 900 751
Loss on disposal of property and equipment, net 85 33
Other non-cash items affecting earnings 44 165
Changes in operating accounts providing / (requiring) cash
Accounts receivable originated at Target 190 (313 )
Inventory (2,677 ) (2,270 )
Other current assets (251 ) (322 )
Other noncurrent assets 27 5
Accounts payable 1,303 869
Accrued and other current liabilities (148 ) (270 )
Other noncurrent liabilities (8 ) 4
Other - 160
Cash flow provided by operations 3,027 1,780
Investing activities
Expenditures for property and equipment (1,440 ) (2,827 )
Proceeds from disposal of property and equipment 25 26
Change in accounts receivable originated at third parties (29 ) (383 )
Other investments 10 (179 )
Cash flow required for investing activities (1,434 ) (3,363 )
Financing activities
Change in commercial paper, net - 1,382
Reductions of short-term notes payable - (500 )
Additions to long-term debt - 3,557
Reductions of long-term debt (1,255 ) (1,254 )
Dividends paid (369 ) (345 )
Repurchase of stock - (2,815 )
Stock option exercises and related tax benefit 31 34
Other - (8 )
Cash flow (required for)/provided by financing activities (1,593 ) 51
Net increase/(decrease) in cash and cash equivalents - (1,532 )
Cash and cash equivalents at beginning of period 864 2,450
Cash and cash equivalents at end of period $ 864 $ 918
Subject to reclassification
TARGET CORPORATION
Retail Segment
Retail Segment Results Three Months Ended Nine Months Ended
October 31, November 1, October 31, November 1,
(millions) (unaudited) 2009 2008 Change 2009 2008 Change
Sales $ 14,789 $ 14,588 1.4 % $ 43,717 $ 43,861 (0.3 ) %
Cost of sales 10,229 10,130 1.0 30,080 30,332 (0.8 )
Gross margin 4,560 4,458 2.3 13,637 13,529 0.8
SG&A expenses(a) 3,236 3,221 0.5 9,345 9,361 (0.2 )
EBITDA 1,324 1,237 7.1 4,292 4,168 3.0
Depreciation and amortization 533 465 14.8 1,476 1,339 10.2
EBIT $ 791 $ 772 2.4 % $ 2,816 $ 2,829 (0.4 ) %
EBITDA is earnings before interest expense, income taxes,
depreciation and amortization.
EBIT is earnings before interest expense and income taxes.
(a) New account and loyalty rewards redeemed by
our guests reduce reported sales. Our Retail Segment charges the
cost of these discounts to our Credit Card Segment, and the
reimbursements of $19 million and $59 million for the three and nine
months ended October 31, 2009, respectively, and $24 million and $75
million for the three and nine months ended November 1, 2008,
respectively, are recorded as a reduction to SG&A expenses within
the Retail Segment.
Retail Segment Rate Analysis Three Months Ended Nine Months Ended
October 31, November 1, October 31, November 1,
(unaudited) 2009 2008 2009 2008
Gross margin rate 30.8 % 30.6 % 31.2 % 30.8 %
SG&A expense rate 21.9 % 22.1 % 21.4 % 21.3 %
EBITDA margin rate 9.0 % 8.5 % 9.8 % 9.5 %
Depreciation and amortization expense rate 3.6 % 3.2 % 3.4 % 3.1 %
EBIT margin rate 5.3 % 5.3 % 6.4 % 6.4 %
Retail Segment rate analysis metrics are computed by dividing the
applicable amount by sales.
Comparable-Store Sales Three Months Ended Nine Months Ended
October 31, November 1, October 31, November 1,
(unaudited) 2009 2008 2009 2008
Comparable-store sales (1.6 )% (3.3 )% (3.9 )% (1.5 )%
Drivers of changes in comparable-store sales:
Number of transactions 0.6 % (3.6 )% (1.1 )% (2.5 )%
Average transaction amount (2.2 )% 0.3 % (2.8 )% 1.0 %
Units per transaction (1.6 )% (1.5 )% (2.4 )% (1.3 )%
Selling price per unit (0.6 )% 1.8 % (0.4 )% 2.3 %
The comparable-store sales increases or decreases above are
calculated by comparing sales in fiscal year periods with comparable
prior year periods of equivalent length.
Number of Stores and Retail Square Feet Number of Stores Retail Square Feet(a)
October 31, January 31, November 1, October 31, January 31, November 1,
(unaudited) 2009 2009 2008 2009 2009 2008
Target general merchandise stores 1,491 1,443 1,445 187,481 180,321 180,200
SuperTarget stores 252 239 239 44,645 42,267 42,220
Total 1,743 1,682 1,684 232,126 222,588 222,420
(a) In thousands; reflects total square feet,
less office, distribution center and vacant space.
Subject to reclassification
TARGET CORPORATION
Credit Card Segment
Credit Card Segment Results Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
October 31, 2009 November 1, 2008 October 31, 2009 November 1, 2008
Amount Annualized Amount Annualized Amount Annualized Amount Annualized
(millions) (unaudited) (in millions) Rate(d) (in millions) Rate(d) (in millions) Rate(d) (in millions) Rate(d)
Finance charge revenue $ 365 17.8 % $ 366 16.7 % $ 1,097 17.4 % $ 1,060 16.5 %
Late fees and other revenue 92 4.5 123 5.6 270 4.3 352 5.5
Third party merchant fees 30 1.5 37 1.7 92 1.5 115 1.8
Total revenues 487 23.8 526 24.1 1,459 23.1 1,527 23.8
Bad debt expense 301 14.7 314 14.4 900 14.3 751 11.7
Operations and marketing expenses(a) 99 4.8 113 5.2 312 4.9 347 5.4
Depreciation and amortization 4 0.2 4 0.2 11 0.2 13 0.2
Total expenses 404 19.7 431 19.7 1,223 19.4 1,111 17.3
EBIT 83 4.1 95 4.3 236 3.7 416 6.5
Interest expense on nonrecourse debt collateralized by credit card 23 60 74 126
receivables
Segment profit $ 60 $ 35 $ 162 $ 290
Average gross credit card receivables funded by Target(b) $ 2,677 $ 3,272 $ 2,910 $ 4,392
Segment pretax ROIC(c) 9.0 % 4.3 % 7.4 % 8.8 %
(a) New account and loyalty rewards redeemed
by our guests reduce reported sales. Our Retail Segment charges
the cost of these discounts to our Credit Card Segment, and the
reimbursements of $19 million and $59 million for the three and
nine months ended October 31, 2009, respectively, and $24 million
and $75 million for the three and nine months ended November 1,
2008, respectively, are recorded as an increase to operations and
marketing expenses within the Credit Card Segment.
(b) Amounts represent the portion of average
credit card receivables funded by Target. These amounts exclude
$5,520 million and $5,508 million for the three and nine months
ended October 31, 2009, respectively, and $5,473 million and
$4,176 million for the three and nine months ended November 1,
2008, respectively, of receivables funded by nonrecourse debt
collateralized by credit card receivables.
(c) ROIC is return on invested capital, and
this rate represents segment profit divided by average receivables
funded by Target, expressed as an annualized rate.
(d) As an annualized percentage of average
gross credit card receivables.
Spread Analysis - Total Portfolio Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
October 31, 2009 November 1, 2008 October 31, 2009 November 1, 2008
Yield Yield Yield Yield
Amount Annualized Amount Annualized Amount Annualized Amount Annualized
(unaudited) (in millions) Rate (in millions) Rate (in millions) Rate (in millions) Rate
EBIT $ 83 4.1 % (b) $ 95 4.3 % (b) $ 236 3.7 % (b) $ 416 6.5 % (b)
LIBOR(a) 0.3 % 3.1 % 0.3 % 2.8 %
Spread to LIBOR(c) $ 78 3.8 % (b) $ 27 1.2 % (b) $ 213 3.4 % (b) $ 235 3.7 % (b)
(a) Balance-weighted average one-month LIBOR
(b) As a percentage of average gross credit
card receivables.
(c) Spread to LIBOR is a metric used to
analyze the performance of our total credit card portfolio because
the vast majority of our portfolio earns finance charge revenue at
rates tied to the Prime Rate, and the interest rate on all
nonrecourse debt securitized by credit card receivables is tied to
LIBOR.
Receivables Rollforward Analysis Three Months Ended Nine Months Ended
October 31, November 1, October 31, November 1,
(millions) (unaudited) 2009 2008 Change 2009 2008 Change
Beginning gross credit card receivables $ 8,293 $ 8,641 (4.0 ) % $ 9,094 $ 8,624 5.4 %
Charges at Target 799 955 (16.4 ) 2,445 2,923 (16.3 )
Charges at third parties 1,648 2,082 (20.8 ) 5,080 6,488 (21.7 )
Payments (2,870 ) (3,221 ) (10.9 ) (9,071 ) (10,209 ) (11.1 )
Other 178 307 (42.0 ) 500 938 (46.7 )
Period-end gross credit card receivables $ 8,048 $ 8,764 (8.2 ) % $ 8,048 $ 8,764 (8.2 ) %
Average gross credit card receivables $ 8,197 $ 8,745 (6.3 ) % $ 8,418 $ 8,568 (1.7 ) %
Accounts with three or more payments (60+ days) past due as a 6.5 % 5.6 % 6.5 % 5.6 %
percentage of period-end gross credit card receivables
Accounts with four or more payments (90+ days) past due as a 4.6 % 3.8 % 4.6 % 3.8 %
percentage of period-end gross credit card receivables
Allowance for Doubtful Accounts Three Months Ended Nine Months Ended
October 31, November 1, October 31, November 1,
(millions) (unaudited) 2009 2008 Change 2009 2008 Change
Allowance at beginning of period $ 1,004 $ 661 52.0 % $ 1,010 $ 570 77.1 %
Bad debt provision 301 314 (4.3 ) 900 751 19.9
Net write-offs(a) (280 ) (210 ) 33.4 (885 ) (556 ) 59.2
Allowance at end of period $ 1,025 $ 765 33.9 % $ 1,025 $ 765 33.9 %
As a percentage of period-end gross credit card receivables 12.7 % 8.7 % 12.7 % 8.7 %
Net write-offs as a percentage of average gross credit card 13.7 % 9.6 % 14.0 % 8.7 %
receivables (annualized)
(a) Net write-offs include the principal
amount of losses (excluding accrued and unpaid finance charges)
less current period principal recoveries.
Subject to reclassification
SOURCE: Target Corporation
Target Corporation
John Hulbert, 612-761-6627 (Investors)
or
Eric Hausman, 612-761-2054 (Financial Media)
