Target Corporation (NYSE:TGT) today reported net earnings of $679
million for the quarter ended July 31, 2010, compared with $594 million
in the quarter ended August 1, 2009. Earnings per share in the second
quarter increased 17.0 percent to 92 cents from 79 cents in the same
period a year ago. All earnings per share figures refer to diluted
earnings per share.
“Our retail segment generated strong profitability, overcoming
softer-than-expected sales”
Our retail segment generated strong profitability, overcoming
softer-than-expected sales, said Gregg Steinhafel, chairman, president
and chief executive officer of Target Corporation. Growth in guest
traffic and apparel sales remained robust, and teams across the company
continued to exercise thoughtful control of expenses. Our credit card
segment also enjoyed very strong results, as disciplined underwriting,
superb execution and improving risk trends caused a sharp reduction in
bad debt expense compared with last year. Regardless of the pace of
recovery, we are well-positioned to continue to gain profitable market
share.
Retail Segment Results
Sales increased 3.8 percent in the
second quarter to $15.1 billion in 2010 from $14.6 billion in 2009, due
to the contribution from new stores combined with a 1.7 percent increase
in comparable-store sales. Retail segment earnings before interest
expense and income taxes (EBIT) were $1,096 million in the second
quarter of 2010, an increase of 3.1 percent from $1,064 million in 2009.
Second quarter EBITDA and EBIT margin rates were 10.5 percent and 7.2
percent, respectively, compared with 10.6 percent and 7.3 percent in
2009. These changes were the result of slight changes in the gross
margin rate, selling, general and administrative (SG&A) expense rate,
and the depreciation and amortization (D&A) expense rate.
Second quarter gross margin rate was 32.0 percent, up from 31.9 percent
in 2009. The impact of sales mix on gross margin rate was essentially
neutral, as sales increased at a similar pace in both higher-margin and
lower-margin categories.
Second quarter SG&A expense rate was 21.5 percent, up from 21.4 percent
in 2009.
Credit Card Segment Results
Second quarter segment profit
increased to $149 million from $63 million a year ago, as bad debt
expense declined 54.5 percent from $303 million in second quarter 2009
to $138 million this year.
Second quarter average receivables decreased 15.1 percent to $7.1
billion in 2010 from $8.4 billion in 2009. Average receivables directly
funded by Target increased in the second quarter to $3.0 billion from
$2.9 billion in 2009.
Annualized segment pre-tax return on invested capital was 20.2 percent
in the second quarter 2010, compared with 8.8 percent a year ago.
Interest Expense and Taxes
Net interest expense for the
quarter decreased $9 million from second quarter 2009, driven by lower
average debt balances partially offset by a higher average portfolio
interest rate.
The companys effective income tax rate for the second quarter was 37.2
percent in 2010, down from 37.9 percent in 2009.
Share Repurchase
In the second quarter, under the share
repurchase program originally announced in November 2007 and resumed in
January 2010, the company repurchased 17.5 million shares of its common
stock at an average price of $51.72, for a total investment of $907
million.
Program-to-date through the end of the second quarter, the company has
acquired 128.6 million shares of its common stock at an average price
per share of $51.46, reflecting a total investment of $6.6 billion.
Miscellaneous
Target Corporation will webcast its second
quarter earnings conference call at 9:30am CDT today. Investors and the
media are invited to listen to the call through the companys website at www.target.com/investors
(click on events + presentations and then archives + webcasts). A
telephone replay of the call will be available beginning at
approximately 11:30am CDT today through the end of business on August
20, 2010. The replay number is (800) 642-1687 (passcode: 49644107).
Target Corporations retail segment includes large general merchandise
and food discount stores and Target.com, a fully integrated on-line
business. In addition, the company operates a credit card segment that
offers branded proprietary credit card products. The company currently
operates 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
Six Months Ended
July 31,
August 1,
July 31,
August 1,
(millions, except per share data)
2010
2009
Change
2010
2009
Change
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Sales
$
15,126
$
14,567
3.8
%
$
30,283
$
28,928
4.7
%
Credit card revenues
406
500
(18.8
)
841
972
(13.6
)
Total revenues
15,532
15,067
3.1
31,124
29,900
4.1
Cost of sales
10,293
9,914
3.8
20,705
19,851
4.3
Selling, general and administrative expenses
3,263
3,136
4.0
6,405
6,150
4.1
Credit card expenses
214
388
(44.8
)
494
772
(36.0
)
Depreciation and amortization
496
478
3.7
1,012
950
6.5
Earnings before interest expense and income taxes
1,266
1,151
10.0
2,508
2,177
15.2
Net interest expense
Nonrecourse debt collateralized
by credit card receivables
21
24
(14.0
)
44
51
(13.3
)
Other interest expense
165
171
(3.5
)
330
348
(5.3
)
Interest income
(1
)
(1
)
(50.4
)
(1
)
(2
)
(53.6
)
Net interest expense
185
194
(4.6
)
373
397
(6.0
)
Earnings before income taxes
1,081
957
13.0
2,135
1,780
19.9
Provision for income taxes
402
363
10.9
785
664
18.2
Net earnings
$
679
$
594
14.3
%
$
1,350
$
1,116
21.0
%
Basic earnings per share
$
0.93
$
0.79
17.6
%
$
1.84
$
1.48
23.7
%
Diluted earnings per share
$
0.92
$
0.79
17.0
%
$
1.82
$
1.48
23.1
%
Weighted average common shares outstanding
Basic
731.1
752.0
735.5
752.1
Diluted
736.6
754.4
741.1
754.2
Subject to reclassification
TARGET CORPORATION
Consolidated Statements of Financial Position
July 31,
January 30,
August 1,
(millions)
2010
2010
2009
Assets
(unaudited)
(unaudited)
Cash and cash equivalents, including marketable securities of $972,
$1,617 and $385
$
1,540
$
2,200
$
957
Credit card receivables, net of allowance of $851, $1,016 and
$1,004
6,137
6,966
7,288
Inventory
7,728
7,179
7,528
Other current assets
1,840
2,079
1,910
Total current assets
17,245
18,424
17,683
Property and equipment
Land
5,845
5,793
5,726
Buildings and improvements
22,568
22,152
21,530
Fixtures and equipment
4,602
4,743
4,481
Computer hardware and software
2,432
2,575
2,540
Construction-in-progress
772
502
978
Accumulated depreciation
(10,818
)
(10,485
)
(9,543
)
Property and equipment, net
25,401
25,280
25,712
Other noncurrent assets
1,009
829
838
Total assets
$
43,655
$
44,533
$
44,233
Liabilities and shareholders investment
Accounts payable
$
6,228
$
6,511
$
6,233
Accrued and other current liabilities
3,057
3,120
3,004
Unsecured debt and other borrowings
782
796
517
Nonrecourse debt collateralized by credit card receivables
33
900
56
Total current liabilities
10,100
11,327
9,810
Unsecured debt and other borrowings
11,693
10,643
11,983
Nonrecourse debt collateralized by credit card receivables
4,044
4,475
5,458
Deferred income taxes
740
835
494
Other noncurrent liabilities
1,810
1,906
1,886
Total noncurrent liabilities
18,287
17,859
19,821
Shareholders investment
Common stock
60
62
63
Additional paid-in capital
3,085
2,919
2,822
Retained earnings
12,690
12,947
12,266
Accumulated other comprehensive loss
(567
)
(581
)
(549
)
Total shareholders investment
15,268
15,347
14,602
Total liabilities and shareholders investment
$
43,655
$
44,533
$
44,233
Common shares outstanding
722.6
744.6
751.9
Subject to reclassification
TARGET CORPORATION
Consolidated Statements of Cash Flows
Six Months Ended
July 31,
August 1,
(millions)
2010
2009
Operating activities
(unaudited)
(unaudited)
Net earnings
$
1,350
$
1,116
Reconciliation to cash flow
Depreciation and amortization
1,012
950
Share-based compensation expense
52
48
Deferred income taxes
148
64
Bad debt expense
335
600
Loss/impairment of property and equipment, net
10
74
Other non-cash items affecting earnings
75
28
Changes in operating accounts providing/(requiring) cash
Accounts receivable originated at Target
241
154
Inventory
(549
)
(823
)
Other current assets
(76
)
(59
)
Other noncurrent assets
(106
)
19
Accounts payable
(283
)
(103
)
Accrued and other current liabilities
(247
)
30
Other noncurrent liabilities
(134
)
(47
)
Cash flow provided by operations
1,828
2,051
Investing activities
Expenditures for property and equipment
(991
)
(1,042
)
Proceeds from disposal of property and equipment
32
24
Change in accounts receivable originated at third parties
254
42
Other investments
(20
)
4
Cash flow required for investing activities
(725
)
(972
)
Financing activities
Reductions of short-term notes payable
Additions to long-term debt
997
Reductions of long-term debt
(1,339
)
(754
)
Dividends paid
(252
)
(241
)
Repurchase of stock
(1,285
)
Stock option exercises and related tax benefit
116
9
Cash flow provided by/(required for) financing activities
(1,763
)
(986
)
Net increase/(decrease) in cash and cash equivalents
(660
)
93
Cash and cash equivalents at beginning of period
2,200
864
Cash and cash equivalents at end of period
$
1,540
$
957
Subject to reclassification
TARGET CORPORATION
Retail Segment
Retail Segment Results
Three Months Ended
Six Months Ended
July 31,
August 1,
July 31,
August 1,
(millions) (unaudited)
2010
2009
Change
2010
2009
Change
Sales
$
15,126
$
14,567
3.8
%
$
30,283
$
28,928
4.7
%
Cost of sales
10,293
9,914
3.8
20,705
19,851
4.3
Gross margin
4,833
4,653
3.9
9,578
9,077
5.5
SG&A expenses(a)
3,246
3,115
4.2
6,370
6,109
4.3
EBITDA
1,587
1,538
3.2
3,208
2,968
8.1
Depreciation and amortization
491
474
3.5
1,003
942
6.4
EBIT
$
1,096
$
1,064
3.1
%
$
2,205
$
2,026
8.9
%
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 $17 million and $34 million for
the three and six months ended
July 31, 2010,
respectively, and $21 million and $41 million for the three and
six months ended August 1, 2009, respectively, are
recorded
as a reduction to SG&A expenses within the Retail Segment.
Retail Segment Rate Analysis
Three Months Ended
Six Months Ended
July 31,
August 1,
July 31,
August 1,
(unaudited)
2010
2009
2010
2009
Gross margin rate
32.0%
31.9%
31.6%
31.4%
SG&A expense rate
21.5%
21.4%
21.0%
21.1%
EBITDA margin rate
10.5%
10.6%
10.6%
10.3%
Depreciation and amortization expense rate
3.2%
3.3%
3.3%
3.3%
EBIT margin rate
7.2%
7.3%
7.3%
7.0%
Retail Segment rate analysis metrics are computed by dividing the
applicable amount by sales.
Comparable-Store Sales
Three Months Ended
Six Months Ended
July 31,
August 1,
July 31,
August 1,
(unaudited)
2010
2009
2010
2009
Comparable-store sales
1.7%
(6.2)%
2.2%
(5.0)%
Drivers of changes in comparable-store sales:
Number of transactions
2.4%
(2.6)%
2.3%
(1.9)%
Average transaction amount
(0.8)%
(3.7)%
(0.1)%
(3.1)%
Units per transaction
2.0%
(2.6)%
1.6%
(2.9)%
Selling price per unit
(2.7)%
(1.2)%
(1.7)%
(0.2)%
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)
July 31,
January 30,
August 1,
July 31,
January 30,
August 1,
(unaudited)
2010
2010
2009
2010
2010
2009
Target general merchandise stores
1,492
1,489
1,472
187,971
187,449
184,663
SuperTarget stores
251
251
247
44,504
44,492
43,739
Total
1,743
1,740
1,719
232,475
231,941
228,402
(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
Six Months Ended
Six Months Ended
July 31, 2010
August 1, 2009
July 31, 2010
August 1, 2009
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
$
324
18.3
%
$
377
18.1
%
$
674
18.4
%
$
732
17.2
%
Late fees and other revenue
54
3.0
91
4.3
113
3.1
178
4.2
Third party merchant fees
28
1.6
32
1.5
54
1.5
62
1.5
Total revenues
406
22.9
500
23.9
841
23.0
972
22.8
Bad debt expense
138
7.8
303
14.5
335
9.2
600
14.1
Operations and marketing expenses(a)
93
5.2
106
5.0
193
5.3
213
5.0
Depreciation and amortization
5
0.3
4
0.2
9
0.2
7
0.2
Total expenses
236
13.3
413
19.7
537
14.7
820
19.2
EBIT
170
9.6
87
4.2
304
8.3
152
3.6
Interest expense on nonrecourse debt collateralized by credit card
receivables
21
24
44
51
Segment profit
$
149
$
63
$
260
$
101
Average gross credit card receivables funded by Target(b)
$
2,950
$
2,853
$
2,656
$
3,027
Segment pretax ROIC(c)
20.2
%
8.8
%
19.6
%
6.7
%
(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 $17 million and $34 million for the three and
six months ended July 31, 2010, respectively, and $21 million and
$41 million for the three and six months ended August 1, 2009,
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 $4,148 million
and $4,667 million for the three and six months ended July 31, 2010,
respectively, and $5,508 million and $5,502 million for the three
and six months ended August 1, 2009, 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
Six Months Ended
Six Months Ended
July 31, 2010
August 1, 2009
July 31, 2010
August 1, 2009
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
$
170
9.6
%
(b)
$
87
4.2
%
(b)
$
304
8.3
%
(b)
$
152
3.6
%
(b)
LIBOR(a)
0.3
%
0.3
%
0.3
%
0.4
%
Spread to LIBOR(c)
$
164
9.3
%
(b)
$
81
3.9
%
(b)
$
293
8.0
%
(b)
$
135
3.2
%
(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
Six Months Ended
July 31,
August 1,
July 31,
August 1,
(millions) (unaudited)
2010
2009
Change
2010
2009
Change
Beginning gross credit card receivables
$
7,260
$
8,457
(14.2
)
%
$
7,982
$
9,094
(12.2
)
%
Charges at Target
765
843
(9.2
)
1,484
1,646
(9.9
)
Charges at third parties
1,522
1,768
(13.9
)
2,948
3,432
(14.1
)
Payments
(2,717
)
(2,940
)
(7.6
)
(5,706
)
(6,201
)
(8.0
)
Other
158
165
(4.7
)
280
322
(13.1
)
Period-end gross credit card receivables
$
6,988
$
8,293
(15.7
)
%
$
6,988
$
8,293
(15.7
)
%
Average gross credit card receivables
$
7,098
$
8,361
(15.1
)
%
$
7,323
$
8,529
(14.1
)
%
Accounts with three or more payments (60+ days) past due as a
percentage of period-end gross credit card receivables
5.0
%
5.8
%
5.0
%
5.8
%
Accounts with four or more payments (90+ days) past due as a
percentage of period-end gross credit card receivables
3.5
%
4.1
%
3.5
%
4.1
%
Credit card penetration(a)
5.1
%
5.8
%
4.9
%
5.7
%
(a) Represents charges at Target (including
sales taxes and gift cards) divided by sales (which excludes sales
taxes and gift cards).
Allowance for Doubtful Accounts
Three Months Ended
Six Months Ended
July 31,
August 1,
July 31,
August 1,
(millions) (unaudited)
2010
2009
Change
2010
2009
Change
Allowance at beginning of period
$
930
$
1,005
(7.5
)
%
$
1,016
$
1,010
0.6
%
Bad debt provision
138
303
(54.5
)
335
600
(44.1
)
Net write-offs(a)
(217
)
(304
)
(28.7
)
(500
)
(606
)
(17.4
)
Allowance at end of period
$
851
$
1,004
(15.3
)
%
$
851
$
1,004
(15.3
)
%
As a percentage of period-end gross credit card receivables
12.2
%
12.1
%
12.2
%
12.1
%
Net write-offs as a percentage of average gross credit card
receivables (annualized)
12.2
%
14.5
%
13.7
%
14.2
%
(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: Business Wire