MINNEAPOLIS--(BUSINESS WIRE)--Aug. 19, 2008--Target Corporation
(NYSE:TGT) today reported net earnings of $634 million for the second
quarter ended August 2, 2008, compared with $686 million in the second
quarter ended August 4, 2007. Earnings per share in the second quarter
increased 2.4 percent to $0.82 from $0.80 in the same period a year
ago. All earnings per share figures refer to diluted earnings per
share.
"Our second quarter earnings per share modestly exceeded our
expectations despite continued soft sales trends," said Gregg
Steinhafel, president and chief executive officer. "We continue to
focus on driving our financial results through superior execution and
discipline and by continuing to delight our guests with differentiated
merchandise at a compelling value."
Retail Segment Results
Sales grew 5.7 percent in the second quarter to $15.0 billion in
2008 from $14.2 billion in 2007, due to the contribution from new
store expansion slightly offset by a 0.4 percent decline in comparable
store sales. Retail segment earnings before interest expense and
income taxes (EBIT) were $1.1 billion in the second quarter of 2008,
up 7.2 percent from $1.0 billion in 2007.
Second quarter gross margin rate declined moderately from last
year, driven by faster sales growth in lower margin rate categories,
partially offset by increased margin rates within categories. Second
quarter selling, general and administrative (SG&A) expense rate
improved meaningfully from 2007, benefiting from continued
productivity gains in stores, and disciplined control of expenses
across the company.
Credit Card Segment Results
The average receivables directly funded by Target in the second
quarter declined 19.8 percent to $3.6 billion from $4.5 billion a year
ago, reflecting the impact of JPMorgan Chase's investment in the
receivables portfolio, partially offset by a $1.8 billion increase in
average receivables.
Segment profitability in the quarter declined 65 percent to $74
million from $213 million in the same period a year ago, as a result
of a decline in overall portfolio yield, combined with Target's
reduced investment in the portfolio. This yield decline is
attributable to higher bad debt expense resulting from an increase in
current period write-offs combined with additions to the reserve for
future periods, as well as the impact on portfolio yields of lower
interest rates.
Second quarter segment pre-tax return on invested capital declined
to 8.2 percent in 2008 from a quarterly record 18.8 percent in 2007.
Interest Expense and Taxes
Net interest expense for the quarter increased $63 million from
second quarter 2007, due to higher average debt balances supporting
capital investment, share repurchase and the receivables portfolio,
slightly offset by lower average debt portfolio interest rates. Over
the past four quarters, the company has invested $4.0 billion in
capital expenditures, $4.9 billion in share repurchase and grown its
investment in accounts receivable by $1.7 billion.
The company's effective income tax rate for the second quarter was
36.8 percent in 2008, down from 38.4 percent in 2007, due in part to
favorable resolution during the quarter of specific tax uncertainties.
For the full year, the company expects an effective income tax rate in
the range of 37.5 to 38.0 percent.
Share Repurchase
In the second quarter, under the share repurchase program
announced in November 2007, the company repurchased approximately 33.8
million shares of its common stock at an average price of $49.30, for
a total investment of $1.7 billion.
Program-to-date through the end of the second quarter, the company
has acquired approximately 90.8 million shares of its common stock at
an average price per share of $51.61, reflecting a total investment of
approximately $4.7 billion. The company expects to complete the
program by the end of 2010 or sooner, and has nearly attained its
previously stated expectation to complete half or more of the $10
billion authorization by the end of 2008.
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 company's website at
www.target.com/investors (click on "webcasts"). A telephone replay of
the call will be available beginning at approximately 11:30am CDT
today through the end of business on August 21, 2008. The replay
number is (800) 642-1687 (passcode: 7389853).
Forward-looking statements in this release, including expectations
for effective tax rate and timing to complete the new share repurchase
program, should be read in conjunction with the cautionary statements
in Exhibit (99)A to the company's first quarter 2008 Form 10-Q.
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. The company currently operates 1,648 Target stores in 47
states.
Target Corporation news releases are available at www.target.com.
TARGET CORPORATION
Consolidated Statements of Operations
----------------------------------------------------------------------
Three Months Ended Six Months Ended
(millions, except ------------------------ ------------------
per share Aug 2, Aug 4, Aug 2, Aug 4,
data)(unaudited) 2008 2007 Change 2008 2007 Change
----------------------------------------------------------------------
Sales $14,971 $14,167 5.7 % $29,273 $27,790 5.3 %
Credit card
revenues 501 453 10.4 1,001 871 14.9
----------------------------------------------------------------------
Total revenues 15,472 14,620 5.8 30,274 28,661 5.6
Cost of sales 10,304 9,696 6.3 20,202 19,112 5.7
Selling, general
and administrative
expenses 3,153 3,071 2.7 6,190 5,934 4.3
Credit card
expenses 347 182 90.9 620 351 76.5
Depreciation and
amortization 448 404 11.0 884 796 11.1
----------------------------------------------------------------------
Earnings before
interest expense
and income taxes 1,220 1,267 (3.8) 2,378 2,468 (3.6)
Interest expense,
net
Nonrecourse debt
collateralized
by credit card
receivables 48 30 59.3 67 57 18.0
Other interest
expense 179 125 43.0 369 237 55.9
Interest income (10) (1) 682.4 (19) (4) 429.5
----------------------------------------------------------------------
Net interest
expense 217 154 40.8 417 290 44.0
----------------------------------------------------------------------
Earnings before
income taxes 1,003 1,113 (9.9) 1,961 2,178 (10.0)
Provision for
income taxes 369 427 (13.6) 724 841 (13.9)
----------------------------------------------------------------------
Net earnings $ 634 $ 686 (7.6)% $ 1,237 $ 1,337 (7.5)%
----------------------------------------------------------------------
Basic earnings per
share $ 0.82 $ 0.81 2.1 % $ 1.57 $ 1.57 0.2 %
----------------------------------------------------------------------
Diluted earnings
per share $ 0.82 $ 0.80 2.4 % $ 1.56 $ 1.55 0.4 %
----------------------------------------------------------------------
Weighted average common
shares outstanding
Basic 770.3 850.8 787.9 853.4
Diluted 773.9 857.4 791.8 860.1
----------------------------------------------------------------------
Subject to reclassification
TARGET CORPORATION
Consolidated Statements of Financial Position
----------------------------------------------------------------------
Aug 2, Feb 2, Aug 4,
(millions) (unaudited) 2008 2008 2007
----------------------------------------------------------------------
Assets
Cash and cash equivalents $ 1,527 $ 2,450 $ 555
Credit card receivables, net of allowance
of $661, $570 and $509 7,980 8,054 6,397
Inventory 7,313 6,780 6,645
Other current assets 1,800 1,622 1,535
----------------------------------------------------------------------
Total current assets 18,620 18,906 15,132
Property and equipment
Land 5,687 5,522 5,239
Buildings and improvements 19,511 18,329 16,483
Fixtures and equipment 4,031 3,858 3,516
Computer hardware and software 2,498 2,421 2,209
Construction-in-progress 1,851 1,852 2,848
Accumulated depreciation (8,426) (7,887) (7,268)
----------------------------------------------------------------------
Property and equipment, net 25,152 24,095 23,027
Other noncurrent assets 1,368 1,559 1,307
----------------------------------------------------------------------
Total assets $45,140 $44,560 $39,466
----------------------------------------------------------------------
Liabilities and shareholders' investment
Accounts payable $ 6,606 $ 6,721 $ 6,101
Accrued and other current liabilities 3,030 3,097 2,761
Unsecured debt and other borrowings 1,723 1,464 2,160
Nonrecourse debt collateralized by credit
card receivables - 500 -
----------------------------------------------------------------------
Total current liabilities 11,359 11,782 11,022
Unsecured debt and other borrowings 12,465 13,226 8,252
Nonrecourse debt collateralized by credit
card receivables 5,467 1,900 1,900
Deferred income taxes 534 470 408
Other noncurrent liabilities 1,858 1,875 1,930
----------------------------------------------------------------------
Total noncurrent liabilities 20,324 17,471 12,490
Shareholders' investment
Common stock 63 68 71
Additional paid-in capital 2,707 2,656 2,610
Retained earnings 10,861 12,761 13,451
Accumulated other comprehensive loss (174) (178) (178)
----------------------------------------------------------------------
Total shareholders' investment 13,457 15,307 15,954
----------------------------------------------------------------------
Total liabilities and shareholders'
investment $45,140 $44,560 $39,466
----------------------------------------------------------------------
Common shares outstanding 755.0 818.7 847.8
----------------------------------------------------------------------
Subject to reclassification
TARGET CORPORATION
Consolidated Statements of Cash Flows
----------------------------------------------------------------------
Six Months Ended
-----------------
Aug 2, Aug 4,
(millions) (unaudited) 2008 2007
----------------------------------------------------------------------
Operating activities
Net earnings $ 1,237 $ 1,337
Reconciliation to cash flow
Depreciation and amortization 884 796
Share-based compensation expense 37 42
Deferred income taxes 14 (65)
Bad debt provision 437 182
Loss on disposal of property and equipment, net 24 35
Other non-cash items affecting earnings 106 61
Changes in operating accounts providing /
(requiring) cash:
Accounts receivable originated at Target (150) (64)
Inventory (533) (391)
Other current assets (104) (125)
Other noncurrent assets (17) (12)
Accounts payable (115) (475)
Accrued and other current liabilities (179) (161)
Other noncurrent liabilities (47) 43
Other 160 -
----------------------------------------------------------------------
Cash flow provided by operations 1,754 1,203
----------------------------------------------------------------------
Investing activities
Expenditures for property and equipment (1,956) (2,363)
Proceeds from disposal of property and equipment 17 16
Change in accounts receivable originated at third
parties (213) (321)
Other (53) (69)
----------------------------------------------------------------------
Cash flow required for investing activities (2,205) (2,737)
----------------------------------------------------------------------
Financing activities
Change in commercial paper, net - 1,586
Reductions of short-term notes payable (500) -
Additions to long-term debt 3,557 1,900
Reductions of long-term debt (503) (1,253)
Dividends paid (224) (205)
Repurchase of stock (2,815) (940)
Stock option exercises and related tax benefit 21 195
Other (8) (7)
----------------------------------------------------------------------
Cash flow (required for) / provided by financing
activities (472) 1,276
----------------------------------------------------------------------
Net decrease in cash and cash equivalents (923) (258)
Cash and cash equivalents at beginning of period 2,450 813
----------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,527 $ 555
----------------------------------------------------------------------
Subject to reclassification
TARGET CORPORATION
Retail Segment
----------------------------------------------------------------------
Retail Segment Three Months Ended Six Months Ended
Results
------------------ ----------------
Aug 2, Aug 4, Aug 2, Aug 4,
(millions) Change Change
(unaudited) 2008 2007 2008 2007
----------------------------------------------------------------------
Sales 14,971 $14,167 5.7% $29,273 $27,790 5.3%
Cost of sales 10,304 9,696 6.3 20,202 19,112 5.7
----------------------------------------------------------------------
Gross margin 4,667 4,471 4.4 9,071 8,678 4.5
SG&A expenses (a) 3,126 3,046 2.6 6,139 5,885 4.3
----------------------------------------------------------------------
EBITDA 1,541 1,425 8.2 2,932 2,793 5.0
Depreciation and
amortization 443 401 10.8 876 788 11.1
----------------------------------------------------------------------
EBIT $ 1,098 $ 1,024 7.2% $ 2,056 $ 2,005 2.6%
----------------------------------------------------------------------
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 $27
million and $51 million for the three and six months ended August, 2
2008, respectively, and $25 million and $49 million for the three and
six months ended August 4, 2007, respectively, are recorded as a
reduction to SG&A expenses within the Retail Segment.
----------------------------------------------------------------------
Retail Segment Rate Analysis Three Months Ended Six Months Ended
------------------ ----------------
Aug 2, Aug 4, Aug 2, Aug 4,
(unaudited) 2008 2007 2008 2007
----------------------------------------------------------------------
Gross margin rate 31.2% 31.6% 31.0% 31.2%
SG&A expense rate 20.9% 21.5% 21.0% 21.2%
EBITDA margin rate 10.3% 10.1% 10.0% 10.0%
Depreciation and amortization
expense rate 3.0% 2.8% 3.0% 2.8%
EBIT margin rate 7.3% 7.2% 7.0% 7.2%
----------------------------------------------------------------------
----------------------------------------------------------------------
Comparable-Store Sales Three Months Ended Six Months Ended
------------------ ----------------
Aug 2, Aug 4, Aug 2, Aug 4,
(unaudited) 2008 2007 2008 2007
----------------------------------------------------------------------
Comparable-store sales (0.4)% 4.9% (0.6)% 4.6%
----------------------------------------------------------------------
Comparable-store sales increases or decreases are calculated by
comparing sales in current year periods with comparable, prior
fiscal-year periods of equivalent length. The method of calculating
comparable-store sales varies across the retail industry.
----------------------------------------------------------------------
Number of Stores and Retail Number of Stores Retail Square Feet (b)
Square Feet
---------------- ----------------------
Aug 2, Aug 4, Aug 2, Aug 4,
(unaudited) 2008 2007 2008 2007 Change
----------------------------------------------------------------------
Target general merchandise
stores 1,417 1,345 176,171 165,672 6.3%
SuperTarget stores 231 192 40,828 33,890 20.5%
----------------------------------------------------------------------
Total 1,648 1,537 216,999 199,562 8.7%
----------------------------------------------------------------------
(b) In thousands; reflects total square feet, less office,
distribution center and vacant space.
Subject to reclassification
TARGET
CORPORATION
Credit Card
Segment
----------------------------------------------------------------------
Credit Card Three Months Ended Six Months Ended
Segment Results
------------------- -----------------
Aug 2, Aug 4, Aug 2, Aug 4,
(millions) Change Change
(unaudited) 2008 2007 2008 2007
----------------------------------------------------------------------
Finance charge
revenue $ 340 $ 305 11.3 % $ 694 $ 601 15.5 %
Late fees and
other revenue 121 109 10.4 229 197 15.8
Third party
merchant fees 40 39 3.3 78 73 8.0
----------------------------------------------------------------------
Total
revenues 501 453 10.4 1,001 871 14.9
----------------------------------------------------------------------
Bad debt
expense 256 95 168.9 437 182 140.3
Operations and
marketing
expenses (a) 118 112 5.9 234 218 7.3
Depreciation
and
amortization 5 3 4.1 8 8 8.9
----------------------------------------------------------------------
Total
expenses 379 210 79.5 679 408 66.5
----------------------------------------------------------------------
EBIT 122 243 (49.5) 322 463 (30.6)
Interest expense
on nonrecourse
debt
collateralized
by credit
card
receivables 48 30 59.2 67 57 17.9
----------------------------------------------------------------------
Segment
profitability $ 74 $ 213 (65.0)% $ 255 $ 406 (37.3)%
----------------------------------------------------------------------
Average
receivables
funded by Target
(b) $3,636 $4,534 $4,952 $4,648
Segment pretax
ROIC (c) 8.2% 18.8% 10.3% 17.5%
----------------------------------------------------------------------
(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 $27
million and $51 million for the three and six months ended August, 2
2008, respectively, and $25 million and $49 million for the three and
six months ended August 4, 2007, 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 $4,875 million and $3,528
million for the three and six months ended August 2, 2008,
respectively, and $2,184 million and $2,022 million for the three and
six months ended August 4, 2007, respectively, of receivables funded
by nonrecourse debt collateralized by credit card receivables.
(c) ROIC is return on invested capital, and this rate represents
segment profitability divided by average receivables funded by
Target, expressed as an annualized rate.
----------------------------------------------------------------------
Spread Analysis - Total Portfolio
Three Months Ended Three Months Ended
Aug 2, 2008 Aug 4, 2007
------------------------ ------------------------
Yield Yield
------------------------ ------------------------
Amount Annualized Amount Annualized
(unaudited) (in millions) Rate (in millions) Rate
----------------------------------------------------------------------
EBIT $122 5.8%(b) $243 14.5%(b)
LIBOR (a) 2.5% 5.3%
Spread to
LIBOR(c) $ 70 3.3%(b) $154 9.2%(b)
----------------------------------------------------------------------
Six Months Ended Six Months Ended
Aug 2, 2008 Aug 4, 2007
------------------------ ------------------------
Yield Yield
------------------------ ---------------------------
Amount Annualized Amount Annualized
(unaudited) (in millions) Rate (in millions) Rate
----------------------------------------------------------------------
EBIT $322 7.6%(b) $463 13.9%(b)
LIBOR (a) 2.7% 5.3%
Spread to
LIBOR(c) $208 4.9%(b) $286 8.6%(b)
----------------------------------------------------------------------
(a) Balance-weighted average one-month LIBOR rate
(b) As a percentage of average 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 Three Months Ended Six Months Ended
Rollforward
Analysis
------------------ -----------------
Aug 2, Aug 4, Aug 2, Aug 4,
(millions) Change Change
(unaudited) 2008 2007 2008 2007
----------------------------------------------------------------------
Beginning
receivables $ 8,420 $ 6,510 29.3 % $ 8,624 $ 6,711 28.5 %
Charges at Target 1,021 1,049 (2.6) 1,968 1,991 (1.2)
Charges at third
parties 2,258 2,202 2.5 4,406 4,091 7.7
Payments (3,358) (3,205) 4.8 (6,988) (6,549) 6.7
Other 300 350 (14.2) 631 662 (4.6)
----------------------------------------------------------------------
Period-end
receivables $ 8,641 $ 6,906 25.1 % $ 8,641 $ 6,906 25.1 %
----------------------------------------------------------------------
Average
receivables $ 8,511 $ 6,718 26.7 % $ 8,479 $ 6,670 27.1 %
----------------------------------------------------------------------
Accounts with
three or more
payments (60+
days) past due as
a percentage of
period-end
receivables 4.5% 3.5% 4.5% 3.5%
----------------------------------------------------------------------
Accounts with four
or more payments
(90+ days) past
due as a
percentage of
period-end
receivables 3.1% 2.3% 3.1% 2.3%
----------------------------------------------------------------------
----------------------------------------------------------------------
Allowance for Three Months Ended Six Months Ended
Doubtful Accounts
------------------ -----------------
Aug 2, Aug 4, Aug 2, Aug 4,
(millions) Change Change
(unaudited) 2008 2007 2008 2007
----------------------------------------------------------------------
Allowance at
beginning of
period $ 590 $ 504 17.2 % $ 570 $ 517 10.4 %
Bad debt provision 256 95 168.9 437 182 140.3
Net write-offs (185) (90) 106.2 (346) (190) 82.8
----------------------------------------------------------------------
Allowance at end
of period $ 661 $ 509 29.8 % $ 661 $ 509 29.8 %
----------------------------------------------------------------------
As a percentage of
period-end
receivables 7.6% 7.4% 7.6% 7.4%
----------------------------------------------------------------------
Net write-offs
as a percentage
of average
receivables
(annualized) 8.7% 5.4% 8.2% 5.7%
----------------------------------------------------------------------
Subject to reclassification
CONTACT: Target Corporation
Investors:
John Hulbert, 612-761-6627
or
Financial Media:
Lena Michaud, 612-761-6796
SOURCE: Target Corporation Target Corporation
