Target Corporation Third Quarter Earnings Per Share $0.30
MINNEAPOLIS, Nov. 14 /PRNewswire-FirstCall/ --Target Corporation (NYSE: TGT) today reported earnings per share for the third quarter ended November 2, 2002 of 30 cents, compared with 25 cents before an unusual item in the third quarter ended November 3, 2001. The unusual item in the prior year's quarter was a pretax charge of $67 million, or 5 cents per share, related to the impact of restoring our securitized accounts receivable to our financial statements. Third quarter net earnings this year were $277 million, compared with $185 million, or 20 cents per share including the unusual charge, in 2001. All earnings per share figures refer to diluted earnings per share.
"We are pleased with our third quarter results, which reflected growth in pretax profit at all three divisions -- especially given our relatively soft sales performance during the quarter," said Bob Ulrich, chairman and chief executive officer of Target Corporation. "For the fourth quarter, our outlook for earnings growth is modest in light of last year's strong performance. Importantly, we expect to deliver strong earnings growth for 2002 overall and we remain confident that we will continue to generate average annual earnings per share growth of 15 percent or more over time."
Total revenues in the third quarter increased 9.3 percent to $10.194 billion from $9.331 billion in 2001, driven by an 11.8 percent revenue increase at Target Stores. Comparable-store sales for the third quarter 2002 increased 0.1 percent. (Total revenues include retail sales and net credit revenues. Comparable-store sales are sales from stores open longer than one year.)
In the third quarter, gross margin rate increased from the prior year, due to improvement at all three divisions. (Gross margin rate represents gross margin as a percentage of sales.) Expense rate, excluding credit card operations, was unfavorable to prior year, as growth in expense was only partially offset by the benefit of overall growth at Target, our lowest expense rate division. (Expense rate represents selling, general and administrative expenses as a percentage of sales. It includes buying and occupancy, advertising, start-up and other expense, and excludes depreciation and expenses associated with credit card operations.)
For the quarter, pre-tax segment profit increased 19.5 percent to $623 million, compared with $522 million in the third quarter 2001. Pre-tax profit at Target Stores increased $93 million, or 21.2 percent. Pre-tax profit at Mervyn's increased $5 million and pre-tax profit at Marshall Field's improved by $3 million. (Pre-tax segment profit is earnings before LIFO, securitization effects, interest, other expense and unusual items.)
Contribution from the company's credit card operations increased to $138 million in the third quarter from $125 million a year ago. At quarter-end, gross receivables serviced were $5.242 billion, compared with $2.925 billion at the end of third quarter 2001, due to the continued growth in usage of the Target Visa. The provision for bad debt expense exceeded write-offs by $28 million in the quarter, while delinquency trends improved from the same period a year ago, primarily due to the growth of higher quality Target Visa receivables. Results of credit card operations are included in the pre-tax segment profit for each of the company's three business segments.
Other Factors
Net interest expense for the quarter increased $21 million compared with net interest expense and interest equivalent in the third quarter 2001. This increase is due to substantially higher average funded balances, partially offset by the benefit of a lower average portfolio interest rate.
The company's annual effective income tax rate is 38.2 percent, compared with 38.0 percent last year.
Miscellaneous
Target Corporation will webcast its third quarter earnings conference call at 9:30am CST today. Investors and the media are invited to listen to the call through the company's website at www.target.com (click on "company/Target Corporation/investor information/webcasts"). A telephone replay of the call will be available beginning at approximately 11:30am CST today through the end of business on November 15, 2002. The replay number is (800) 813-5526.
Forward-looking statements in this release should be read in conjunction with the cautionary statements in Exhibit (99)C to the company's 2001 Form 10-K.
Target Corporation operates large-store general merchandise formats, including discount stores, moderate-priced promotional and traditional department stores, as well as a direct mail and on-line business called target.direct. The company currently operates 1,476 stores in 47 states. This includes 1,148 Target stores, 264 Mervyn's stores and 64 Marshall Field's stores.
Target Corporation news releases are available at www.target.com or www.prnewswire.com .
TARGET CORPORATION
CONSOLIDATED RESULTS OF OPERATIONS
(Millions, except per Three Months Ended Nine Months Ended
share data) Nov. 2, Nov. 3, % Nov. 2, Nov. 3, %
(Unaudited) 2002 2001 Change 2002 2001 Change
Sales $9,884 $9,148 8.0% $29,011 $26,129 11.0%
Net credit revenues 310 183 70.3 845 477 77.2
Total revenues 10,194 9,331 9.3 29,856 26,606 12.2
Cost of sales 6,736 6,337 6.3 19,698 18,022 9.3
Selling, general and
administrative expense 2,364 2,143 10.3 6,740 6,004 12.3
Credit expense 196 150 30.5 532 300 77.3
Depreciation and
amortization 305 281 8.5 889 796 11.7
Interest expense 145 122 18.0 434 338 27.9
Earnings before income
taxes 448 298 51.0 1,563 1,146 36.6
Provision for income
taxes 171 113 52.4 597 436 37.3
Net earnings $277 $185 50.2% $966 $710 36.1%
Basic earnings per share $0.31 $0.20 49.2% $1.06 $0.79 35.1%
Diluted earnings per
share $0.30 $0.20 49.3% $1.06 $0.78 35.3%
Weighted average common
shares outstanding:
Basic 908.5 902.3 907.6 900.7
Diluted 914.0 908.3 913.9 908.5
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Millions) November 2, November 3,
(Unaudited) 2002 2001
ASSETS
Cash and cash equivalents $834 $424
Accounts receivable, net 4,882 2,709
Inventory 5,612 5,780
Other 1,147 959
Total current assets 12,475 9,872
Property and equipment, net 14,878 13,077
Other 1,322 913
Total assets $28,675 $23,862
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Accounts payable $4,927 $4,451
Current portion of long-term debt and notes
payable 1,374 717
Other 1,836 1,770
Total current liabilities 8,137 6,938
Long-term debt 10,559 8,711
Other 1,223 1,055
Shareholders' investment 8,756 7,158
Total liabilities and shareholders'
investment $28,675 $23,862
Common shares outstanding 908.8 902.8
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
(Millions) November 2, November 3,
(Unaudited) 2002 2001
OPERATING ACTIVITIES
Net earnings $966 $710
Reconciliation to cash flow:
Depreciation and amortization 889 796
Bad debt provision 310 252
Other non-cash items affecting earnings 170 178
Changes in operating accounts providing/
(requiring) cash:
Accounts receivable (1,362) (93)
Inventory (1,163) (1,532)
Other current assets (244) (217)
Other assets (169) (92)
Accounts payable 767 875
Accrued liabilities (45) (47)
Income taxes payable (113) (70)
Other 30 ---
Cash Flow Provided by Operations 36 760
INVESTING ACTIVITIES
Expenditures for property and equipment (2,393) (2,418)
Decrease in receivable-backed securities --- (174)
Proceeds from disposals of property and
equipment 15 18
Cash Flow Required by Investing Activities (2,378) (2,574)
Net Financing Requirements (2,342) (1,814)
FINANCING ACTIVITIES
Increase/(decrease) in notes payable, net 416 (455)
Additions to long-term debt 3,100 3,250
Reductions of long-term debt (667) (747)
Dividends paid (163) (149)
Repurchase of stock (14) (14)
Other 5 (3)
Cash Flow Provided by Financing Activities 2,677 1,882
Net Increase in Cash and Cash Equivalents 335 68
Cash and Cash Equivalents at Beginning of Year 499 356
Cash and Cash Equivalents at End of Period $834 $424
Target Corporation
(Millions, except as indicated)
(Unaudited)
REVENUES and COMPARABLE-STORE SALES
Comparable-store sales are sales from stores open longer than one year.
Three Months Ended Nine Months Ended
% Change % Change
Nov. 2, Nov. 3, Revenues Comp. Nov. 2, Nov. 3, Revenues Comp.
2002 2001 Sales 2002 2001 Sales
Target $8,459 $7,565 11.8% 1.0% $24,987 $21,647 15.4% 4.0%
Mervyn's 917 960 (4.4) (3.8) 2,666 2,762 (3.5) (3.5)
Marshall
Field's 677 698 (3.0) (3.2) 1,891 1,925 (1.8) (2.6)
Other 141 108 30.8 na 312 272 14.9 na
TOTAL $10,194 $9,331 9.3% 0.1% $29,856 $26,606 12.2% 2.7%
NUMBER OF STORES, RETAIL SQUARE FEET and INVENTORY
Retail square feet in thousands; reflects total square feet less office, warehouse and vacant space.
Number of Stores Retail Square Feet Inventory
Nov. 2, Nov. 3, Nov. 2, Nov. 3, % Nov. 2, Nov. 3, %
2002 2001 2002 2001 Change 2002 2001 Change
Target 1,148* 1,055* 140,412 125,396 12.0% $4,329 $4,267 1.5%
Mervyn's 264 264 21,425 21,392 0.2 615 717 (14.3)
Marshall
Field's 64 64 14,638 14,638 0.0 441 547 (19.4)
Other --- --- --- --- --- 227 249 (8.5)
TOTAL 1,476 1,383 176,475 161,426 9.3% $5,612 $5,780 (2.9)%
*Includes 94 SuperTargets in 2002 and 62 SuperTargets in 2001.
PRE-TAX SEGMENT PROFIT AND EARNINGS RECONCILIATION
Pre-tax segment profit is earnings before LIFO, securitization effects, interest, other expense and unusual items.
Three Months Ended Nine Months Ended
Nov. 2, Nov. 3, % Nov. 2, Nov. 3, %
2002 2001 Change 2002 2001 Change
Target $537 $444 21.2% $1,923 $1,468 31.0%
Mervyn's 52 47 10.4 163 155 5.3
Marshall Field's 34 31 8.3 84 70 19.5
Total pre-tax segment
profit 623 522 19.5 2,170 1,693 28.2
Securitization adjustment
(unusual item) --- (67) --- (67)
Securitization adjustment
(interest equivalent) --- (2) --- (27)
Interest expense (145) (122) (434) (338)
Other (30) (33) (173) (115)
Earnings before income
taxes $448 $298 51.0% $1,563 $1,146 36.6%
EBITDA
EBITDA is pre-tax segment profit before depreciation and amortization, and is not intended to be a substitute for GAAP reported measures of profitability and cash flow.
Three Months Ended Nine Months Ended
Nov. 2, Nov. 3, % Nov. 2, Nov. 3, %
2002 2001 Change 2002 2001 Change
Target $774 $651 19.3% $2,604 $2,046 27.3%
Mervyn's 80 78 1.3 247 249 (0.9)
Marshall Field's 65 66 (2.2) 178 173 2.8
Total segment EBITDA $919 $795 15.7% $3,029 $2,468 22.8%
Segment depreciation
and amortization (296) (273) (859) (775)
Pre-tax segment profit $623 $522 19.5% $2,170 $1,693 28.2%
Three Months Nine Months Twelve Months
Ended Ended Ended
Nov. 2, Nov. 3, Nov. 2, Nov. 3, Nov. 2, Nov. 3,
2002 2001 2002 2001 2002 2001
Pre-tax Segment Profit
as a % of Revenues:
Target 6.4% 5.9% 7.7% 6.8% 8.4% 7.5%
Mervyn's 5.7% 4.9% 6.1% 5.6% 7.5% 6.5%
Marshall Field's 5.1% 4.5% 4.4% 3.7% 5.4% 5.2%
EBITDA as a % of
Revenues:
Target 9.2% 8.6% 10.4% 9.5% 10.8% 9.9%
Mervyn's 8.7% 8.2% 9.3% 9.0% 10.4% 9.6%
Marshall Field's 9.5% 9.5% 9.4% 9.0% 10.0% 10.0%
Target Corporation
(Millions)
(Unaudited)
CREDIT CARD CONTRIBUTION
Three Months Ended Nine Months Ended
November 2, November 3, November 2, November 3,
2002 2001 2002 2001
Revenues
Finance charges, late
fees and other revenues $291 $208 $797 $558
Merchant fees
Intracompany 24 23 69 67
Third-party 19 2 48 4
Total revenues 334 233 914 629
Expenses
Bad debt 118 50 310 131
Operations and marketing 78 58 222 160
Total expenses 196 108 532 291
Pre-tax credit contribution $138 $125 $382 $338
QUARTER-END RECEIVABLES SERVICED
November 2, November 3,
2002 2001
Target
Guest Card $779 $1,224
Target Visa 3,171 324
Mervyn's 584 640
Marshall Field's 708 737
Quarter-end receivables serviced $5,242 $2,925
Past due* 5.9% 6.7%
Year-to-date average receivables serviced $4,525 $2,756
-
Accounts with two or more payments past due as a percent of total outstanding receivables.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Three Months Ended Nine Months Ended
November 2, November 3, November 2, November 3,
2002 2001 2002 2001
Allowance at beginning of
period $332 $213 $261 $211
Bad debt provision 118 50 310 131
Net write-offs (90) (47) (211) (126)
Allowance at end of period $360 $216 $360 $216
As a percent of period-end
receivables serviced 6.9% 7.4% 6.9% 7.4%
As a multiple of trailing
12 months net write-offs 1.4 1.3 1.4 1.3
SOURCE Target Corporation
-0- 11/14/2002
/CONTACT: Susan Kahn, investors, +1-612-761-6735, or Cathy Wright, financial media, +1-612-761-6627, both of Target Corporation/