Document
false0000027419 0000027419 2019-11-20 2019-11-20


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported) November 20, 2019
 
Target Corporation
(Exact name of registrant as specified in its charter)
Minnesota
 
1-6049
 
41-0215170
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(I.R.S. Employer Identification No.)
 
1000 Nicollet Mall,
Minneapolis,
Minnesota
55403
 
(Address of principal executive offices, including zip code)
 
(612)
304-6073
 
(Registrant’s telephone number, including area code)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common stock, par value $0.0833 per share
 
TGT
 
New York Stock Exchange
 

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o 
 




Item 2.02.             Results of Operations and Financial Condition.
 
On November 20, 2019, Target Corporation issued a News Release containing its financial results for the three months ended November 2, 2019.  The News Release is attached hereto as Exhibit 99.
 
Item 9.01.             Financial Statements and Exhibits.
 
(d)                                 Exhibits.

                        

2



SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
TARGET CORPORATION
 
 
Date: November 20, 2019
/s/ Michael J. Fiddelke
 
Michael J. Fiddelke
 
Executive Vice President and Chief Financial Officer


3
Exhibit
Exhibit 99



 https://cdn.kscope.io/be5fd9c24a05727badd1b470c6176813-releasebullseye19q3.jpg

FOR IMMEDIATE RELEASE
Contacts:
John Hulbert, Investors, (612) 761-6627
 
Erin Conroy, Media, (612) 761-5928
 
Target Media Hotline, (612) 696-3400

Target Reports Third Quarter 2019 Earnings
Comparable Sales Increase 4.5 Percent
GAAP EPS from Cont. Ops. of $1.37 and Adj EPS of $1.36 vs. Guidance of $1.04 to $1.24
Company Raises Full-Year EPS Guidance


Third quarter comparable sales grew 4.5 percent, on top of 5.1 percent last year, meaning that comparable sales have risen nearly 10 percent over the last two years.
Third quarter comparable sales growth reflects 2.8 percent growth in stores and a 1.7 percentage point contribution from digital sales.
Third quarter comparable digital channel sales grew 31 percent, on top of 49 percent last year. Same-day fulfillment services (Order Pick Up, Drive Up and Shipt) accounted for 80% of Target’s digital comparable sales growth.
Third quarter comparable traffic grew 3.1 percent, driven by increases in both stores and digital channels.
Third quarter operating income grew 22.3 percent compared with last year.
GAAP EPS from continuing operations of $1.37 was 18.2 percent higher than last year. Adjusted EPS of $1.36 was 24.9 percent higher than last year.
Target now expects full-year 2019 GAAP EPS from continuing operations of $6.27 to $6.47 and Adjusted EPS of $6.25 to $6.45, compared with the prior range of $5.90 to $6.20.
For additional media materials, please visit:
https://corporate.target.com/article/2019/11/q3-2019-earnings

MINNEAPOLIS (November 20, 2019) - Target Corporation (NYSE: TGT) today announced its third quarter 2019 performance, including comparable sales growth of 4.5 percent and a 3.1 percent increase in comparable traffic. The Company reported GAAP earnings per share (EPS)

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Target Corporation Reports Third Quarter 2019 Earnings - Page 2 of 13
from continuing operations of $1.37 in third quarter 2019, up 18.2 percent from $1.16 in third quarter 2018. Third quarter Adjusted EPS of $1.36 was 24.9 percent higher than $1.09 in third quarter 2018. The attached tables provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.
Brian Cornell, chairman and CEO of Target, said “The Target team did an excellent job serving our guests and executing our strategy throughout the third quarter. Our third quarter results are further proof of the durability of our strategy, as we’re seeing industry-leading strength across multiple metrics, from the top line to the bottom line. Looking ahead, we have ushered in the holiday season with an unwavering commitment to guest service that complements our highly differentiated, value-driven assortment, our exceptional in-store shopping experience as well as an unmatched suite of easy and convenient fulfillment options.”

Fourth Quarter and Full-Year 2019 Guidance
For the fourth quarter, Target expects comparable sales growth of 3 to 4 percent, and GAAP EPS from continuing operations of $1.55 to $1.75 and Adjusted EPS of $1.54 to $1.74. For the full year, the Company now expects GAAP EPS from continuing operations of $6.27 to $6.47 and Adjusted EPS of $6.25 to $6.45, compared with the prior range of $5.90 to $6.20. The difference between the GAAP and Adjusted ranges reflect an expected $0.01 impact from a discrete item in the fourth quarter and the $0.01 difference recognized through the third quarter.
Fourth quarter and full-year 2019 GAAP EPS from continuing operations may include the impact of additional discrete items which will be excluded in calculating Adjusted EPS.     
The Company announced today that it plans to issue a post-holiday financial update on Wednesday, January 15, 2020.

Operating Results
Total revenue of $18.7 billion increased 4.7 percent from $17.8 billion last year, reflecting sales growth combined with an 8.8 percent increase in other revenue. Third quarter sales growth of 4.7 percent reflected comparable sales growth of 4.5 percent combined with the


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Target Corporation Reports Third Quarter 2019 Earnings - Page 3 of 13
contribution from non-mature stores. Comparable digital sales grew 31 percent, contributing 1.7 percentage points to total comparable sales growth. Operating income was $1,002 million in third quarter 2019, up 22.3 percent from $819 million in third quarter 2018.
Third quarter operating income margin rate was 5.4 percent in 2019, compared with 4.6 percent in 2018. Third quarter gross margin rate was 29.8 percent, compared with 28.7 percent in 2018, reflecting the benefit of merchandising efforts to optimize costs, pricing, promotions and assortment, combined with favorable category sales mix. Third quarter SG&A expense rate was 22.3 percent in 2019, compared with 22.1 percent in 2018. This increase reflected higher marketing and compensation costs, partially offset by broad-based cost savings.

Interest Expense and Taxes
The Company’s third quarter 2019 net interest expense was $113 million, compared with $115 million last year, reflecting lower average net debt balances compared to last year. Third quarter 2019 effective income tax rate from continuing operations was 21.7 percent, compared with 13.6 percent last year. Last year’s effective income tax rate included discrete benefits of the Tax Cuts and Jobs Act of 2017 (Tax Act).

Shareholder Returns
The Company returned $631 million to shareholders in third quarter 2019, including:
Dividends of $337 million, compared with $337 million in third quarter 2018, reflecting a 3.1 percent increase in the dividend per share offset by a decline in share count.
Share repurchases totaling $294 million that retired 3.0 million shares of common stock at an average price of $99.25.
At the end of the third quarter, the Company had approximately $0.3 billion of remaining capacity under the $5 billion share repurchase program approved in 2016. In September 2019, Target’s Board of Directors authorized a new $5 billion share repurchase program. Repurchases through this program will begin upon completion of the 2016 program.


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Target Corporation Reports Third Quarter 2019 Earnings - Page 4 of 13
For the trailing twelve months through third quarter 2019, after-tax return on invested capital (ROIC) was 15.0 percent, compared with 15.8 percent for the twelve months through third quarter 2018. Excluding the discrete impacts of the Tax Act, ROIC was 15.1 percent for the trailing twelve months ended November 2, 2019, compared with 13.9 percent in the comparable prior-year period. See the tables of this release for additional information about the Company’s ROIC calculation.

Conference Call Details
Target will webcast its third quarter earnings conference call at 7:00 a.m. CST today. Investors and the media are invited to listen to the call at investors.target.com (hover over “investors” then click on “events & presentations”). A telephone replay of the call will be available beginning at approximately 10:30 a.m. CST today through the end of business on November 22, 2019. The replay number is 800-477-4783.

Miscellaneous
Statements in this release regarding fourth quarter and full-year 2019 earnings per share and comparable sales guidance are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements 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 February 2, 2019. Forward-looking statements speak only as of the date they are made, and the Company does not undertake any obligation to update any forward-looking statement.


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Target Corporation Reports Third Quarter 2019 Earnings - Page 5 of 13
About Target
Minneapolis-based Target Corporation (NYSE: TGT) serves guests at more than 1,800 stores and at Target.com. Since 1946, Target has given 5% of its profit to communities, which today equals millions of dollars a week. For the latest store count or for more information, visit Target.com/Pressroom. For a behind-the-scenes look at Target, visit Target.com/abullseyeview or follow @TargetNews on Twitter.


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Target Corporation Reports Third Quarter 2019 Earnings - Page 6 of 13

TARGET CORPORATION
 
Consolidated Statements of Operations
 
 
Three Months Ended
 
 

 
Nine Months Ended
 
 

(millions, except per share data) (unaudited)
 
November 2,
2019
 
November 3,
2018
 
Change
 
November 2,
2019
 
November 3,
2018
 
Change
Sales
 
$
18,414

 
$
17,590

 
4.7
 %
 
$
53,997

 
$
51,699

 
4.4
 %
Other revenue
 
251

 
231

 
8.8

 
716

 
680

 
5.3

Total revenue
 
18,665

 
17,821

 
4.7

 
54,713

 
52,379

 
4.5

Cost of sales
 
12,935

 
12,535

 
3.2

 
37,808

 
36,400

 
3.9

Selling, general and administrative expenses
 
4,153

 
3,937

 
5.5

 
11,728

 
11,347

 
3.4

Depreciation and amortization (exclusive of depreciation included in cost of sales)
 
575

 
530

 
8.5

 
1,717

 
1,639

 
4.8

Operating income
 
1,002

 
819

 
22.3

 
3,460

 
2,993

 
15.6

Net interest expense
 
113

 
115

 
(1.6
)
 
359

 
352

 
2.0

Net other (income) / expense
 
(12
)
 
(9
)
 
36.5

 
(38
)
 
(21
)
 
83.8

Earnings from continuing operations before income taxes
 
901

 
713

 
26.3

 
3,139

 
2,662

 
17.9

Provision for income taxes
 
195

 
97

 
100.8

 
703

 
530

 
32.8

Net earnings from continuing operations
 
706

 
616

 
14.5

 
2,436

 
2,132

 
14.3

Discontinued operations, net of tax
 
8

 
6

 
 
 
11

 
7

 
 
Net earnings
 
$
714

 
$
622

 
14.8
 %
 
$
2,447

 
$
2,139

 
14.4
 %
Basic earnings per share
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
1.38

 
$
1.17

 
18.2
 %
 
$
4.75

 
$
4.01

 
18.5
 %
Discontinued operations
 
0.02

 
0.01

 
 
 
0.02

 
0.01

 
 
Net earnings per share
 
$
1.40

 
$
1.18

 
18.5
 %
 
$
4.77

 
$
4.02

 
18.6
 %
Diluted earnings per share
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
1.37

 
$
1.16

 
18.2
 %
 
$
4.71

 
$
3.98

 
18.5
 %
Discontinued operations
 
0.02

 
0.01

 
 
 
0.02

 
0.01

 
 
Net earnings per share
 
$
1.39

 
$
1.17

 
18.5
 %
 
$
4.74

 
$
3.99

 
18.7
 %
Weighted average common shares outstanding
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
509.7

 
525.9

 
(3.1
)%
 
512.5

 
531.5

 
(3.6
)%
Diluted
 
514.8

 
531.2

 
(3.1
)%
 
516.8

 
536.2

 
(3.6
)%
Antidilutive shares
 

 

 
 
 

 

 
 
Dividends declared per share
 
$
0.66

 
$
0.64

 
3.1
 %
 
$
1.96

 
$
1.90

 
3.2
 %
Note: Per share amounts may not foot due to rounding.



Target Corporation Reports Third Quarter 2019 Earnings - Page 7 of 13

TARGET CORPORATION
 
Consolidated Statements of Financial Position
(millions, except footnotes) (unaudited)
 
November 2,
2019
 
February 2,
2019
 
November 3,
2018
Assets
 
 
 
 
 
 
Cash and cash equivalents
 
$
969

 
$
1,556

 
$
825

Inventory
 
11,396

 
9,497

 
12,393

Other current assets
 
1,440

 
1,466

 
1,421

Total current assets
 
13,805

 
12,519

 
14,639

Property and equipment
 
 

 
 

 
 

Land
 
6,040

 
6,064

 
6,069

Buildings and improvements
 
30,467

 
29,240

 
29,090

Fixtures and equipment
 
6,032

 
5,912

 
5,784

Computer hardware and software
 
2,636

 
2,544

 
2,660

Construction-in-progress
 
298

 
460

 
384

Accumulated depreciation
 
(19,089
)
 
(18,687
)
 
(18,380
)
Property and equipment, net
 
26,384

 
25,533

 
25,607

Operating lease assets
 
2,151

 
1,965

 
1,997

Other noncurrent assets
 
1,401

 
1,273

 
1,329

Total assets
 
$
43,741

 
$
41,290

 
$
43,572

Liabilities and shareholders’ investment
 
 

 
 

 
 

Accounts payable
 
$
11,258

 
$
9,761

 
$
11,959

Accrued and other current liabilities
 
4,191

 
4,201

 
4,096

Current portion of long-term debt and other borrowings
 
1,159

 
1,052

 
1,535

Total current liabilities
 
16,608

 
15,014

 
17,590

Long-term debt and other borrowings
 
10,513

 
10,223

 
10,104

Noncurrent operating lease liabilities
 
2,208

 
2,004

 
2,046

Deferred income taxes
 
1,215

 
972

 
970

Other noncurrent liabilities
 
1,652

 
1,780

 
1,782

Total noncurrent liabilities
 
15,588

 
14,979

 
14,902

Shareholders’ investment
 
 

 
 

 
 

Common stock
 
42

 
43

 
43

Additional paid-in capital
 
6,006

 
6,042

 
5,867

Retained earnings
 
6,270

 
6,017

 
5,884

Accumulated other comprehensive loss
 
(773
)
 
(805
)
 
(714
)
Total shareholders’ investment
 
11,545

 
11,297

 
11,080

Total liabilities and shareholders’ investment
 
$
43,741

 
$
41,290

 
$
43,572

Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 506,677,740, 517,761,600 and 521,810,597 shares issued and outstanding at November 2, 2019, February 2, 2019, and November 3, 2018, respectively.
 
Preferred Stock Authorized 5,000,000 shares, $0.01 par value; no shares were issued or outstanding during any period presented.



Target Corporation Reports Third Quarter 2019 Earnings - Page 8 of 13

TARGET CORPORATION
 
Consolidated Statements of Cash Flows
 
 
Nine Months Ended
(millions) (unaudited)
 
November 2,
2019
 
November 3,
2018
Operating activities
 
 

 
 

Net earnings
 
$
2,447

 
$
2,139

Earnings from discontinued operations, net of tax
 
11

 
7

Net earnings from continuing operations
 
2,436

 
2,132

Adjustments to reconcile net earnings to cash provided by operations
 
 

 
 

Depreciation and amortization
 
1,905

 
1,826

Share-based compensation expense
 
116

 
106

Deferred income taxes
 
235

 
261

Noncash losses / (gains) and other, net
 
6

 
85

Changes in operating accounts
 
 

 
 

Inventory
 
(1,899
)
 
(3,796
)
Other assets
 
(10
)
 
(140
)
Accounts payable
 
1,473

 
3,298

Accrued and other liabilities
 
(121
)
 
(158
)
Cash provided by operating activities—continuing operations
 
4,141

 
3,614

Cash provided by operating activities—discontinued operations
 
18

 
10

Cash provided by operations
 
4,159

 
3,624

Investing activities
 
 

 
 

Expenditures for property and equipment
 
(2,403
)
 
(2,873
)
Proceeds from disposal of property and equipment
 
29

 
39

Other investments
 
14

 
15

Cash required for investing activities
 
(2,360
)
 
(2,819
)
Financing activities
 
 

 
 

Change in commercial paper, net
 

 
490

Additions to long-term debt
 
994

 

Reductions of long-term debt
 
(1,041
)
 
(268
)
Dividends paid
 
(995
)
 
(1,001
)
Repurchase of stock
 
(959
)
 
(1,485
)
Accelerated share repurchase pending final settlement
 
(450
)
 
(450
)
Stock option exercises
 
65

 
91

Cash required for financing activities
 
(2,386
)
 
(2,623
)
Net decrease in cash and cash equivalents
 
(587
)
 
(1,818
)
Cash and cash equivalents at beginning of period
 
1,556

 
2,643

Cash and cash equivalents at end of period
 
$
969

 
$
825

 



Target Corporation Reports Third Quarter 2019 Earnings - Page 9 of 13

TARGET CORPORATION
 
Operating Results

 
Three Months Ended
 
Nine Months Ended
Rate Analysis
(unaudited)
November 2,
2019
 
November 3,
2018
 
November 2,
2019
 
November 3,
2018
Gross margin rate
29.8
%
 
28.7
%
 
30.0
%
 
29.6
%
SG&A expense rate
22.3

 
22.1

 
21.4

 
21.7

Depreciation and amortization (exclusive of depreciation included in cost of sales) expense rate
3.1

 
3.0

 
3.1

 
3.1

Operating income margin rate
5.4

 
4.6

 
6.3

 
5.7

Note: Gross margin rate is calculated as gross margin (sales less cost of sales) divided by sales. All other rates are calculated by dividing the applicable amount by total revenue. Other revenue includes $177 million and $505 million of profit-sharing income under our credit card program agreement for the three and nine months ended November 2, 2019, respectively, and $169 million and $503 million for the three and nine months ended November 3, 2018, respectively.

 
Three Months Ended
 
Nine Months Ended
Comparable Sales
(unaudited)
November 2,
2019
 
November 3,
2018
 
November 2,
2019
 
November 3,
2018
Comparable sales change
4.5
%
 
5.1
 %
 
4.2
%
 
4.9
 %
Drivers of change in comparable sales
 

 
 

 
 

 
 

Number of transactions
3.1

 
5.3

 
3.3

 
5.1

Average transaction amount
1.4

 
(0.2
)
 
0.9

 
(0.2
)
Note: Amounts may not foot due to rounding.

Contribution to Comparable Sales Change
(unaudited)
Three Months Ended
 
Nine Months Ended
November 2,
2019
 
November 3,
2018
 
November 2,
2019
 
November 3,
2018
Stores channel comparable sales change
2.8
%
 
3.2
%
 
2.3
%
 
3.4
%
Digital channel contribution to comparable sales change
1.7

 
1.9

 
1.9

 
1.5

Total comparable sales change
4.5
%
 
5.1
%
 
4.2
%
 
4.9
%
Note: Amounts may not foot due to rounding.
 
 
Three Months Ended
 
Nine Months Ended
Sales by Channel
(unaudited)
November 2,
2019
 
November 3,
2018
 
November 2,
2019
 
November 3,
2018
Stores originated
92.5
%
 
94.0
%
 
92.7
%
 
94.4
%
Digitally originated
7.5

 
6.0

 
7.3

 
5.6

Total
100
%
 
100
%
 
100
%
 
100
%

 
Three Months Ended
 
Nine Months Ended
RedCard Penetration
(unaudited)
November 2,
2019
 
November 3,
2018
 
November 2,
2019
 
November 3,
2018
Target Debit Card
12.5
%
 
12.9
%
 
12.7
%
 
13.1
%
Target Credit Cards
10.7

 
10.8

 
10.6

 
10.8

Total RedCard Penetration
23.1
%
 
23.7
%
 
23.3
%
 
23.9
%
Note: Amounts may not foot due to rounding.


Target Corporation Reports Third Quarter 2019 Earnings - Page 10 of 13

 
Number of Stores and Retail Square Feet
(unaudited)
Number of Stores
 
Retail Square Feet (a)
November 2,
2019
February 2,
2019
November 3,
2018
 
November 2,
2019
February 2,
2019
November 3,
2018
170,000 or more sq. ft.
272

272

273

 
48,619

48,604

48,778

50,000 to 169,999 sq. ft.
1,504

1,501

1,505

 
189,164

188,900

189,496

49,999 or less sq. ft.
86

71

68

 
2,475

2,077

1,984

Total
1,862

1,844

1,846

 
240,258

239,581

240,258

(a) 
In thousands, reflects total square feet less office, distribution center, and vacant space.




Target Corporation Reports Third Quarter 2019 Earnings - Page 11 of 13

TARGET CORPORATION
 
Reconciliation of Non-GAAP Financial Measures

To provide additional transparency, we have disclosed non-GAAP adjusted diluted earnings per share from continuing operations (Adjusted EPS). This metric excludes certain items presented below. We believe this information is useful in providing period-to-period comparisons of the results of our continuing operations. This measure is not in accordance with, or an alternative to, generally accepted accounting principles in the United States (GAAP). The most comparable GAAP measure is diluted earnings per share from continuing operations (GAAP EPS). Adjusted EPS should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP. Other companies may calculate Adjusted EPS differently, limiting the usefulness of the measure for comparisons with other companies.
 
 
Three Months Ended
 
 
 
 
November 2, 2019
 
November 3, 2018
 
 
(millions, except per share data) (unaudited)
 
Pretax

 
Net of Tax

 
Per Share Amounts

 
Pretax

 
Net of Tax

 
Per Share Amounts

 
Change

GAAP diluted earnings per share from continuing operations
 
 
 
 
 
$
1.37

 
 
 
 
 
$
1.16

 
18.2
%
Adjustments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tax Act (a)
 
$

 
$

 
$

 
$

 
$
(39
)
 
$
(0.07
)
 
 
Other (c)
 
(9
)
 
(6
)
 
(0.01
)
 

 

 

 
 
Adjusted diluted earnings per share from continuing operations
 
 
 
 
 
$
1.36

 
 
 
 
 
$
1.09

 
24.9
%

 
 
Nine Months Ended
 
 
 
 
November 2, 2019
 
November 3, 2018
 
 
(millions, except per share data) (unaudited)
 
Pretax

 
Net of Tax

 
Per Share Amounts

 
Pretax

 
Net of Tax

 
Per Share Amounts

 
Change

GAAP diluted earnings per share from continuing operations
 
 
 
 
 
$
4.71

 
 
 
 
 
$
3.98

 
18.5
%
Adjustments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tax Act (a)
 
$

 
$

 
$

 
$

 
$
(39
)
 
$
(0.07
)
 
 
Income tax matters (b)
 

 

 

 

 
(18
)
 
(0.03
)
 
 
Other (c)
 
(9
)
 
(6
)
 
(0.01
)
 

 

 

 
 
Adjusted diluted earnings per share from continuing operations
 
 
 
 
 
$
4.70

 
 
 
 
 
$
3.87

 
21.4
%
Note: Amounts may not foot due to rounding.
(a) 
Represents discrete items related to the Tax Cuts and Jobs Act of 2017 (Tax Act).
(b) 
Represents benefits from the resolution of certain income tax matters unrelated to current period operations.
(c) 
Represents an insurance recovery related to the 2013 data breach.



Target Corporation Reports Third Quarter 2019 Earnings - Page 12 of 13

Earnings from continuing operations before interest expense and income taxes (EBIT) and earnings before interest expense, income taxes, depreciation and amortization (EBITDA) are non-GAAP financial measures which we believe provide meaningful information about our operational efficiency compared with our competitors by excluding the impact of differences in tax jurisdictions and structures, debt levels, and for EBITDA, capital investment. These measures are not in accordance with, or an alternative to, GAAP. The most comparable GAAP measure is net earnings from continuing operations. EBIT and EBITDA should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP. Other companies may calculate EBIT and EBITDA differently, limiting the usefulness of the measure for comparisons with other companies.
EBIT and EBITDA
 
Three Months Ended
 
 
 
Nine Months Ended
 
 

(millions) (unaudited)
 
November 2,
2019
 
November 3,
2018
 
Change
 
November 2,
2019
 
November 3,
2018
 
Change
Net earnings from continuing operations
 
$
706

 
$
616

 
14.5
 %
 
$
2,436

 
$
2,132

 
14.3
%
+ Provision for income taxes
 
195

 
97

 
100.8

 
703

 
530

 
32.8

+ Net interest expense
 
113

 
115

 
(1.6
)
 
359

 
352

 
2.0

EBIT
 
$
1,014

 
$
828

 
22.4
 %
 
$
3,498

 
$
3,014

 
16.1
%
+ Total depreciation and amortization (a)
 
637

 
592

 
7.6

 
1,905

 
1,826

 
4.3

EBITDA
 
$
1,651

 
$
1,420

 
16.2
 %
 
$
5,403

 
$
4,840

 
11.6
%
(a) 
Represents total depreciation and amortization, including amounts classified within Depreciation and Amortization and within Cost of Sales.



Target Corporation Reports Third Quarter 2019 Earnings - Page 13 of 13

We have also disclosed after-tax return on invested capital from continuing operations (ROIC), which is a ratio based on GAAP information. We believe this metric is useful in assessing the effectiveness of our capital allocation over time. Other companies may calculate ROIC differently, limiting the usefulness of the measure for comparisons with other companies.
After-Tax Return on Invested Capital
 
 
(dollars in millions) (unaudited)
 
 
 
 
 
 
Trailing Twelve Months
 
 
Numerator
 
November 2,
2019
 
November 3,
2018 (a)
 
 
Operating income
 
$
4,577

 
$
4,122

 
 
+ Net other income / (expense)
 
45

 
35

 
 
EBIT
 
4,622

 
4,157

 
 
+ Operating lease interest (b)
 
86

 
83

 
 
- Income taxes (c)(d)
 
1,043

 
524

 
 
Net operating profit after taxes
 
$
3,665

 
$
3,716

 
 

Denominator
 
November 2,
2019
 
November 3,
2018
 
October 28,
2017
Current portion of long-term debt and other borrowings
 
$
1,159

 
$
1,535

 
$
1,366

+ Noncurrent portion of long-term debt
 
10,513

 
10,104

 
11,090

+ Shareholders' equity
 
11,545

 
11,080

 
11,092

+ Operating lease liabilities (e)
 
2,390

 
2,208

 
2,041

- Cash and cash equivalents
 
969

 
825

 
2,725

- Net assets of discontinued operations (f)
 

 

 
4

Invested capital
 
$
24,638

 
$
24,102

 
$
22,860

Average invested capital (g)
 
$
24,369

 
$
23,481

 
 
After-tax return on invested capital (d)
 
15.0
%
 
15.8
%
 
 
After-tax return on invested capital excluding discrete impacts of Tax Act (d)
 
15.1
%
 
13.9
%
 
 
(a) 
Consisted of 53 weeks.
(b) 
Represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases. Calculated using the discount rate for each lease and recorded as a component of rent expense within SG&A Expenses. Operating lease interest is added back to operating income in the ROIC calculation to control for differences in capital structure between us and our competitors.
(c) 
Calculated using the effective tax rates for continuing operations, which were 22.1 percent and 12.3 percent for the trailing twelve months ended November 2, 2019, and November 3, 2018, respectively. For the trailing twelve months ended November 2, 2019, and November 3, 2018, includes tax effect of $1,024 million and $514 million, respectively, related to EBIT, and $19 million and $10 million, respectively, related to operating lease interest.
(d) 
The effective tax rate for the trailing twelve months ended November 2, 2019, and November 3, 2018, includes discrete tax items of $(3) million and $382 million, respectively, related to the Tax Act.
(e) 
Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities.
(f) 
Included in Other Assets and Liabilities.
(g) 
Average based on the invested capital at the end of the current period and the invested capital at the end of the comparable prior period.