TGT
$55.15
Target
$1.55
2.89%
Earnings Details
4th Quarter January 2017
Tuesday, February 28, 2017 6:30:04 AM
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Summary

Target Misses

Target (TGT) reported 4th Quarter January 2017 earnings of $1.45 per share on revenue of $20.7 billion. The consensus earnings estimate was $1.50 per share on revenue of $20.8 billion. The Earnings Whisper number was $1.54 per share. Revenue fell 4.3% compared to the same quarter a year ago.

The company said it expects first quarter earnings of $0.80 to $1.00 per share and fiscal 2018 earnings of $3.80 to $4.20 per share. The current consensus earnings estimate is $1.31 per share for the quarter ending April 30, 2017 and $5.29 per share for the year ending January 31, 2018.

Target Corp is engaged in operating general merchandise discount stores in the United States.

Results
Reported Earnings
$1.45
Earnings Whisper
$1.54
Consensus Estimate
$1.50
Reported Revenue
$20.69 Bil
Revenue Estimate
$20.75 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Target Reports Fourth Quarter and Full-Year 2016 Earnings

Fourth quarter comparable digital channel sales increased 34 percent, contributing 1.8 percentage points of comparable sales growth.

Fourth quarter comparable sales growth in Signature Categories outpaced total comparable sales by nearly 3 percentage points.

--Fourth quarter comparable traffic increased 0.2 percent.

Fourth quarter GAAP earnings per share (EPS) from continuing operations of $1.46 and Adjusted EPS(2) of $1.45, compared with the Company’s guidance range of $1.45 to $1.55.

For full-year 2016, GAAP EPS from continuing operations declined 12.7 percent to $4.58, reflecting a loss of $0.44 on the early retirement of debt.

--Full-year Adjusted EPS(2) increased 6.7 percent to $5.01.

Target returned $5.0 billion to shareholders in 2016 through dividends and share repurchases.

Target Corporation (TGT) today announced its fourth quarter and full-year 2016 results. The Company reported GAAP earnings per share (EPS) from continuing operations of $1.46 in fourth quarter and $4.58 for full-year 2016, compared with $2.31 and $5.25 in 2015, respectively. Fourth quarter Adjusted EPS were $1.45, down 4.6 percent from $1.52 in 2015. Full-year Adjusted EPS of $5.01 was 6.7 percent higher than $4.69 in 2015. The attached tables provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.

"Our fourth quarter results reflect the impact of rapidly-changing consumer behavior, which drove very strong digital growth but unexpected softness in our stores," said Brian Cornell, chairman and CEO of Target. "At our meeting with the financial community this morning, we will provide detail on the meaningful investments we’re making in our business and financial model which will position Target for long-term, sustainable growth in this new era in retail. We will accelerate our investments in a smart network of physical and digital assets as well as our exclusive and differentiated assortment, including the launch of more than 12 new brands, representing more than $10 billion of our sales, over the next two years. In addition, we will invest in lower gross margins to ensure we are clearly and competitively priced every day. While the transition to this new model will present headwinds to our sales and profit performance in the short term, we are confident that these changes will best-position Target for continued success over the long term."

(1)On Jan. 18, 2017, Target updated fourth quarter
guidance for comparable sales, GAAP EPS from continuing
operations, and Adjusted EPS.
(2)Adjusted EPS, a non-GAAP financial measure, excludes
the impact of certain discretely managed items. See the
"Miscellaneous" section of this release, as well as the tables of
this release, for additional information about the items that have
been excluded from Adjusted EPS.

Fiscal 2017 Guidance

Target’s 2017 guidance reflects the impact of the Company’s transition to a new financial model, which will be covered in the Company’s meeting with the financial community later today.

In first quarter 2017, Target expects a low-to-mid single digit decline in comparable sales, and both GAAP EPS from continuing operations and Adjusted EPS of $0.80 to $1.00.

For full-year 2017, Target expects a low-single digit decline in comparable sales, and both GAAP EPS from continuing operations and Adjusted EPS of $3.80 to $4.20.

First quarter and full-year 2017 GAAP EPS from continuing operations may include the impact of certain discrete items, which will be excluded in calculating Adjusted EPS. In the past, these items have included losses on the early retirement of debt, data breach expenses, restructuring costs, and certain other items that are discretely managed. The Company is not currently aware of any such discrete items.

Segment Results

Fourth quarter 2016 sales decreased 4.3 percent to $20.7 billion from $21.6 billion last year, reflecting a 1.5 percent decline in comparable sales combined with the removal of pharmacy and clinic sales from this year’s results. Comparable digital channel sales grew 34 percent and contributed 1.8 percentage points of comparable sales growth. Segment earnings before interest expense and income taxes (EBIT), which is Target’s measure of segment profit, were $1,344 million in fourth quarter 2016, a decrease of 13.5 percent from $1,554 million in 2015.

Fourth quarter EBITDA and EBIT margin rates were 9.5 percent and 6.5 percent, respectively, compared with 9.8 percent and 7.2 percent, respectively, in 2015. Fourth quarter gross margin rate was 26.9 percent, compared with 27.9 percent in 2015, reflecting markdown pressure from promotional and clearance activity and costs associated with the mix shift between the Company’s store and digital channels, partially offset by the benefit of the sale of the Company’s pharmacy and clinic businesses, a favorable merchandise mix, and cost of goods savings. Fourth quarter SG&A expense rate was 17.5 percent in 2016, compared with 18.1 percent in 2015, reflecting the benefit of the sale of the Company’s pharmacy and clinic businesses and continued expense discipline across the organization.

Interest Expense and Taxes from Continuing Operations

The Company’s fourth quarter 2016 net interest expense was $140 million, compared with $152 million last year. Fourth quarter 2016 effective income tax rate from continuing operations was 32.0 percent, compared with 29.6 percent last year. Last year’s tax rate reflected the impact of the gain on the December 2015 sale of the pharmacy and clinic businesses.

Shareholder Returns

The Company returned $902 million to shareholders in fourth quarter 2016, including:

Dividends of $337 million, compared with $345 million in fourth quarter 2015.

Share repurchases totaling $565 million, including: -- Open market transactions that retired 3.2 million shares of common stock at an average price of $66.52, for a total investment of $211 million.

An accelerated share repurchase (ASR) agreement that retired 4.6 million shares of common stock at an average price of $76.77, for a total investment of $355 million.

As expected, during the fourth quarter the Company completed its previous share repurchase program, which was approved in 2012 and extended to $10 billion in 2015. Upon completion of the prior program, the Company began repurchasing shares under its current $5 billion share repurchase program, which was approved in September 2016. Under the current program, the Company invested $264 million in the fourth quarter, leaving approximately $4.7 billion remaining under the current program at the end of the quarter.

For the trailing twelve months through fourth quarter 2016, after-tax return on invested capital (ROIC) was 15.0 percent, compared with 16.0 percent for the twelve months through fourth quarter 2015. Last year’s ROIC rate reflected the benefit of the gain on the December 2015 sale of the pharmacy and clinic businesses. Excluding that benefit, ROIC for the twelve months through fourth quarter 2015 was 13.9 percent. See the "Reconciliation of Non-GAAP Financial Measures" section of this release for additional information about the Company’s ROIC calculation.

Webcast Details

Target will webcast its financial community meeting, including Q&A, at 8 a.m. CST today. Investors and the media are invited to listen to the meeting at Investors.Target.com (hover over "company" then click on "events & presentations" in the "investors" column). A replay of the webcast will be available beginning at approximately 1 p.m. CST today.

Miscellaneous

Statements in this release regarding first quarter and full-year 2017 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 Jan. 30, 2016. 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.

In addition to the GAAP results provided in this release, the Company provides Adjusted EPS for the three and twelve-month periods ended Jan. 28, 2017, and Jan. 30, 2016. The Company also provides ROIC for the twelve-month periods ended Jan. 28, 2017, and Jan. 30, 2016, which is a ratio based on GAAP information, with the exception of adjustments made to capitalize operating leases. Operating leases are capitalized as part of the ROIC calculation to control for differences in capital structure between the Company and its competitors. Adjusted EPS, capitalized operating lease obligations and operating lease interest are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. Management believes Adjusted EPS is useful in providing period-to-period comparisons of the results of the Company’s ongoing retail operations. Management believes ROIC is useful in assessing the effectiveness of the Company’s capital allocation over time. The most comparable GAAP measure for Adjusted EPS is diluted EPS from continuing operations. The most comparable GAAP measure for capitalized operating lease obligations and operating lease interest is total rent expense. Adjusted EPS, capitalized operating lease obligations and operating lease interest should not be considered in isolation or as a substitution for analysis of the Company’s results as reported under GAAP. Other companies may calculate Adjusted EPS and ROIC differently than the Company does, limiting the usefulness of the measure for comparisons with other companies.

About Target

Minneapolis-based Target Corporation (TGT) serves guests at 1,802 stores and at Target.com. Since 1946, Target has given 5 percent of its profit to communities, which today equals millions of dollars a week. For more information, visit Target.com/Pressroom. For a behind-the-scenes look at Target, visit Target.com/abullseyeview or follow @TargetNews on Twitter.

TARGET CORPORATION
Consolidated Statements of Operations
Three Months Ended
Twelve Months Ended
(millions, except per share data) (unaudited)
January 28,
January 30,
Change
January 28,
January 30,
Change
2017
2016
2017
2016
Sales
$
20,690
$
21,626
(4.3 )%
$
69,495
$
73,785
(5.8 )%
Cost of sales
15,116
15,594
(3.1 )
48,872
51,997
(6.0 )
Gross margin
5,574
6,032
(7.6 )
20,623
21,788
(5.4 )
Selling, general and administrative expenses
3,614
3,921
(7.8 )
13,356
14,665
(8.9 )
Depreciation and amortization
612
562
8.8
2,298
2,213
3.8
Gain on sale
--
(620 )
(100.0 )
--
(620 )
(100.0 )
Earnings from continuing operations before interest expense and
1,348
2,169
(37.9 )
4,969
5,530
(10.1 )
income taxes
Net interest expense
140
152
(8.1 )
1,004
607
65.3
Earnings from continuing operations before income taxes
1,208
2,017
(40.1 )
3,965
4,923
(19.5 )
Provision for income taxes
387
596
(35.2 )
1,296
1,602
(19.1 )
Net earnings from continuing operations
821
1,421
(42.2 )%
2,669
3,321
(19.6 )%
Discontinued operations, net of tax
(4 )
5
68
42
Net earnings
$
817
$
1,426
(42.7 )%
$
2,737
$
3,363
(18.6 )%
Basic earnings/(loss) per share
Continuing operations
$
1.47
$
2.33
(36.9 )%
$
4.62
$
5.29
(12.7 )%
Discontinued operations
(0.01 )
0.01
0.12
0.07
Net earnings per share
$
1.46
$
2.33
(37.5 )%
$
4.74
$
5.35
(11.5 )%
Diluted earnings/(loss) per share
Continuing operations
$
1.46
$
2.31
(37.0 )%
$
4.58
$
5.25
(12.7 )%
Discontinued operations
(0.01 )
0.01
0.12
0.07
Net earnings per share
$
1.45
$
2.32
(37.6 )%
$
4.70
$
5.31
(11.6 )%
Weighted average common shares outstanding
Basic
559.7
610.5
(8.3 )%
577.6
627.7
(8.0 )%
Dilutive impact of share-based awards
4.8
4.8
4.9
5.2
Diluted
564.5
615.3
(8.2 )%
582.5
632.9
(8.0 )%
Antidilutive shares
0.1
--
0.1
--
Dividends declared per share
$
0.60
$
0.56
7.1 %
$
2.36
$
2.20
7.3 %
Note: Per share amounts may not foot due to rounding.
Subject to reclassification
TARGET CORPORATION
Consolidated Statements of Financial Position
(millions) (unaudited)
January 28,
January 30,
2017
2016
Assets
Cash and cash equivalents, including short-term investments of
$
2,512
$
4,046
$1,110 and $3,008
Inventory
8,309
8,601
Assets of discontinued operations
69
322
Other current assets
1,100
1,161
Total current assets
11,990
14,130
Property and equipment
Land
6,106
6,125
Buildings and improvements
27,611
27,059
Fixtures and equipment
5,503
5,347
Computer hardware and software
2,651
2,617
Construction-in-progress
200
315
Accumulated depreciation
(17,413 )
(16,246 )
Property and equipment, net
24,658
25,217
Noncurrent assets of discontinued operations
12
75
Other noncurrent assets
771
840
Total assets
$
37,431
$
40,262
Liabilities and shareholders’ investment
Accounts payable
$
7,252
$
7,418
Accrued and other current liabilities
3,737
4,236
Current portion of long-term debt and other borrowings
1,718
815
Liabilities of discontinued operations
1
153
Total current liabilities
12,708
12,622
Long-term debt and other borrowings
11,031
11,945
Deferred income taxes
861
823
Noncurrent liabilities of discontinued operations
18
18
Other noncurrent liabilities
1,860
1,897
Total noncurrent liabilities
13,770
14,683
Shareholders’ investment
Common stock
46
50
Additional paid-in capital
5,661
5,348
Retained earnings
5,884
8,188
Accumulated other comprehensive loss
Pension and other benefit liabilities
(601 )
(588 )
Currency translation adjustment and cash flow hedges
(37 )
(41 )
Total shareholders’ investment
10,953
12,957
Total liabilities and shareholders’ investment
$
37,431
$
40,262
Common Stock Authorized 6,000,000,000 shares, $.0833 par
value; 556,156,228 and 602,226,517 shares issued and outstanding
at January 28, 2017 and January 30, 2016, respectively.
Preferred Stock Authorized 5,000,000 shares, $.01 par
value; no shares were issued or outstanding at January 28, 2017 or
January 30, 2016.
Subject to reclassification
TARGET CORPORATION
Consolidated Statements of Cash Flows
Twelve Months Ended
(millions) (unaudited)
January 28,
January 30,
2017
2016
Operating activities
Net earnings
$
2,737
$
3,363
Earnings from discontinued operations, net of tax
68
42
Net earnings from continuing operations
2,669
3,321
Adjustments to reconcile net earnings to cash provided by operations:
Depreciation and amortization
2,298
2,213
Share-based compensation expense
113
115
Deferred income taxes
41
(322 )
Gain on sale
--
(620 )
Loss on debt extinguishment
422
--
Noncash (gains) / losses and other, net
--
57
Changes in operating accounts:
Inventory
293
(316 )
Other assets
36
227
Accounts payable and accrued liabilities
(543 )
579
Cash provided by operating activities--continuing operations
5,329
5,254
Cash provided by operating activities--discontinued operations
107
704
Cash provided by operations
5,436
5,958
Investing activities
Expenditures for property and equipment
(1,547 )
(1,438 )
Proceeds from disposal of property and equipment
46
28
Proceeds from sale of business
--
1,875
Other investments
28
24
Cash (required for) / provided by investing activities--continuing
(1,473 )
489
operations
Cash provided by investing activities--discontinued operations
--
19
Cash (required for) / provided by investing activities
(1,473 )
508
Financing activities
Additions to long-term debt
1,977
--
Reductions of long-term debt
(2,641 )
(85 )
Dividends paid
(1,348 )
(1,362 )
Repurchase of stock
(3,706 )
(3,483 )
Stock option exercises
221
300
Cash required for financing activities
(5,497 )
(4,630 )
Net (decrease) / increase in cash and cash equivalents
(1,534 )
1,836
Cash and cash equivalents at beginning of period
4,046
2,210
Cash and cash equivalents at end of period
$
2,512
$
4,046
Subject to reclassification
TARGET CORPORATION
Segment Results
Three Months Ended
Twelve Months Ended
(millions) (unaudited)
January 28,
January 30,
Change
January 28,
January 30,
Change
2017
2016 (a)
2017
2016 (a)
Sales
$
20,690
$
21,626
(4.3 )%
$
69,495
$
73,785
(5.8 )%
Cost of sales
15,116
15,594
(3.1 )
48,872
51,997
(6.0 )
Gross margin
5,574
6,032
(7.6 )
20,623
21,788
(5.4 )
SG&A expenses (b)
3,618
3,916
(7.6 )
13,360
14,448
(7.5 )
EBITDA
1,956
2,116
(7.6 )
7,263
7,340
(1.1 )
Depreciation and amortization
612
562
8.8
2,298
2,213
3.8
EBIT
$
1,344
$
1,554
(13.5 )%
$
4,965
$
5,127
(3.2 )%
(a) Sales include $574 million and $3,815
million related to our former pharmacy and clinic businesses for
the three and twelve months ended January 30, 2016, respectively,
and cost of sales include $503 million and $3,076 million,
respectively. The December 2015 sale of these businesses to CVS
(Pharmacy Transaction) had no notable impact on EBITDA or EBIT.
(b) SG&A includes net profit sharing income from
the arrangement with TD Bank of $174 million and $663 million for
the three and twelve months ended January 28, 2017, respectively,
and $163 million and $641 million for the three and twelve months
ended January 30, 2016.
Three Months Ended
Twelve Months Ended
Rate Analysis
January 28,
January 30,
January 28,
January 30,
(unaudited)
2017
2016
2017
2016
Gross margin rate
26.9 %
27.9 %
29.7 %
29.5 %
SG&A expense rate
17.5
18.1
19.2
19.6
EBITDA margin rate (a)
9.5
9.8
10.5
9.9
Depreciation and amortization expense rate
3.0
2.6
3.3
3.0
EBIT margin rate (a)
6.5
7.2
7.1
6.9
Rate analysis metrics are computed by dividing the applicable
amount by sales.
(a) Excluding sales of our former pharmacy and
clinic businesses, EBITDA margin rates were 10.1 percent and 10.5
percent for the three and twelve months ended January 30, 2016,
respectively, and EBIT margin rates were 7.4 percent and 7.3
percent, respectively.
Three Months Ended
Twelve Months Ended
Sales by Channel
January 28,
January 30,
January 28,
January 30,
(unaudited)
2017
2016 (a)
2017
2016 (a)
Stores
93.2 %
95.0 %
95.6 %
96.6 %
Digital
6.8
5.0
4.4
3.4
Total
100 %
100 %
100 %
100 %
(a) Excluding sales of our former pharmacy and
clinic businesses, stores channels sales were 94.9 percent and
96.4 percent of total sales, respectively, for the three and
twelve months ended January 30, 2016, and digital channels sales
were 5.1 percent and 3.6 percent of total sales, respectively.
Three Months Ended
Twelve Months Ended
Comparable Sales
January 28,
January 30,
January 28,
January 30,
(unaudited)
2017
2016
2017
2016
Comparable sales change
(1.5 )%
1.9 %
(0.5 )%
2.1 %
Drivers of change in comparable sales:
Number of transactions
0.2
1.3
(0.8 )
1.3
Average transaction amount
(1.6 )
0.6
0.3
0.8
Three Months Ended
Twelve Months Ended
Contribution to Comparable Sales Change
January 28,
January 30,
January 28,
January 30,
(unaudited)
2017
2016
2017
2016
Stores channel comparable sales change
(3.3 )%
0.6 %
(1.5 )%
1.3 %
Digital channel contribution to comparable sales change
1.8
1.3
1.0
0.8
Total comparable sales change
(1.5 )%
1.9 %
(0.5 )%
2.1 %
Note: Amounts may not foot due to rounding.
Three Months Ended
Twelve Months Ended
REDcard Penetration
January 28,
January 30,
January 28,
January 30,
(unaudited)
2017
2016
2017
2016
Target Debit Card
12.7 %
12.3 %
12.8 %
12.1 %
Target Credit Cards
11.6
10.7
11.2
10.1
Total REDcard Penetration
24.3 %
23.0 %
24.0 %
22.3 %
Note: Amounts may not foot due to rounding.
Represents the percentage of Target sales that are paid with
REDcards. Excluding pharmacy and clinic sales, total REDcard
penetration would have been 23.5 percent and 23.2 percent for the
three and twelve months ended January 30, 2016, respectively.
Number of Stores and
Number of Stores
Retail Square Feet (a)
Retail Square Feet
(unaudited)
January 28,
January 30,
January 28,
January 30,
2017
2016
2017
2016
170,000 or more sq. ft.
276
278
49,328
49,688
50,000 to 169,999 sq. ft.
1,504
1,505
189,620
189,677
49,999 or less sq. ft.
22
9
554
174
Total
1,802
1,792
239,502
239,539
(a) In thousands: reflects total
square feet, less office, distribution center and vacant space.
Subject to reclassification

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. 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 than we do, limiting the usefulness of the measure for comparisons with other companies.

Three Months Ended
January 28, 2017
January 30, 2016
(millions, except per share data) (unaudited)
Pretax
Net of Tax
Per Share
Pretax
Net of Tax
Per Share
Change
GAAP diluted earnings per share from continuing operations
$
1.46
$
2.31
(37.0 )%
Adjustments:
Gain on sale transaction (a)
$
--
$
--
$
--
$
(620 )
$
(487 )
$
(0.79 )
Restructuring costs (b)
--
--
--
3
2
--
Other (c)
(4 )
(2 )
--
1
1
--
Resolution of income tax matters
--
--
--
--
--
--
Adjusted diluted earnings per share from continuing operations
$
1.45
$
1.52
(4.6 )%
Twelve Months Ended
January 28, 2017
January 30, 2016
(millions, except per share data) (unaudited)
Pretax
Net of Tax
Per Share
Pretax
Net of Tax
Per Share
Change
GAAP diluted earnings per share from continuing operations
$
4.58
$
5.25
(12.7 )%
Adjustments:
Loss on early retirement of debt
$
422
$
257
$
0.44
$
--
$
--
$
--
Gain on sale (a)
--
--
--
(620 )
(487 )
(0.77 )
Restructuring costs (b)
--
--
--
138
87
0.14
Impairments (d)
--
--
--
39
29
0.05
Other (c)
(4 )
(2 )
--
39
28
0.04
Resolution of income tax matters
--
(7 )
(0.01 )
--
(8 )
(0.01 )
Adjusted diluted earnings per share from continuing operations
$
5.01
$
4.69
6.7 %
Note: Amounts may not foot due to rounding.
(a) Represents the gain on the Pharmacy
Transaction.
(b) Costs related to our corporate restructuring
announced during the first quarter of 2015.
(c) For the three and twelve months ended
January 28, 2017, represents items related to the Pharmacy
Transaction. For the three and twelve months ended January 30,
2016, represents costs related to the 2013 data breach.
(d) For the twelve months ended January 30,
2016, represents impairments related to our decision to wind down
certain noncore operations.
Subject to reclassification

We have also disclosed after-tax return on invested capital for continuing operations (ROIC), which is a ratio based on GAAP information, with the exception of adjustments made to capitalize operating leases. Operating leases are capitalized as part of the ROIC calculation to control for differences in capital structure between us and our competitors. We believe this metric provides a meaningful measure of the effectiveness of our capital allocation over time. Other companies may calculate ROIC differently than we do, limiting the usefulness of the measure for comparisons with other companies.

After-Tax Return on Invested Capital
Numerator
Trailing Twelve Months
(dollars in millions) (unaudited)
January 28,
January 30,
2017
2016
Earnings from continuing operations before interest expense and
$
4,969
$
5,530
income taxes
+ Operating lease interest (a)(b)
71
87
Adjusted earnings from continuing operations before interest expense
5,040
5,617
and income taxes
- Income taxes (c)
1,648
1,827
Net operating profit after taxes
$
3,392
$
3,790
Denominator
January 28,
January 30,
January 31,
(dollars in millions) (unaudited)
2017
2016
2015
Current portion of long-term debt and other borrowings
$
1,718
$
815
$
91
+ Noncurrent portion of long-term debt
11,031
11,945
12,634
+ Shareholders’ equity
10,953
12,957
13,997
+ Capitalized operating lease obligations (b)(d)
1,187
1,457
1,490
- Cash and cash equivalents
2,512
4,046
2,210
- Net assets of discontinued operations
62
226
1,479
Invested capital
$
22,315
$
22,902
$
24,523
Average invested capital (e)
$
22,608
$
23,713
After-tax return on invested capital
15.0 %
16.0 %
(f)
(a) Represents the add-back to operating income
to reflect the hypothetical interest expense we would incur if the
property under our operating leases were owned or accounted for as
capital leases, using eight times our trailing twelve months rent
expense and an estimated interest rate of six percent.
(b) See the following Reconciliation of
Capitalized Operating Leases table for the adjustments to our GAAP
total rent expense to obtain the hypothetical capitalization of
operating leases and related operating lease interest.
(c) Calculated using the effective tax rate for
continuing operations, which was 32.7% and 32.5% for the trailing
twelve months ended January 28, 2017 and January 30, 2016. For the
twelve months ended January 28, 2017 and January 30, 2016,
includes tax effect of $1,624 million and $1,799 million,
respectively, related to EBIT and $23 million and $28 million,
respectively, related to operating lease interest.
(d) Calculated as eight times our trailing
twelve months rent expense.
(e) Average based on the invested capital at the
end of the current period and the invested capital at the end of
the prior period.
(f) Excluding the net gain on the sale of
our pharmacy and clinic businesses, ROIC was 13.9 percent for the
trailing twelve months ended January 30, 2016.

Capitalized operating lease obligations and operating lease interest are not in accordance with, or an alternative for, GAAP. The most comparable GAAP measure is total rent expense. Capitalized operating lease obligations and operating lease interest should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP.

Reconciliation of Capitalized Operating Leases
Trailing Twelve Months
(dollars in millions) (unaudited)
January 28,
January 30,
January 31,
2017
2016
2015
Total rent expense
$
148
$
182
$
186
Capitalized operating lease obligations (total rent expense x 8)
1,187
1,457
1,490
Operating lease interest (capitalized operating lease obligations x
71
87
n/a
6%)
Subject to reclassification

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SOURCE: Target Corporation

Target Corporation
Investors:
John Hulbert, 612-761-6627
or
Media:
Erin Conroy, 612-761-5928
or
Target Media Hotline, 612-696-3400