TGT
$54.13
Target
($.36)
(.66%)
Earnings Details
1st Quarter April 2017
Wednesday, May 17, 2017 6:30:00 AM
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Summary

Target Beats

Target (TGT) reported 1st Quarter April 2017 earnings of $1.21 per share on revenue of $16.0 billion. The consensus earnings estimate was $0.89 per share on revenue of $15.6 billion. The Earnings Whisper number was $0.93 per share. Revenue fell 1.1% compared to the same quarter a year ago.

The company said it expects second quarter earnings of $0.95 to $1.15 per share. The current consensus earnings estimate is $0.99 per share for the quarter ending July 31, 2017.

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

Results
Reported Earnings
$1.21
Earnings Whisper
$0.93
Consensus Estimate
$0.89
Reported Revenue
$16.02 Bil
Revenue Estimate
$15.61 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Target Reports First Quarter 2017 Earnings

First quarter GAAP EPS from continuing operations of $1.22 was 20.0 percent higher than first quarter 2016. First quarter 2016 performance included $0.26 of debt-retirement costs.

--Adjusted EPS was $1.21, 6.1 percent below first quarter 2016.

First quarter comparable sales decreased 1.3 percent, driven by small declines in both traffic and basket size.

Comparable digital channel sales increased 22 percent, on top of 23 percent growth in first quarter 2016.

Target returned $637 million to shareholders in the first quarter through dividends and share repurchases.

For additional media materials, please visit: https://corporate.target.com/article/2017/05/q1-2017-earnings.

Target Corporation (TGT) today reported a first quarter 2017 comparable sales decline of 1.3 percent. First quarter GAAP earnings per share (EPS) from continuing operations were $1.22, compared with $1.02 in first quarter 2016, which included $261 million of pre-tax early debt retirement losses. The Company reported Adjusted EPS of $1.21, down 6.1 percent from $1.29 in 2016. The attached tables provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.

(1) 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.

"Target’s first quarter financial performance was better than our expectations, reflecting strong execution by our team as they delivered for our guests in a very choppy environment. After starting the quarter with very soft trends, we saw improvement later in the quarter, particularly in March," said Brian Cornell, chairman and CEO of Target. "We are in the early stage of a multi-year effort to position Target for profitable, consistent long-term growth, and while we are confident in our plans, we are facing multiple headwinds in the current landscape. As a result, we will continue to plan our business prudently while preparing our team to chase business when we have an opportunity."

Fiscal 2017 Earnings Guidance

In second quarter 2017, Target expects a low single digit decline in comparable sales, and both GAAP EPS from continuing operations and Adjusted EPS of $0.95 to $1.15.

For full-year 2017, the Company continues to expect a low single digit decline in comparable sales.

Target did not update its full year guidance for GAAP EPS from continuing operations and Adjusted EPS, but acknowledged that better-than-expected first quarter performance increases the probability that the Company will finish the year above the midpoint of its prior guidance.

Segment Results

First quarter 2017 sales decreased 1.1 percent to $16.0 billion from $16.2 billion last year, reflecting a comparable sales decline of 1.3 percent, partially offset by the contribution from new stores. Digital channel sales grew 22 percent and contributed 0.8 percentage points of comparable sales growth. Segment earnings before interest expense and income taxes (EBIT), which is Target’s measure of segment profit, were $1,178 million in first quarter 2017, a decrease of 11.0 percent from $1,323 million in 2016.

First quarter EBITDA and EBIT margin rates were 10.9 percent and 7.4 percent, respectively, compared with 2016 results of 11.5 percent and 8.2 percent, respectively. First quarter gross margin rate was 30.5 percent, compared with 30.9 percent in 2016, reflecting increased digital channel fulfillment costs. First quarter SG&A expense rate was 19.6 percent in 2017, compared with 19.4 percent in 2016, reflecting the impact of higher compensation and marketing expenses, partially offset by continued expense discipline across the organization.

Interest Expense and Taxes from Continuing Operations

The Company’s first quarter 2017 net interest expense was $144 million, compared with $415 million last year. This decrease was driven almost entirely by a $261 million charge related to the early retirement of debt in first quarter 2016.

First quarter 2017 effective income tax rate from continuing operations was 34.5 percent, compared with 31.6 percent last year. The increase was primarily due to the recognition of $17 million of excess tax benefits related to share-based payments for the three months ended April 30, 2016, and the net tax effect of our global sourcing operations.

Capital Returned to Shareholders

In first quarter 2017, primarily under a pre-existing trading plan implemented in 2016, the Company repurchased 4.9 million shares of common stock at an average price of $61.68, for a total investment of $305 million. The Company also paid dividends of $332 million, compared with $336 million in first quarter 2016.

For the trailing twelve months through first quarter 2017, after-tax return on invested capital (ROIC) was 14.2 percent, compared with 16.0 percent for the twelve months through first quarter 2016. Excluding the net gain on the sale of the pharmacy and clinic businesses, ROIC for the trailing twelve months through first quarter 2016 was 14.0 percent. See the "Reconciliation of Non-GAAP Financial Measures" section of this release for additional information about the Company’s ROIC calculation.

Conference Call Details

Target will webcast its first quarter earnings conference call at 7:00 a.m. CDT today. Investors and the media are invited to listen to the call at investors.target.com (hover over "company" then click on "events & presentations" in the "investors" column). A telephone replay of the call will be available beginning at approximately 10:30 a.m. CDT today through the end of business on May 19, 2017. The replay number is (800) 568-3554.

Miscellaneous

Statements in this release regarding second quarter and full-year 2017 earnings per share 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. 28, 2017. 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-month periods ended April 29, 2017 and April 30, 2016. The Company also provides ROIC for the twelve-month periods ended April 29, 2017 and April 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 (GAAP). 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 its 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 1,807 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
(millions, except per share data) (unaudited)
April 29,
April 30,
Change
2017
2016
Sales
$
16,017
$
16,196
(1.1 )%
Cost of sales
11,134
11,185
(0.5 )
Gross margin
4,883
5,011
(2.5 )
Selling, general and administrative expenses
3,132
3,153
(0.7 )
Depreciation and amortization
573
546
5.0
Earnings from continuing operations before interest expense and
1,178
1,312
(10.2 )
income taxes
Net interest expense
144
415
(65.3 )
Earnings from continuing operations before income taxes
1,034
897
15.2
Provision for income taxes
357
283
25.8
Net earnings from continuing operations
677
614
10.4
Discontinued operations, net of tax
4
18
Net earnings
$
681
$
632
7.7
%
Basic earnings per share
Continuing operations
$
1.23
$
1.03
19.5
%
Discontinued operations
0.01
0.03
Net earnings per share
$
1.23
$
1.06
16.7
%
Diluted earnings per share
Continuing operations
$
1.22
$
1.02
20.0
%
Discontinued operations
0.01
0.03
Net earnings per share
$
1.23
$
1.05
17.1
%
Weighted average common shares outstanding
Basic
552.4
598.3
(7.7 )%
Dilutive impact of share-based awards
2.8
5.5
Diluted
555.2
603.8
(8.0 )%
Antidilutive shares
3.0
--
Dividends declared per share
$
0.60
$
0.56
7.1
%
Note: Per share amounts may not foot due to rounding.
Subject to reclassification

TARGET CORPORATION

Consolidated Statements of Financial Position

(millions) (unaudited)
April 29,
January 28,
April 30,
2017
2017
2016
Assets
Cash and cash equivalents, including short term investments of
$
2,680
$
2,512
$
4,036
$1,135, $1,110 and $2,931
Inventory
7,986
8,309
8,459
Assets of discontinued operations
26
69
354
Other current assets
1,047
1,100
1,099
Total current assets
11,739
11,990
13,948
Property and equipment
Land
6,105
6,106
6,120
Buildings and improvements
27,740
27,611
27,198
Fixtures and equipment
5,177
5,503
5,112
Computer hardware and software
2,546
2,651
2,437
Construction-in-progress
379
200
242
Accumulated depreciation
(17,265 )
(17,413 )
(16,060 )
Property and equipment, net
24,682
24,658
25,049
Noncurrent assets of discontinued operations
10
12
81
Other noncurrent assets
787
771
830
Total assets
$
37,218
$
37,431
$
39,908
Liabilities and shareholders’ investment
Accounts payable
$
6,537
$
7,252
$
6,391
Accrued and other current liabilities
4,137
3,737
3,833
Current portion of long-term debt and other borrowings
1,717
1,718
1,627
Liabilities of discontinued operations
1
1
168
Total current liabilities
12,392
12,708
12,019
Long-term debt and other borrowings
11,086
11,031
12,596
Deferred income taxes
869
861
841
Noncurrent liabilities of discontinued operations
18
18
18
Other noncurrent liabilities
1,832
1,860
1,889
Total noncurrent liabilities
13,805
13,770
15,344
Shareholders’ investment
Common stock
46
46
49
Additional paid-in capital
5,674
5,661
5,520
Retained earnings
5,927
5,884
7,593
Accumulated other comprehensive loss
(626 )
(638 )
(617 )
Total shareholders’ investment
11,021
10,953
12,545
Total liabilities and shareholders’ investment
$
37,218
$
37,431
$
39,908
Common Stock Authorized 6,000,000,000 shares, $.0833 par
value; 551,657,501, 556,156,228 and 593,583,619 shares issued and
outstanding at April 29, 2017, January 28, 2017 and April 30,
2016, respectively.
Preferred Stock Authorized 5,000,000 shares, $.01 par
value; no shares were issued or outstanding at April 29, 2017,
January 28, 2017 or April 30, 2016.
Subject to reclassification

TARGET CORPORATION

Consolidated Statements of Cash Flows

Three Months Ended
(millions) (unaudited)
April 29,
April 30,
2017
2016
Operating activities
Net earnings
$
681
$
632
Earnings from discontinued operations, net of tax
4
18
Net earnings from continuing operations
677
614
Adjustments to reconcile net earnings to cash provided by operations
Depreciation and amortization
573
546
Share-based compensation expense
16
35
Deferred income taxes
3
12
Loss on debt extinguishment
--
261
Noncash (gains) / losses and other, net
(28 )
(29 )
Changes in operating accounts
Inventory
323
142
Other assets
22
99
Accounts payable
(715 )
(1,024 )
Accrued and other liabilities
384
(403 )
Cash provided by operating activities--continuing operations
1,255
253
Cash provided by / (required for) operating activities--discontinued
48
(6 )
operations
Cash provided by operations
1,303
247
Investing activities
Expenditures for property and equipment
(486 )
(285 )
Proceeds from disposal of property and equipment
13
3
Other investments
(9 )
3
Cash required for investing activities
(482 )
(279 )
Financing activities
Additions to long-term debt
--
1,979
Reductions of long-term debt
(8 )
(863 )
Dividends paid
(332 )
(336 )
Repurchase of stock
(317 )
(898 )
Stock option exercises
4
140
Cash (required for) / provided by financing activities
(653 )
22
Net increase / (decrease) in cash and cash equivalents
168
(10 )
Cash and cash equivalents at beginning of period
2,512
4,046
Cash and cash equivalents at end of period
$
2,680
$
4,036
Subject to reclassification

TARGET CORPORATION

Segment Results

Three Months Ended
(millions) (unaudited)
April 29,
April 30,
Change
2017
2016
Sales
$
16,017
$
16,196
(1.1 )%
Cost of sales
11,134
11,185
(0.5 )
Gross margin
4,883
5,011
(2.5 )
SG&A expenses (a)
3,132
3,142
(0.3 )
EBITDA
1,751
1,869
(6.3 )
Depreciation and amortization
573
546
5.0
EBIT
$
1,178
$
1,323
(11.0 )%
(a) For the three months ended April 29, 2017
and April 30, 2016, SG&A includes $171 million and $158 million,
respectively, of net profit-sharing income under our credit card
program agreement.
Three Months Ended
Rate Analysis
April 29,
April 30,
(unaudited)
2017
2016
Gross margin rate
30.5 %
30.9 %
SG&A expense rate
19.6
19.4
EBITDA margin rate
10.9
11.5
Depreciation and amortization expense rate
3.6
3.4
EBIT margin rate
7.4
8.2
Note: Rate analysis metrics are computed by dividing the
applicable amount by sales.
Three Months Ended
Sales by Channel
April 29,
April 30,
(unaudited)
2017
2016
Stores
95.7 %
96.5 %
Digital
4.3
3.5
Total
100 %
100 %
Three Months Ended
Comparable Sales
April 29,
April 30,
(unaudited)
2017
2016
Comparable sales change
(1.3 )%
1.2 %
Drivers of change in comparable sales
Number of transactions
(0.8 )
0.3
Average transaction amount
(0.6 )
0.9
Note: Amounts may not foot due to rounding.
Contribution to Comparable Sales Change
Three Months Ended
(unaudited)
April 29,
April 30,
2017
2016
Stores channel comparable sales change
(2.2 )%
0.6 %
Digital channel contribution to comparable sales change
0.8
0.6
Total comparable sales change
(1.3 )%
1.2 %
Note: Amounts may not foot due to rounding.
Three Months Ended
REDcard Penetration
April 29,
April 30,
(unaudited)
2017
2016
Target Debit Card
13.5 %
13.0 %
Target Credit Cards
11.0
10.4
Total REDcard Penetration
24.5 %
23.4 %
Note: Amounts may not foot due to rounding.
Number of Stores and Retail Square Feet
Number of Stores
Retail Square Feet (a)
(unaudited)
April 29,
January 28,
April 30,
April 29,
January 28,
April 30,
2017
2017
2016
2017
2017
2016
170,000 or more sq. ft.
276
276
278
49,328
49,328
49,688
50,000 to 169,999 sq. ft.
1,505
1,504
1,505
189,746
189,620
189,677
49,999 or less sq. ft.
26
22
10
709
554
211
Total
1,807
1,802
1,793
239,783
239,502
239,576
(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 for, 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
April 29, 2017
April 30, 2016
(millions, except per share data) (unaudited)
Pretax
Net of
Per Share
Pretax
Net of
Per Share
Change
Tax
Amounts
Tax
Amounts
GAAP diluted earnings per share from continuing operations
$
1.22
$
1.02
20.0
%
Adjustments
Loss on early retirement of debt
$
--
$
--
$
--
$
261
$
159
$
0.26
Pharmacy Transaction-related costs (a)
--
--
--
11
7
0.01
Resolution of income tax matters
--
(7 )
(0.01 )
--
(2 )
--
Adjusted diluted earnings per share from continuing operations
$
1.21
$
1.29
(6.1 )%
Note: Amounts may not foot due to rounding.
(a) Represents costs related to the December
2015 sale of our pharmacy and clinic businesses to CVS (Pharmacy
Transaction).

We have also disclosed after-tax return on invested capital from 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)
April 29,
April 30,
2017
2016
Earnings from continuing operations before interest expense and
$
4,835
$
5,688
income taxes
+ Operating lease interest (a)(b)
72
82
Adjusted earnings from continuing operations before interest expense
4,907
5,770
and income taxes
- Income taxes (c)
1,638
1,840
Net operating profit after taxes
$
3,269
$
3,930
Denominator
April 29,
April 30,
May 2,
(dollars in millions) (unaudited)
2017
2016
2015
Current portion of long-term debt and other borrowings
$
1,717
$
1,627
$
112
+ Noncurrent portion of long-term debt
11,086
12,596
12,585
+ Shareholders’ equity
11,021
12,545
14,174
+ Capitalized operating lease obligations (b)(d)
1,210
1,367
1,495
- Cash and cash equivalents
2,680
4,036
2,768
- Net assets of discontinued operations
17
249
335
Invested capital
$
22,337
$
23,850
$
25,263
Average invested capital (e)
$
23,093
$
24,556
After-tax return on invested capital (f)
14.2%
16.0%
(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 33.4 percent and 31.9 percent for
the trailing twelve months ended April 29, 2017 and April 30,
2016, respectively. For the trailing twelve months ended April 29,
2017 and April 30, 2016, includes tax effect of $1,614 million and
$1,814 million, respectively, related to EBIT and $24 million and
$26 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 comparable prior period.
(f) Excluding the net gain on the Pharmacy
Transaction, ROIC was 14.0 percent for the trailing twelve months
ended April 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)
April 29,
April 30,
May 2,
2017
2016
2015
Total rent expense
$
151
$
171
$
187
Capitalized operating lease obligations (total rent expense x 8)
1,210
1,367
1,495
Operating lease interest (capitalized operating lease obligations x
72
82
n/a
6%)
Subject to reclassification

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SOURCE: Target Corporation

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