Adjusted EPS of $1.10, up 19.6 percent from
last year; Comparable sales up 2.3 percent
- First quarter Adjusted EPS of $1.10 was
above the company’s expected range of $0.95 to $1.05. The Company
now expects full-year 2015 Adjusted EPS of $4.50 to $4.65, compared
with prior guidance of $4.45 to $4.65.
- First quarter comparable sales
increased a better-than-expected 2.3 percent, driven by growth in
both transactions and basket size.
- Digital channel sales increased 37.8
percent, contributing 0.8 percentage points to comparable sales
growth.
- Comparable sales in signature
categories (Style, Baby, Kids and Wellness) grew more than double
the company average.
- Target returned cash through share
repurchase for the first time since the second quarter of 2013,
with purchases of $562 million in shares of common stock in the
first quarter. Including dividends, the company returned $895
million to shareholders in the first quarter, more than 140% of net
income.
Target Corporation (NYSE: TGT) today reported first quarter 2015
adjusted earnings per share from continuing operations1 (Adjusted
EPS) of $1.10, up 19.6 percent from $0.92 in 2014. GAAP EPS from
continuing operations were $1.01, compared with $0.89 in first
quarter 2014. First quarter 2015 GAAP EPS from continuing
operations reflect $103 million of restructuring costs that are
excluded from Adjusted EPS. The tables attached to this press
release provide a reconciliation of non-GAAP to GAAP measures. All
earnings per share figures refer to diluted EPS.
1Adjusted EPS, a non-GAAP financial measure, excludes
restructuring charges and the impact of certain matters not related
to the Company’s single segment, such as discontinued operations,
data breach expenses and certain other expenses that are discretely
managed. See the “Discontinued Operations” and “Accounting
Considerations” sections of this release for additional information
about the items that have been excluded from Adjusted EPS.
“We’re pleased with our first quarter traffic and sales,
particularly in our signature categories, which drove
better-than-expected profitability through improved gross margin
and continued expense management,” said Brian Cornell, chairman and
CEO of Target. “We’re encouraged to see early progress on our
strategic priorities, including strong sales growth in Apparel,
Home and Beauty, nearly 40 percent growth in digital sales, and
positive traffic in both our stores and digital channels. We
continue to benefit from strong execution by our stores team, who
overcame weather challenges and West Coast port delays to deliver
outstanding guest service in the first quarter.”
Fiscal 2015 Earnings GuidanceIn second quarter 2015,
Target expects Adjusted EPS of $1.04 to $1.14, compared with $1.01
in second quarter 2014.
The Company now expects full-year 2015 Adjusted EPS of $4.50 to
$4.65, compared with prior guidance of $4.45 to $4.65.
Segment ResultsFirst quarter 2015 sales increased 2.8
percent to $17.1 billion from $16.7 billion last year, reflecting a
2.3 percent increase in comparable sales combined with sales from
new stores. Digital channel sales grew 37.8 percent and contributed
0.8 percentage points to comparable sales growth. Segment earnings
before interest expense and income taxes (EBIT) were $1,261 million
in first quarter 2015, an increase of 19.7 percent from $1,053
million in 2014.
First quarter EBITDA and EBIT margin rates were 10.5 percent and
7.4 percent, respectively, compared with 9.4 percent and 6.3
percent in 2014. First quarter gross margin rate was 30.4 percent,
compared with 29.5 percent in 2014, reflecting the benefit of
annualizing heightened promotional markdowns in first quarter 2014
combined with favorable merchandise mix in first quarter 2015.
First quarter SG&A expense rate was 19.9 percent in 2015,
compared with 20.1 percent in 2014, as cost savings initiatives
offset increased technology expense.
Interest Expense and Taxes from Continuing OperationsThe
Company’s first quarter 2015 net interest expense was $155 million,
compared with $152 million last year. The Company’s first quarter
2015 effective income tax rate from continuing operations was 34.8
percent, compared with 34.4 percent last year.
Capital Returned to ShareholdersThe Company returned $895
million to shareholders in first quarter 2015, representing more
than 140 percent of net income.
Target returned cash through share repurchase for the first time
since the second quarter of 2013, with purchases in the first
quarter of $562 million in shares of common stock, including:
- Open market transactions that retired
3.6 million shares of common stock at an average price of $81.74,
for a total investment of $297 million.
- An accelerated share repurchase (ASR)
agreement that retired 3.3 million shares of common stock at an
average price of $80.74, for a total investment of $265 million.
Final settlement of the ASR occurred in May, and 1.1 million of the
3.3 million shares repurchased through the ASR were delivered in
the second quarter.
In addition, through non-cash settlements of prepaid forward
contracts related to non-qualified deferred compensation plans, the
Company retired 0.1 million shares of common stock at an average
price of $41.13, for a total investment of $3 million.
Target paid dividends of $333 million during first quarter 2015,
compared with $272 million in first quarter 2014.
After-Tax Return on Invested Capital (ROIC)Beginning this
quarter, the Company is reporting after-tax return on invested
capital1 (ROIC) for continuing operations. The Company believes
ROIC provides a meaningful measure of the effectiveness of its
capital allocation over time. In addition to results provided in
this press release, a schedule showing the calculation for the last
eight quarters will be provided on the Company’s website at
Target.com/Investors (hover over “company” then click on “summary
financials” in the investor column).
For the trailing twelve months through first quarter 2015, ROIC
was 12.5 percent, compared with 11.9 percent for the twelve months
through first quarter 2014.
1ROIC is a ratio based on GAAP information, with the
exception of adjustments made to capitalize operating leases. See
the “Reconciliation of Non-GAAP Financial Measures” and “Accounting
Considerations” sections of this release for important disclosures
about the limits of non-GAAP financial measures and a schedule that
includes the calculation of ROIC and a reconciliation of
capitalized operating lease obligations and operating lease
interest to GAAP financial measures.
Discontinued Operations UpdateAs of April 12, 2015,
Target Canada Co. completed its inventory liquidation efforts and
closed the last of its 133 Canadian retail stores. A court-approved
real estate sales process is underway and expected to be complete
by the end of June 2015.
Consistent with expectations, after-tax losses from discontinued
operations were $16 million in first quarter 2015, compared with
$153 million last year. Certain assets and liabilities of Target’s
discontinued operations are based on estimates. The recorded assets
include estimated receivables, and the remaining liabilities
include accruals for estimated losses related to claims that may be
asserted against Target Corporation, primarily under guarantees of
certain leases. Given the early stage of its exit, these estimates
involve significant judgment and are based on currently available
information, an assessment of the validity of certain claims and
estimated payments by the Canada Subsidiaries. The Company believes
it is reasonably possible that future adjustments to these amounts
could be material to its results of operations in future periods.
Any such adjustments would be recorded in discontinued
operations.
Data Breach UpdateThe Company incurred breach-related
expenses of $3 million in first quarter 2015, compared with $18
million of net pre-tax expense last year. Since fourth quarter
2013, Target has incurred net expense related to the data breach of
$166 million, reflecting $256 million of gross expense, partially
offset by the recognition of a $90 million insurance
receivable.
MiscellaneousTarget Corporation will webcast its first
quarter earnings conference call at 9:30 a.m. CDT today. Investors
and the media are invited to listen to the call at
Target.com/Investors (hover over “company” then click on “events
& presentations” in the “investors” column). A telephone replay
of the call will be available beginning at approximately 11:30 a.m.
CDT today through the end of business on May 22, 2015. The replay
number is (855) 859-2056 (passcode: 50779902).
Statements in this release regarding second quarter and
full-year 2015 earnings per share guidance and future expenses
related to discontinued operations are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements speak only as of the date they are made
and 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. 31, 2015.
In addition to the GAAP results provided in this release, the
Company provides Adjusted EPS for the three-month periods ended May
2, 2015, and May 3, 2014. The Company also provides ROIC for the
twelve-month periods ended May 2, 2015, and May 3, 2014,
respectively, 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 its capital
allocation over time. The most comparable GAAP measure for adjusted
diluted 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 TargetMinneapolis-based Target Corporation (NYSE:
TGT) serves guests at 1,795 stores and at Target.com. Since 1946,
Target has given 5 percent of its profit to communities, that
giving equals more than $4 million 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)
May 2,2015
May 3,2014
Change Sales $ 17,119 $ 16,657 2.8 % Cost of sales
11,911 11,748 1.4 Selling, general and administrative expenses
3,514 3,376 4.1 Depreciation and amortization 540
511 5.5 Earnings before
interest expense and income taxes 1,154 1,022 12.9 Net interest
expense 155 152
2.5 Earnings before income taxes 999 870 14.8 Provision for
income taxes 348 299
16.1
Net earnings from continuing operations
651 571 14.0
Discontinued operations, net of tax
(16 ) (153 ) (89.1 )
Net
earnings $ 635 $ 418 51.6 %
Basic earnings/(loss) per share Continuing operations $ 1.02
$ 0.90 12.7 % Discontinued operations (0.03 )
(0.24 ) (89.2 )% Net earnings per share $ 0.99
$ 0.66 49.8 %
Diluted
earnings/(loss) per share Continuing operations $ 1.01 $ 0.89
12.6 % Discontinued operations (0.03 )
(0.24 ) (89.2 )% Net earnings per share $ 0.98
$ 0.66 49.7 % Weighted average common shares
outstanding Basic 640.9 633.3 1.2 % Dilutive impact of share-based
awards 5.5 4.9
Diluted 646.4 638.2
1.3 % Antidilutive shares —
5.3
Subject to reclassification
TARGET CORPORATION
Consolidated Statements of Financial Position
(millions) May 2,2015 January 31,2015
May 3,2014 (unaudited) (unaudited)
Assets Cash and cash
equivalents, including short term investments of $2,073, $1,520 and
$3 $ 2,768 $ 2,210 $ 677 Inventory 8,610 8,790 7,905 Assets of
discontinued operations 148 1,333 718 Other current assets
1,672 1,754 1,723
Total current assets 13,198 14,087 11,023 Property and
equipment Land 6,135 6,127 6,146 Buildings and improvements 26,636
26,614 25,991 Fixtures and equipment 5,011 5,346 4,909 Computer
hardware and software 2,395 2,553 2,138 Construction-in-progress
576 424 906 Accumulated depreciation (14,975 )
(15,106 ) (13,756 ) Property and equipment,
net 25,778 25,958 26,334 Noncurrent assets of discontinued
operations 458 442 5,605 Other noncurrent assets
1,012 917 1,080
Total assets $ 40,446 $ 41,404
$ 44,042
Liabilities and shareholders’
investment Accounts payable $ 6,799 $ 7,759 $ 6,519 Accrued and
other current liabilities 3,673 3,783 3,626 Current portion of
long-term debt and other borrowings 112 91 1,466 Liabilities of
discontinued operations 64 103
429 Total current liabilities 10,648
11,736 12,040 Long-term debt and other borrowings 12,654 12,705
11,391 Deferred income taxes 1,359 1,321 1,300 Noncurrent
liabilities of discontinued operations 207 193 1,321 Other
noncurrent liabilities 1,404
1,452 1,504 Total noncurrent
liabilities 15,624 15,671 15,516 Shareholders’ investment Common
stock 53 53 53 Additional paid-in capital 5,170 4,899 4,512
Retained earnings 9,441 9,644 12,743 Accumulated other
comprehensive loss Pension and other benefit liabilities (452 )
(561 ) (415 ) Currency translation adjustment and cash flow hedges
(38 ) (38 ) (407 ) Total
shareholders’ investment 14,174
13,997 16,486
Total liabilities and
shareholders’ investment
$
40,446 $ 41,404 $ 44,042
Common Stock Authorized
6,000,000,000 shares, $.0833 par value; 638,408,643, 640,213,987
and 633,613,396 shares issued and outstanding at May 2, 2015,
January 31, 2015 and May 3, 2014, respectively.
Preferred Stock Authorized
5,000,000 shares, $.01 par value; no shares were issued or
outstanding at May 2, 2015, January 31, 2015 or May 3, 2014.
Subject to reclassification
TARGET CORPORATION Consolidated
Statements of Cash Flows Three Months Ended
(millions) (unaudited) May 2,2015 May 3,2014
Operating activities Net earnings $ 635 $ 418 Losses
from discontinued operations, net of tax (16 )
(153 ) Net earnings from continuing operations 651 571
Adjustments to reconcile net earnings to cash provided by
operations: Depreciation and amortization 540 511 Share-based
compensation expense 26 20 Deferred income taxes 18 (37 ) Noncash
(gains)/losses and other, net (70 ) (13 ) Changes in operating
accounts: Inventory 180 372 Other assets 138 127 Accounts payable
and accrued liabilities (766 ) (736 )
Cash provided by operating activities—continuing operations 717 815
Cash provided by/ (required for) operating activities—discontinued
operations 834 (295 ) Cash
provided by operations 1,551 520
Investing activities Expenditures for property and
equipment (352 ) (471 ) Proceeds from disposal of property and
equipment 6 5 Other investments 21
18 Cash required for investing activities—continuing
operations (325 ) (448 ) Cash provided by/ (required for) investing
activities—discontinued operations 19
(90 ) Cash required for investing activities
(306 ) (538 )
Financing activities Change in
commercial paper, net — 306 Reductions of long-term debt (14 ) (31
) Dividends paid (333 ) (272 ) Repurchase of stock (477 ) —
Prepayment of accelerated share repurchase (a) (120 ) — Stock
option exercises and related tax benefit 257
26 Cash (required for)/ provided by financing
activities (687 ) 29 Effect of
exchange rate changes on cash and cash equivalents —
9 Net increase in cash and cash
equivalents 558 20 Cash and cash equivalents at beginning of period
(b) 2,210 695
Cash and
cash equivalents at end of period (c) $ 2,768
$ 715
(a) $35 million of the prepayment was
refunded and 1.1 million shares were delivered upon settlement of
the accelerated share repurchase during the second quarter of
2015.
(b) Includes cash of our discontinued
operations of $25 million for the three months ended May 3,
2014.
(c) Includes cash of our discontinued
operations of $37 million for the three months ended May 3,
2014.
Subject to reclassification
TARGET CORPORATION Segment
Results Three Months Ended
(millions) (unaudited)
May 2,2015 May 3,2014 Change Sales $ 17,119
$ 16,657 2.8 % Cost of sales 11,911
11,748 1.4 Gross margin 5,208
4,909 6.1 SG&A expenses(a) 3,407
3,345 1.9 EBITDA 1,801 1,564 15.1
Depreciation and amortization 540
511 5.5 EBIT $ 1,261
$ 1,053 19.7 %
Note: We operate as a single segment which
includes all of our continuing operations, excluding net interest
expense, data breach related costs and certain other expenses which
are discretely managed. Our segment operations are designed to
enable guests to purchase products seamlessly in stores, online or
through mobile devices. Beginning with the first quarter of 2015,
segment EBIT includes the impact of the reduction of the beneficial
interest asset. For comparison purposes, prior year segment
EBIT has been revised.
(a) For the three months ended May 2,
2015 and May 3, 2014, SG&A includes $152 million and $149
million, respectively, of net profit-sharing income under our
credit card program agreement.
Three Months Ended
Segment Rate
Analysis
(unaudited)
May 2,2015 May 3,
2014
Gross margin rate 30.4 % 29.5 % SG&A expense rate 19.9
20.1 EBITDA margin rate 10.5 9.4 Depreciation and amortization
expense rate 3.2 3.1 EBIT margin rate 7.4 6.3
Note: Rate analysis metrics are computed
by dividing the applicable amount by sales.
Three Months Ended
Sales by Channel
(unaudited)
May 2,2015 May 3,2014 Stores 97.2 % 97.9 % Digital
2.8 2.1 Total 100 % 100 %
Three Months Ended
Comparable Sales
(unaudited)
May 2,2015 May 3,2014 Comparable sales change 2.3 %
(0.3 )% Drivers of change in comparable sales Number of
transactions 0.9 (2.3 ) Average transaction amount 1.4 2.1 Selling
price per unit 5.1 1.8 Units per transaction (3.6 )
0.3
Contribution to Comparable Sales Change
(unaudited)
Three Months Ended May 2,2015 May 3,2014 Stores
channel comparable sales change 1.5 % (0.7 )% Digital channel
contribution to comparable sales change 0.8
0.5 Total comparable sales change 2.3 % (0.3
)%
Note: Amounts may not foot due to
rounding.
Three Months Ended
REDcard Penetration
(unaudited)
May 2,2015 May 3,2014 Target Debit Card 12.0 % 11.3 %
Target Credit Cards 9.4 9.1 Total
REDcard Penetration 21.5 % 20.4 %
Note: Amounts may not foot due to
rounding.
Number of Stores Retail Square
Feet(a)
Number of Stores and Retail Square
Feet
(unaudited)
May 2,2015 January 31,2015 May 3,2014
May 2,2015 January 31,2015 May 3,2014 Expanded
food assortment stores 1,295 1,292 1,261
167,437 167,026 162,954 SuperTarget stores 249 249
249 44,151 44,151 44,152 General merchandise stores 240 240 271
27,945 27,945 31,618 CityTarget stores 8 8 8 820 820 820
TargetExpress stores 3 1
— 61 21 — Total
1,795 1,790 1,789
240,414 239,963 239,544
(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 restructuring costs, net
expenses related to the 2013 data breach and other matters
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. 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. Prior year amounts
have been revised to present Adjusted EPS on a continuing
operations basis.
Adjusted EPS Three Months Ended May 2, 2015
May 3, 2014
(millions, except
per share data) (unaudited) Pretax
Net ofTax
Per ShareAmounts
Pretax
Net ofTax
Per ShareAmounts
Change GAAP diluted earnings per share from continuing
operations $ 1.01 $ 0.89 12.6% Adjustments Restructuring costs (a)
$ 103 $ 64 $ 0.10 $ — $ — $ — Data Breach related costs (b) 3 2 —
18 11 0.02 Card brand conversion costs (c) — — — 13 8 0.01
Resolution of income tax matters — (3 )
— — (1 )
— Adjusted diluted earnings per share from
continuing operations $ 1.10
$ 0.92 19.6%
Note: Amounts may not foot due to
rounding. Beginning with the first quarter 2015, we no longer
adjust for the reduction of the beneficial interest asset because
it is no longer meaningful. For comparison purposes, prior year
Adjusted EPS has been revised.
(a) Costs related to our previously
announced corporate restructuring activities.
(b) For the three months ended May 2,
2015, we recorded $3 million of pretax Data Breach-related
expenses, primarily legal and other professional services. For the
three months ended May 3, 2014, we recorded $26 million of pretax
expenses and $8 million of expected insurance proceeds, for net
pretax expenses of $18 million.
(c) Expense related to converting the
co-branded REDcard program to MasterCard.
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) May 2,2015
May 3,2014 Earnings from continuing operations before interest
expense and income taxes $ 4,667 $ 4,579 + Operating lease
interest (a)(b) 90 95 Adjusted earnings
from continuing operations before interest expense and income taxes
4,756 4,674 - Income taxes (c) 1,575
1,604
Net operating profit after taxes $
3,181 $ 3,070
Denominator
(dollars in millions)
(unaudited)
May 2,2015 May 3,2014 May 4,2013 Current
portion of long-term debt and other borrowings $ 112 $ 1,466 $ 522
+ Noncurrent portion of long-term debt 12,654 11,391 12,389 +
Shareholders' equity 14,174 16,486 16,520 + Capitalized operating
lease obligations (b)(d) 1,495 1,587 1,668 - Cash and cash
equivalents 2,768 677 1,798 - Net assets of discontinued operations
335 4,573 3,412 Invested
capital $ 25,332 $ 25,680 $ 25,890
Average
invested capital (e) $ 25,506
$ 25,785 After-tax return on
invested capital 12.5%
11.9%
(a) Represents the hypothetical
capitalization of our operating 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 33.1% and 34.3% for the
trailing twelve months ended May 2, 2015 and May 3, 2014.
(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.
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. 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)
May 2,2015 May 3,2014 May 4,2013 Total rent
expense $ 187 $ 199 $ 209 Capitalized operating lease obligations
(Total rent expense x 8) 1,495 1,587 1,668 Operating lease interest
(Capitalized operating lease obligations x 6%) 90
95 n/a
Subject to reclassification
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150520005672/en/
Target CorporationJohn Hulbert, Investors, 612-761-6627orJenna
Reck, Media, 612-761-5829orTarget Media Hotline, 612-696-3400
Target (NYSE:TGT)
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