Fourth quarter comparable sales increased
3.8 percent
Fourth Quarter Adjusted EPS of $1.50 was
ahead of the company’s most recent guidance
- Fourth quarter comparable sales
increased 3.8 percent, reflecting a 3.2 percent increase in
comparable transactions. Digital channel sales contributed 0.9
percentage points to comparable sales growth.
- Target’s fourth quarter 2014 Adjusted
EPS of $1.50 was above the company’s most recent guidance of $1.43
to $1.47 per share.
- Target’s full-year comparable sales
grew 1.3 percent. Digital channel sales growth of more than 30
percent contributed 0.7 percentage points to 2014 comparable sales
growth.
- Target paid dividends of $1.2 billion
in fiscal 2014, an increase of 19.8 percent above 2013.
Target Corporation (NYSE: TGT) today reported fourth quarter
2014 Adjusted earnings per share1 of $1.50, an increase of 14.9
percent from $1.31 in 2013, and full-year Adjusted earnings per
share of $4.27, a decrease of 2.6 percent from $4.38 last year.
GAAP earnings per share from continuing operations were $1.49 in
fourth quarter and $3.83 in full-year 2014, compared with $1.22 and
$4.20 in 2013, respectively. In fourth quarter, Target recognized a
pre-tax loss of $5.1 billion related to its discontinued Canadian
operations, resulting in a $(5.59) loss per share. The tables
attached to this press release provide a reconciliation of non-GAAP
to GAAP measures. All earnings per share figures refer to diluted
earnings per share.
1Adjusted diluted earnings per share from continuing
operations (“Adjusted EPS”), a non-GAAP financial measure, excludes
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 fourth quarter financial results, which
were driven by better-than-expected sales and particularly strong
performance in our signature categories-style, baby, kids and
wellness,” said Brian Cornell, chairman and chief executive officer
of Target Corporation. “We’re seeing early momentum in our efforts
to transform Target, and our team is entering the new fiscal year
with a singular focus on continuing to differentiate our
merchandise assortment and shopping experience while controlling
costs by reducing complexity and simplifying the way we work. We’re
confident that these efforts will allow us to grow our earnings
while returning cash to our shareholders in 2015 and beyond,
driving improvements in Target’s return on invested capital and
creating long-term value for our shareholders.”
Fiscal 2015 Earnings Guidance
In first quarter 2015, Target expects Adjusted EPS, reflecting
results of operations in its single-segment business, of $0.95 to
$1.05, compared with $0.92 in first quarter 2014. The Company will
provide full-year 2015 guidance at its meeting with the financial
community on March 3, 2015, from approximately 2:30 p.m. to 5:00
p.m. EST. Investors and others are invited to access the
presentations and Q&A session online on the Events &
Presentations section of Target.com/Investors.
Results of Continuing Operations
Fourth quarter 2014 sales increased 4.1 percent to $21.8 billion
from $20.9 billion last year, reflecting a 3.8 percent increase in
comparable sales combined with sales from new stores. Segment
earnings before interest expense and income taxes (EBIT) were
$1,603 million in fourth quarter 2014, an increase of 13.4 percent
from $1,413 million in 2013.
Fourth quarter EBITDA and EBIT margin rates were 9.9 percent and
7.4 percent, respectively, compared with 9.2 percent and 6.8
percent in 2013. Fourth quarter gross margin rate was 28.5 percent,
compared with 27.6 percent in 2013, reflecting the benefit of
annualizing clearance markdowns associated with the fourth quarter
2013 data breach, combined with the benefit of a favorable
merchandise mix in fourth quarter 2014. Fourth quarter SG&A
expense rate was 18.6 percent in 2014 compared with 18.4 percent in
2013, reflecting higher marketing, technology and incentive expense
rates this year.
Full-year 2014 sales increased 1.9 percent to $72.6 billion from
$71.3 billion last year, reflecting a 1.3 percent increase in
comparable sales combined with sales from new stores. Full-year
EBIT was $4,761 million in 2014, a decrease of 4.0 percent from
$4,959 million last year.
Full-year 2014 EBITDA and EBIT margin rates were 9.5 percent and
6.6 percent, respectively, compared with 9.8 percent and 7.0
percent in 2013. Full-year gross margin rate was 29.4 percent,
compared with 29.8 percent in 2013, driven by increased promotional
activity in the first three quarters of 2014. Full-year SG&A
expense rate was 19.9 percent in 2014 compared with 20.0 percent in
2013, reflecting disciplined expense control across the
organization.
Interest Expense and Taxes from Continuing Operations
The Company’s fourth quarter 2014 net interest expense was $151
million, compared with $142 million last year. Full-year net
interest expense was $882 million in 2014 and $1,049 million in
2013. Excluding losses of $285 million and $445 million related to
the early retirement of debt in 2014 and 2013, respectively,
full-year 2014 net interest expense was approximately flat to last
year.
The Company’s fourth quarter effective income tax rate from
continuing operations was 33.0 percent in 2014 and 33.5 percent
last year. Target’s full-year 2014 effective income tax rate from
continuing operations decreased 1.6 percentage points to 33.0
percent from 34.6 percent in 2013, which was driven primarily by
the net tax effect of the Company’s global sourcing operations and
the favorable resolution of various income tax matters.
Capital Returned to Shareholders
Target paid dividends of $330 million in fourth quarter, a 21.6
percent increase from $272 million in 2013. In full-year 2014, the
Company paid dividends of $1,205 million, a 19.8 percent increase
from $1,006 million last year.
Target did not repurchase any shares of its common stock through
open market transactions during fourth quarter or full-year
2014.
Discontinued Operations
On January 14, 2015, following a comprehensive assessment of
Canadian operations, Target’s Board of Directors approved a plan to
discontinue operating stores in Canada. As a result of the
decision, Target recorded a pretax impairment loss and other
charges of $(5,105) million in fourth quarter 2014. After-tax
losses from discontinued operations were $(3,600) million in fourth
quarter, or $(5.59) per share, and $(4,085) million in full-year
2014, or $(6.38) per share.
Certain of the 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
that 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.
Accounting Considerations
During fourth quarter 2013, Target experienced a data breach in
which an intruder gained unauthorized access to its network and
stole certain payment card and other guest information. The Company
incurred breach-related expenses of $4 million in fourth quarter
2014 and full-year net expense of $145 million, which reflects $191
million of gross expense partially offset by the recognition of a
$46 million insurance receivable. Fourth quarter and full-year 2013
net expense related to the data breach was $17 million, reflecting
$61 million of gross expense partially offset by the recognition of
a $44 million insurance receivable.
At the close of the sale of its entire U.S. consumer credit card
receivables portfolio to TD Bank Group in first quarter 2013,
Target recognized a $225 million beneficial interest asset. The
fourth quarter and full-year 2014 beneficial interest asset
reductions were $13 million and $53 million, respectively, compared
with $16 million and $98 million in the same periods last year.
Since the close of the transaction, the beneficial interest asset
has been reduced by $151 million.
Miscellaneous
Target Corporation will webcast its fourth quarter earnings
conference call at 9:30 a.m. CST today. Investors and the media are
invited to listen to the call through the Company’s website at
www.target.com/investors (click on
“events & presentations”). A telephone replay of the call will
be available beginning at approximately 11:30 a.m. CST today
through the end of business on Feb. 27, 2015. The replay number is
(855) 859-2056 (passcode: 39278650).
Statements in this release regarding first quarter 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 Feb. 1, 2014 and Item 1A of the Company’s Form 10-Q for the
quarter ended Nov. 1, 2014.
In addition to the GAAP results provided in this release, the
Company provides Adjusted diluted earnings per share for the three-
and twelve-month periods ended Jan. 31, 2015 and Feb. 1, 2014,
respectively. 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. Management believes Adjusted
EPS is useful in providing period-to-period comparisons of the
results of the Company’s ongoing retail operations. Adjusted EPS
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 differently than the Company
does, limiting the usefulness of the measure for comparisons with
other companies.
About Target
Minneapolis-based Target Corporation (NYSE: TGT) serves guests
at 1,790 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
ABullseyeView.com or follow @TargetNews on Twitter.
TARGET CORPORATION Consolidated Statements
of Operations Three Months Ended
Twelve Months Ended
January 31, February 1,
January 31, February 1, (millions,
except per share data) (unaudited) 2015
2014 Change
2015 2014 Change
Sales $ 21,751 $ 20,893 4.1 % $ 72,618 $ 71,279 1.9 % Cost of sales
15,563 15,124 2.9 51,278 50,039 2.5 Selling, general and
administrative expenses 4,058 3,946 2.8 14,676 14,465 1.5
Depreciation and amortization 545 508 7.3 2,129 1,996 6.7 Gain on
receivables transaction — —
n/a
— (391 )
(100.0 ) Earnings from continuing operations before interest
expense and income taxes 1,585 1,315 20.6 4,535 5,170 (12.3 ) Net
interest expense 151 142
6.1 882
1,049 (16.0 ) Earnings from continuing
operations before income taxes 1,434 1,173 22.3 3,653 4,121 (11.4 )
Provision for income taxes 474
393 20.7 1,204
1,427 (15.6 ) Net earnings from
continuing operations 960 780 23.1 % 2,449 2,694 (9.1 )%
Discontinued operations, net of tax (3,600 )
(260 ) (4,085 )
(723 ) Net earnings
$ (2,640 ) $ 520
$ (1,636 ) $ 1,971
Basic earnings per share Continuing
operations $ 1.51 $ 1.23 22.1 % $ 3.86 $ 4.24 (9.0 )% Discontinued
operations (5.64 ) (0.41 )
(6.44 ) (1.14 )
Net earnings per share $
(4.14 ) $ 0.82
$ (2.58 ) $ 3.10
Diluted earnings per share Continuing operations $
1.49 $ 1.22 22.0 % $ 3.83 $ 4.20 (8.8 )% Discontinued operations
(5.59 ) (0.41 )
(6.38 ) (1.13 )
Net earnings per share $ (4.10 )
$ 0.81 $
(2.56 ) $ 3.07
Weighted average common shares outstanding Basic 637.9 632.3 0.9 %
634.7 635.1 (0.1 )% Dilutive impact of share-based awards
6.1 5.8
5.4 6.7
Diluted 644.0
638.1 0.9 % 640.1
641.8 (0.3 )% Antidilutive
shares 0.5 2.5
3.3 2.3
Subject to reclassification
TARGET CORPORATION Consolidated
Statements of Financial Position
January 31, February 1, (millions)
(unaudited) 2015 2014
Assets Cash and cash equivalents, including
short-term investments of $1,520 and $3 $ 2,210 $ 670 Inventory
8,790 8,278 Assets of discontinued operations 1,321 793 Other
current assets 1,754 1,832
Total current assets 14,075 11,573 Property and equipment
Land 6,127 6,143 Buildings and improvements 26,614 25,984 Fixtures
and equipment 5,346 5,199 Computer hardware and software 2,553
2,395 Construction-in-progress 424 757 Accumulated depreciation
(15,106 ) (14,066 ) Property and
equipment, net 25,958 26,412 Noncurrent assets of discontinued
operations 454 5,461 Other noncurrent assets 917
1,107
Total assets
$ 41,404 $ 44,553
Liabilities and
shareholders’ investment Accounts payable $ 7,759 $ 7,335
Accrued and other current liabilities 3,783 3,610 Current portion
of long-term debt and other borrowings 91 1,143 Liabilities of
discontinued operations 103 689
Total current liabilities 11,736 12,777 Long-term debt and
other borrowings 12,705 11,429 Deferred income taxes 1,321 1,349
Noncurrent liabilities of discontinued operations 193 1,296 Other
noncurrent liabilities 1,452
1,471 Total noncurrent liabilities 15,671 15,545
Shareholders’ investment
Common stock 53 53 Additional paid-in capital 4,899 4,470 Retained
earnings 9,644 12,599 Accumulated other comprehensive loss Pension
and other benefit liabilities (561 ) (422 ) Currency translation
adjustment and cash flow hedges (38 )
(469 ) Total shareholders’ investment 13,997
16,231
Total liabilities and shareholders’
investment $ 41,404 $ 44,553
Common Stock Authorized 6,000,000,000 shares, $.0833 par
value; 640,213,987 and 632,930,740 shares issued and outstanding at
January 31, 2015 and February 1, 2014, respectively.
Preferred Stock Authorized 5,000,000 shares, $.01 par
value; no shares were issued or outstanding at January 31, 2015 or
February 1, 2014.
Subject to reclassification
TARGET CORPORATION Consolidated Statements
of Cash Flows Twelve Months Ended
January 31, February 1, (millions)
(unaudited) 2015 2014
Operating activities Net earnings $ (1,636 ) $ 1,971 Losses
from discontinued operations, net of tax (4,085 )
(723 ) Net earnings from continuing operations 2,449 2,694
Adjustments to reconcile net earnings to cash provided by
operations Depreciation and amortization 2,129 1,996 Share-based
compensation expense 71 106 Deferred income taxes 7 58 Gain on
receivables transaction — (391 ) Loss on debt extinguishment 285
445 Noncash losses/(gains) and other, net (a) 40 121 Changes in
operating accounts: Accounts receivable originated at Target — 157
Proceeds on sale of accounts receivable originated at Target —
2,703 Inventory (512 ) (504 ) Other assets (115 ) (79 ) Accounts
payable and accrued liabilities 777
213 Cash provided by operating activities—continuing
operations 5,131 7,519 Cash required for operating
activities—discontinued operations (692 )
(999 ) Cash provided by operations 4,439
6,520
Investing activities
Expenditures for property and equipment (1,786 ) (1,886 ) Proceeds
from disposal of property and equipment 95 70 Change in accounts
receivable originated at third parties — 121 Proceeds from sale of
accounts receivable originated at third parties — 3,002 Cash paid
for acquisitions, net of cash assumed (20 ) (157 ) Other
investments 106 130 Cash
(required for)/provided by investing activities—continuing
operations (1,605 ) 1,280 Cash required for investing
activities—discontinued operations (321 )
(1,551 ) Cash required for investing activities
(1,926 ) (271 )
Financing activities
Change in commercial paper, net (80 ) (890 ) Additions to long-term
debt 1,993 — Reductions of long-term debt (2,079 ) (3,463 )
Dividends paid (1,205 ) (1,006 ) Repurchase of stock — (1,461 )
Stock option exercises and related tax benefit 373
456 Cash required for financing
activities (998 ) (6,364 ) Effect of
exchange rate changes on cash and cash equivalents —
26 Net increase/(decrease) in cash and
cash equivalents 1,515 (89 ) Cash and cash equivalents at beginning
of period (b) 695 784
Cash and cash equivalents at end of period (c)
$ 2,210 $ 695
(a) Includes net write-offs of credit card receivables prior to
the sale of our U.S. consumer credit card receivables on
March 13, 2013.(b) Includes cash of our discontinued
operations of $25 million and $59 million for 2014 and 2013,
respectively.(c) Includes cash of our discontinued operations of
$25 million for 2013.
Subject to reclassification
TARGET CORPORATION Segment Results
Three Months Ended
Twelve Months Ended January 31,
February 1, January 31,
February 1, (millions) (unaudited)
2015 2014 Change
2015 2014
Change Sales $ 21,751 $ 20,893 4.1 % $ 72,618 $ 71,279 1.9 %
Cost of sales 15,563 15,124
2.9 51,278
50,039 2.5 Gross margin 6,188
5,769 7.3 21,340 21,240 0.5 SG&A expenses(a)
4,040 3,848 5.0
14,450 14,285
1.2 EBITDA 2,148 1,921 11.8 6,890 6,955 (0.9 )
Depreciation and amortization 545
508 7.3 2,129
1,996 6.7 EBIT
$ 1,603 $ 1,413
13.4 % $ 4,761 $ 4,959
(4.0 )%
Note: Effective January 15, 2015, 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.
(a) SG&A includes credit card revenues and expenses prior to
the March 2013 sale of our U.S. consumer credit card portfolio
to TD Bank. SG&A also includes profit sharing income from the
arrangement with TD Bank of $176 million and $682 million for the
three and twelve months ended January 31, 2015, respectively,
and $182 million and $653 million for the three and twelve months
ended February 1, 2014.
Three Months Ended
Twelve Months Ended Rate Analysis January 31,
February 1, January 31,
February 1, (unaudited) 2015
2014 2015
2014 Gross margin rate 28.5 % 27.6 % 29.4 % 29.8 % SG&A
expense rate 18.6 18.4 19.9 20.0 EBITDA margin rate 9.9 9.2 9.5 9.8
Depreciation and amortization expense rate 2.5 2.4 2.9 2.8 EBIT
margin rate 7.4 6.8
6.6 7.0
Rate analysis metrics are computed by dividing the applicable
amount by sales.
Three Months Ended
Twelve Months Ended Comparable Sales January
31, February 1, January 31,
February 1, (unaudited)
2015 2014 2015
2014 Comparable sales change 3.8 % (2.5 )% 1.3
% (0.4 )% Drivers of change in comparable sales: Number of
transactions 3.2 (5.5 ) (0.2 ) (2.7 ) Average transaction amount
0.6 3.2 1.5 2.3 Selling price per unit 4.5 2.0 3.2 1.6 Units per
transaction (3.7 ) 1.1
(1.6 ) 0.7
Three Months Ended
Twelve Months Ended Contribution to
Comparable Sales Change January 31,
February 1, January 31, February
1, (unaudited) 2015
2014 2015 2014
Stores channel comparable sales change 2.8 % (3.0 )% 0.7 % (0.7 )%
Digital channel contribution to comparable sales change
0.9 0.5 0.7
0.3 Total comparable sales change
3.8 % (2.5 )% 1.3 %
(0.4 )%
The comparable sales increases or decreases above are calculated
by comparing sales in fiscal year periods with comparable
prior-year periods of equivalent length. Amounts may not foot due
to rounding.
Three Months Ended Twelve Months Ended
REDcard Penetration January 31,
February 1, January 31, February
1, (unaudited) 2015
2014 2015 2014
Target Credit Cards 9.9 % 10.0 % 9.7 % 9.3 % Target Debit Card
11.1 10.9
11.2 9.9 Total REDcard Penetration
21.1 % 20.9 % 20.9 %
19.3 %
Note: The sum of Target Credit Cards and Target Debit Card
penetration may not equal Total REDcard Penetration due to
rounding.
Represents the percentage of Target sales that are paid with
REDcards.
Number of Stores Retail Square
Feet(a) Number of Stores and Retail Square Feet
January 31, February 1, January
31, February 1, (unaudited)
2015 2014
2015 2014 Expanded food assortment
stores 1,292 1,245 167,026 160,891 SuperTarget stores 249 251
44,151 44,500 General merchandise stores 240 289 27,945 33,843
CityTarget stores 8 8 820 820 Target Express 1
— 21 —
Total 1,790 1,793
239,963 240,054
(a) In thousands: reflects total square feet, less office,
distribution center and vacant space.
TARGET CORPORATION Reconciliation of Non-GAAP
Financial Measures
Earnings Per Share From Continuing
Operations
Three Months Ended
Twelve Months Ended January 31,
February 1, January 31,
February 1, (unaudited) 2015
2014 Change
2015 2014 Change
GAAP diluted earnings per share $ 1.49 $ 1.22 22.0 % $ 3.83 $ 4.20
(8.8 )% Adjustments 0.01 0.09
0.44
0.18 Adjusted diluted
earnings per share $ 1.50 $ 1.31
14.9 % $ 4.27
$ 4.38 (2.6 )%
To provide additional transparency, we have disclosed non-GAAP
adjusted diluted earnings per share from continuing operations
(Adjusted EPS). This metric excludes the impact of the 2013 sale of
our U.S. consumer credit card receivables portfolio, losses on
early retirement of debt, 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 to, generally accepted
accounting principles in the United States. The most comparable
GAAP measure is diluted earnings per share from continuing
operations. Adjusted EPS from continuing operations should not be
considered in isolation or as a substitution for analysis of our
results as reported under GAAP. Other companies may calculate
non-GAAP adjusted EPS from continuing operations 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.
Three Months Ended
2014 2013
Per Share
Per Share
(millions, except per share data)
(unaudited)
Pretax
Net of Tax
Amounts Pretax
Net of Tax
Amounts Change GAAP
diluted earnings per share from continuing operations $ 1.49 $ 1.22
22.0 % Adjustments Reduction of beneficial interest asset $ 13 $ 8
$ 0.01 $ 16 $ 10 $ 0.02 Data Breach related costs, net of insurance
receivable 4 4 0.01 17 11 0.02 Other (a) — — — 64 40 0.06
Resolution of income tax matters —
(5 ) (0.01 ) —
(6 ) (0.01 )
Adjusted diluted earnings per share from continuing operations
$ 1.50
$ 1.31 14.9 %
Twelve Months Ended
2014 2013
Per Share
Per Share
(millions, except per share data)
(unaudited)
Pretax
Net of Tax
Amounts Pretax
Net of Tax
Amounts Change GAAP
diluted earnings per share from continuing operations $ 3.83 $ 4.20
(8.8 )% Adjustments Loss on early retirement of debt $ 285 $ 173 $
0.27 $ 445 $ 270 $ 0.42 Data Breach related costs, net of insurance
receivable (b) 145 94 0.15 17 11 0.02 Reduction of beneficial
interest asset 53 32 0.05 98 61 0.09 Other (a) 29 18 0.03 64 40
0.06 Gain on receivables transaction — — — (391 ) (247 ) (0.38 )
Resolution of income tax matters —
(35 ) (0.06 ) —
(16 ) (0.03 )
Adjusted diluted earnings per share from continuing operations
$ 4.27
$ 4.38 (2.6 )%
Note: The sum of the non-GAAP adjustments may not equal the
total adjustment amounts due to rounding.
(a) For the twelve months ended January 31, 2015, includes
impairments of $16 million related to undeveloped land in the U.S.
and $13 million of expense related to converting our co-branded
card program to MasterCard. For the three and twelve months ended
February 1, 2014, includes a $23 million workforce-reduction charge
primarily related to severance and benefits costs, a $22 million
charge related to part-time team member health benefit changes, and
$19 million in impairment charges related to certain parcels of
undeveloped land.
(b) Along with legal and other professional services, expenses
for the twelve months ended January 31, 2015, include an accrual
for estimated probable losses for what we believe to be the vast
majority of actual and potential breach-related claims, including
claims by payment card networks.
Subject to reclassification
Target CorporationInvestors:John Hulbert,
612-761-6627orMedia:Eddie Baeb, 612-761-9658orTarget Media Hotline,
612-696-3400
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