GAAP EPS from continuing operations of $1.22
and Adjusted EPS1 of $1.21 were above the
Company’s guidance of $0.80 to $1.00
- 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 (NYSE: 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 (NYSE: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 29,2017 April
30,2016 Change 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 income taxes 1,178 1,312 (10.2 ) 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 29,2017
January 28,2017 April 30,2016
Assets
Cash and cash equivalents, including short term investments
of $1,135, $1,110 and $2,931 $ 2,680 $ 2,512 $ 4,036 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 29,2017 April 30,2016
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
operations 48 (6 ) 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 29,2017 April 30,2016 Change 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
(unaudited)
April 29,2017
April 30,2016 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
(unaudited)
April 29,2017 April 30,2016 Stores 95.7 % 96.5
% Digital 4.3 3.5 Total 100 %
100 % Three Months Ended
Comparable
Sales
(unaudited)
April 29,2017 April 30,2016 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
(unaudited)
Three Months Ended April 29,2017 April 30,2016
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
(unaudited)
April 29,2017 April 30,2016 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
(unaudited)
Number of Stores Retail Square Feet (a) April
29,2017 January 28,2017 April 30,2016 April
29,2017 January 28,2017 April 30,2016 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 ofTax
Per ShareAmounts
Pretax
Net ofTax
Per ShareAmounts
Change 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 29,2017
April 30,2016 Earnings from continuing operations before
interest expense and income taxes $ 4,835 $ 5,688 +
Operating lease interest (a)(b) 72
82 Adjusted earnings from continuing operations
before interest expense and income taxes 4,907 5,770 - Income taxes
(c) 1,638 1,840
Net
operating profit after taxes $ 3,269
$ 3,930
Denominator
(dollars in millions)
(unaudited)
April 29,2017 April 30,2016 May 2,2015 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 29,2017 April 30,2016
May 2,2015 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 6%) 72 82
n/a
Subject to reclassification
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170517005525/en/
Target CorporationJohn Hulbert, Investors, 612-761-6627orErin
Conroy, Media, 612-761-5928orTarget Media Hotline, 612-696-3400
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