Target Corporation TGT today reported second quarter Adjusted earnings per share1 of $0.78, a decrease of 20.6 percent from $0.98 per share in 2013, and GAAP earnings per share of $0.37. In addition to operating results, second quarter GAAP earnings per share reflect:
- Net pre-tax data breach expenses of $111 million, or (11) cents per share2;
- Pre-tax early debt retirement losses of $285 million, or (27) cents per share2;
- Pre-tax impairment losses on undeveloped U.S. land of $16 million, or (1) cent per share, and;
- A (1)-cent impact related to the reduction of the beneficial interest asset2.
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.
"While results from the quarter didn't meet our expectations, we are seeing some early signs of progress as we work to improve results in the U.S. and Canada,” said John Mulligan, executive vice president and chief financial officer of Target Corporation. “In the U.S., traffic trends continue to recover and monthly sales are improving, with July comparable sales up more than 1 percent. Better U.S. sales have continued into August, driven by early back-to-school results. In Canada, the team is making important changes to operations and the merchandise assortment with a focus on delivering improved results by this holiday season.”
“Target is an extraordinary company. I'm excited to join the team as we work to drive U.S. traffic and sales, improve Canadian operations and accelerate Target's digital transformation,” said Brian Cornell, chairman and chief executive officer of Target Corporation. “In the coming weeks and months I will be focused on listening and learning from Target team members in the U.S. and Canada, and working with the leadership team to develop guest-focused, strategic plans to position Target for long-run success.”
Fiscal 2014 Earnings Guidance
In third quarter 2014, the Company expects Adjusted EPS, reflecting operating results in its U.S. and Canadian Segments, of 40 cents to 50 cents. This measure excludes approximately (2) cents related to the expected reduction of the beneficial interest asset2, as well as any future data breach-related expenses.
Target now expects full-year 2014 Adjusted EPS of $3.10 to $3.30, compared with prior guidance of $3.60 to $3.90. Full-year 2014 GAAP EPS is expected to be (48) cents below Adjusted EPS, reflecting:
- Year-to-date net pre-tax data breach expenses of $129 million, or (13) cents per share2;
- Pre-tax early debt retirement losses, recognized in interest expense, of $285 million, or (27) cents per share2;
- Pre-tax impairment losses on undeveloped U.S. land of $16 million, or (1) cent per share;
- Pre-tax expense of $13 million, or (1) cent per share, related to Target's decision to convert existing co-branded cards to MasterCard in early 2015, and;
- A (6)-cent impact related to the expected reduction of the beneficial interest asset2.
GAAP EPS guidance does not include an estimate of future data breach-related expenses.
| 1Adjusted diluted earnings per share (“Adjusted EPS”), a non-GAAP financial measure, excludes the impact of certain matters not related to the Company's ongoing retail operations, such as data breach expenses, losses associated with the early retirement of debt, the reduction in the beneficial interest asset and land impairment losses. |
| 2See the “Accounting Considerations” section of this release for additional information about expenses related to the data breach, losses on early debt retirement, and the beneficial interest asset. |
U.S. Segment Results
In second quarter 2014, sales increased 0.7 percent to $17.0 billion from $16.8 billion last year, reflecting the contribution from new stores and flat comparable sales. Segment earnings before interest expense and income taxes (EBIT) were $1,160 million in second quarter 2014, a decrease of 12.8 percent from $1,330 million in 2013.
Second quarter EBITDA and EBIT margin rates were 10.0 percent and 6.8 percent, respectively, compared with 10.8 percent and 7.9 percent in 2013. Second quarter gross margin rate declined to 30.4 percent from 31.4 percent in 2013, driven by an increase in promotions. Second quarter SG&A expense rate decreased to 20.4 percent in 2014 compared with 20.6 percent in 2013, reflecting disciplined control of expenses across the organization, including the benefit from Target's expense optimization efforts, partially offset by the de-leveraging impact of flat comparable sales.
Canadian Segment Results
Second quarter Canadian Segment sales increased 63.1 percent to $449 million from $275 million last year, reflecting the contribution from new stores partially offset by an 11.4 percent decline in comparable sales. Second quarter 2014 is the first period with reported comparable sales for the Canadian Segment, reflecting results in 48 Canadian stores that became mature at various points during the quarter. The second-quarter decline in comparable sales reflects the comparison to strong grand opening sales surges in 2013, combined with the impact of market densification later in 2013 which redistributed sales from earlier store openings. Segment EBIT was $(204) million in second quarter compared with $(169) million in 2013.
Second quarter 2014 gross margin rate was 18.4 percent, reflecting the continued impact of efforts to clear excess inventory, compared with 31.6 percent in second quarter 2013, which reflected unusually low clearance markdowns resulting from the short time stores had been open. SG&A expense rate of 48.3 percent in second quarter 2014 compares with 75.2 percent last year, reflecting increased scale in the Canadian Segment and pre-opening costs in last year's results.
Interest Expense and Taxes
Second quarter 2014 net interest expense was $453 million, compared with $171 million last year, driven by a $285 million charge related to the early retirement of debt.
The Company's effective income tax rate was 36.1 percent in the second quarter, compared with 36.4 percent in second quarter 2013. The decrease of 0.3 percentage points was due to a variety of factors, none of which was individually significant.
Capital Returned to Shareholders
The Company paid dividends of $272 million in second quarter 2014, an increase of 18% from $231 million last year.
In second quarter, Target repurchased 614 thousand shares of its common stock at an average price of $55.36, due entirely to the non-cash settlement of forward contracts related to the Company's deferred compensation plans. Beyond this settlement, Target did not repurchase additional shares of its common stock.
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. In second quarter 2014, the Company incurred gross breach-related expenses of $148 million, partially offset by the recognition of a $38 million insurance receivable. Expenses for the quarter include an increase to the accrual for estimated probable losses for what the Company believes to be the vast majority of actual and potential breach-related claims, including claims by payment card networks. Given the varying stages of claims and related proceedings and the inherent uncertainty surrounding them, the Company's estimates involve significant judgment and are based on currently available information, historical precedents and an assessment of the validity of certain claims. These estimates may change as new information becomes available and, although the Company does not believe it is probable, it is reasonably possible that the Company may incur a material loss in excess of the amount accrued. The Company is unable to estimate the amount of such reasonably possible excess loss exposure at this time. The accrual does not reflect future breach-related legal, consulting or administrative fees, which are expensed as incurred and not expected to be material in any individual period. Since the data breach in fourth quarter 2013, the Company has incurred total net breach-related expenses of $146 million, reflecting $236 million of gross expenses, partially offset by the recognition of a $90 million insurance receivable.
In second quarter 2014, Target completed tender offers in which the Company paid $1.0 billion to retire, at market value, $725 million of its long-term debt3. As a result, the Company incurred a pre-tax loss of $285 million, or (27) cents per share, which was recognized as net interest expense in Target's second-quarter Consolidated Statements of Operations.
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, which effectively represented a receivable for the present value of future profit-sharing Target expected to receive on the receivables sold. The beneficial interest asset was reduced in second quarter 2014 by $11 million, compared with a $29 million reduction in second quarter 2013. Since the close of the transaction, the beneficial interest asset has been reduced by $127 million.
| 3See Target's Form 8-K filed on July 16, 2014 for more information about the results of the tender offers. |
Miscellaneous
Target Corporation will webcast its second quarter earnings conference call at 9:30 a.m. CDT 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. CDT today through the end of business on August 22, 2014. The replay number is (855) 859-2056 (passcode: 38951472).
Statements in this release regarding third quarter and full-year 2014 earnings guidance and excess exposure related to the data breach 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 February 1, 2014.
In addition to the GAAP results provided in this release, the Company provides Adjusted diluted earnings per share for the three- and six-month periods ended August 2, 2014 and August 3, 2013, 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. 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 TGT serves guests at 1,925 stores - 1,795 in the United States and 130 in Canada - 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 | Six Months Ended | ||||||||||||||||||||||||
| (millions, except per share data) (unaudited) |
August 2, |
August 3, |
Change |
August 2, |
August 3, |
Change | |||||||||||||||||||
| Sales | $ | 17,406 | $ | 17,117 | 1.7 | % | $ | 34,456 | $ | 33,823 | 1.9 | % | |||||||||||||
| Cost of sales | 12,165 | 11,745 | 3.6 | 24,232 | 23,308 | 4.0 | |||||||||||||||||||
| Selling, general and administrative expenses | 3,816 | 3,698 | 3.2 | 7,409 | 7,287 | 1.7 | |||||||||||||||||||
| Depreciation and amortization | 606 | 542 | 11.9 | 1,186 | 1,079 | 10.0 | |||||||||||||||||||
| Gain on receivables transaction | — | — | — | — | (391 | ) | (100.0 | ) | |||||||||||||||||
| Earnings before interest expense and income taxes | 819 | 1,132 | (27.7 | ) | 1,629 | 2,540 | (35.9 | ) | |||||||||||||||||
| Net interest expense | 453 | 171 | 164.3 | 622 | 801 | (22.3 | ) | ||||||||||||||||||
| Earnings before income taxes | 366 | 961 | (61.9 | ) | 1,007 | 1,739 | (42.1 | ) | |||||||||||||||||
| Provision for income taxes | 132 | 350 | (62.2 | ) | 354 | 629 | (43.7 | ) | |||||||||||||||||
| Net earnings | $ | 234 | $ | 611 | (61.7 | )% | $ | 653 | $ | 1,110 | (41.2 | )% | |||||||||||||
| Basic earnings per share | $ | 0.37 | $ | 0.96 | (61.6 | )% | $ | 1.03 | $ | 1.74 | (40.7 | )% | |||||||||||||
| Diluted earnings per share | $ | 0.37 | $ | 0.95 | (61.5 | )% | $ | 1.02 | $ | 1.72 | (40.5 | )% | |||||||||||||
| Weighted average common shares outstanding | |||||||||||||||||||||||||
| Basic | 633.5 | 634.8 | (0.2 | )% | 633.4 | 638.4 | (0.8 | )% | |||||||||||||||||
| Dilutive impact of share-based awards(a) | 4.9 | 7.2 | 0 | 4.9 | 7.3 | ||||||||||||||||||||
| Diluted | 638.4 | 642.0 | (0.6 | )% | 638.3 | 645.7 | (1.2 | )% | |||||||||||||||||
(a) Excludes 5.1 million and 5.2 million share-based awards for the three and six months ended August 2, 2014, respectively, and 0.1 million and 2.2 million share-based awards for the three and six months ended August 3, 2013, respectively, because their effects were antidilutive.
Subject to reclassification
| TARGET CORPORATION | ||||||||||||
| Consolidated Statements of Financial Position | ||||||||||||
| (millions) |
August 2, 2014 |
February 1, 2014 |
August 3, 2013 |
|||||||||
| (unaudited) | (unaudited) | |||||||||||
| Assets | ||||||||||||
| Cash and cash equivalents, including short-term investments of $3, $3 and $249 | $ | 803 | $ | 695 | $ | 1,018 | ||||||
| Inventory | 8,918 | 8,766 | 8,441 | |||||||||
| Other current assets | 1,833 | 2,112 | 1,944 | |||||||||
| Total current assets | 11,554 | 11,573 | 11,403 | |||||||||
| Property and equipment | ||||||||||||
| Land | 6,202 | 6,234 | 6,213 | |||||||||
| Buildings and improvements | 30,782 | 30,356 | 29,336 | |||||||||
| Fixtures and equipment | 5,466 | 5,583 | 5,351 | |||||||||
| Computer hardware and software | 2,683 | 2,764 | 2,532 | |||||||||
| Construction-in-progress | 735 | 843 | 1,456 | |||||||||
| Accumulated depreciation | (14,673 | ) | (14,402 | ) | (13,483 | ) | ||||||
| Property and equipment, net | 31,195 | 31,378 | 31,405 | |||||||||
| Other noncurrent assets | 1,706 | 1,602 | 1,354 | |||||||||
| Total assets | $ | 44,455 | $ | 44,553 | $ | 44,162 | ||||||
| Liabilities and shareholders' investment | ||||||||||||
| Accounts payable | $ | 7,263 | $ | 7,683 | $ | 7,078 | ||||||
| Accrued and other current liabilities | 3,767 | 3,934 | 3,705 | |||||||||
| Current portion of long-term debt and other borrowings | 306 | 1,160 | 1,833 | |||||||||
| Total current liabilities | 11,336 | 12,777 | 12,616 | |||||||||
| Long-term debt and other borrowings | 13,852 | 12,622 | 12,655 | |||||||||
| Deferred income taxes | 1,317 | 1,433 | 1,331 | |||||||||
| Other noncurrent liabilities | 1,517 | 1,490 | 1,540 | |||||||||
| Total noncurrent liabilities | 16,686 | 15,545 | 15,526 | |||||||||
| Shareholders' investment | ||||||||||||
| Common stock | 53 | 53 | 53 | |||||||||
| Additional paid-in capital | 4,561 | 4,470 | 4,335 | |||||||||
| Retained earnings | 12,611 | 12,599 | 12,285 | |||||||||
| Accumulated other comprehensive loss | ||||||||||||
| Pension and other benefit liabilities | (408 | ) | (422 | ) | (480 | ) | ||||||
| Currency translation adjustment and cash flow hedges | (384 | ) | (469 | ) | (173 | ) | ||||||
| Total shareholders' investment | 16,433 | 16,231 | 16,020 | |||||||||
| Total liabilities and shareholders' investment | $ | 44,455 | $ | 44,553 | $ | 44,162 | ||||||
Common Stock Authorized 6,000,000,000 shares, $.0833 par value; 633,644,605, 632,930,740 and 630,924,647 shares issued and outstanding at August 2, 2014, February 1, 2014 and August 3, 2013, respectively.
Preferred Stock Authorized 5,000,000 shares, $.01 par value; no shares were issued or outstanding at August 2, 2014, February 1, 2014 or August 3, 2013.
Subject to reclassification
| TARGET CORPORATION | ||||||||
| Consolidated Statements of Cash Flows | ||||||||
| Six Months Ended | ||||||||
| (millions) (unaudited) |
August 2, 2014 |
August 3, 2013 |
||||||
| Operating activities | ||||||||
| Net earnings | $ | 653 | $ | 1,110 | ||||
| Adjustments to reconcile net earnings to cash provided by operations: | ||||||||
| Depreciation and amortization | 1,186 | 1,079 | ||||||
| Share-based compensation expense | 42 | 55 | ||||||
| Deferred income taxes | (304 | ) | (136 | ) | ||||
| Bad debt expense(a) | — | 41 | ||||||
| Gain on receivables transaction | — | (391 | ) | |||||
| Loss on debt extinguishment | 285 | 445 | ||||||
| Noncash (gains)/losses and other, net | 32 | (2 | ) | |||||
| Changes in operating accounts: | ||||||||
| Accounts receivable originated at Target | — | 157 | ||||||
| Proceeds on sale of accounts receivable originated at Target | — | 2,703 | ||||||
| Inventory | (143 | ) | (527 | ) | ||||
| Other current assets | 303 | (56 | ) | |||||
| Other noncurrent assets | 10 | 47 | ||||||
| Accounts payable | (425 | ) | 17 | |||||
| Accrued and other current liabilities | (156 | ) | (403 | ) | ||||
| Other noncurrent liabilities | 31 | (30 | ) | |||||
| Cash provided by operations | 1,514 | 4,109 | ||||||
| Investing activities | ||||||||
| Expenditures for property and equipment | (1,052 | ) | (1,917 | ) | ||||
| Proceeds from disposal of property and equipment | 44 | 48 | ||||||
| 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 | ) | (58 | ) | ||||
| Other investments | 46 | 73 | ||||||
| Cash (required for)/provided by investing activities | (982 | ) | 1,269 | |||||
| Financing activities | ||||||||
| Change in commercial paper, net | 109 | (163 | ) | |||||
| Additions to long-term debt | 1,993 | — | ||||||
| Reductions of long-term debt | (2,039 | ) | (3,424 | ) | ||||
| Dividends paid | (545 | ) | (463 | ) | ||||
| Repurchase of stock | — | (1,461 | ) | |||||
| Stock option exercises and related tax benefit | 55 | 363 | ||||||
| Cash (required for) financing activities | (427 | ) | (5,148 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | 3 | 4 | ||||||
| Net increase in cash and cash equivalents | 108 | 234 | ||||||
| Cash and cash equivalents at beginning of period | 695 | 784 | ||||||
| Cash and cash equivalents at end of period | $ | 803 | $ | 1,018 | ||||
(a) Includes net write-offs of credit card receivables prior to the sale of receivables on March 13, 2013.
Subject to reclassification
| TARGET CORPORATION | ||||||||||||||||||||||||
| U.S. Segment | ||||||||||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||
|
U.S. Segment Results |
August 2, 2014 |
August 3, 2013 |
Change |
August 2, 2014 |
August 3, 2013 |
Change | ||||||||||||||||||
| Sales | $ | 16,957 | $ | 16,841 | 0.7 | % | $ | 33,614 | $ | 33,462 | 0.5 | % | ||||||||||||
| Cost of sales | 11,798 | 11,556 | 2.1 | 23,546 | 23,067 | 2.1 | ||||||||||||||||||
| Gross margin | 5,159 | 5,285 | (2.4 | ) | 10,068 | 10,395 | (3.1 | ) | ||||||||||||||||
| SG&A expenses(a) | 3,462 | 3,462 | — | 6,788 | 6,842 | (0.8 | ) | |||||||||||||||||
| EBITDA | 1,697 | 1,823 | (6.9 | ) | 3,280 | 3,553 | (7.7 | ) | ||||||||||||||||
| Depreciation and amortization | 537 | 493 | 8.9 | 1,049 | 984 | 6.6 | ||||||||||||||||||
| EBIT | $ | 1,160 | $ | 1,330 | (12.8 | )% | $ | 2,231 | $ | 2,569 | (13.1 | )% | ||||||||||||
(a) SG&A includes $167 million and $334 million of
profit-sharing income from the arrangement with TD for the three and six
months ended August 2, 2014, respectively, and $183 million and $288
million for the three and six months ended August 3, 2013.
EBITDA
is earnings before interest expense, income taxes, depreciation and
amortization.
EBIT is earnings before interest expense and income
taxes.
| Three Months Ended | Six Months Ended | |||||||||||||||
|
U.S. Segment Rate Analysis |
August 2, 2014 |
August 3, 2013 |
August 2, 2014 |
August 3, 2013 |
||||||||||||
| Gross margin rate | 30.4 | % | 31.4 | % | 30.0 | % | 31.1 | % | ||||||||
| SG&A expense rate | 20.4 | 20.6 | 20.2 | 20.4 | ||||||||||||
| EBITDA margin rate | 10.0 | 10.8 | 9.8 | 10.6 | ||||||||||||
| Depreciation and amortization expense rate | 3.2 | 2.9 | 3.1 | 2.9 | ||||||||||||
| EBIT margin rate | 6.8 | 7.9 | 6.6 | 7.7 | ||||||||||||
Rate analysis metrics are computed by dividing the applicable amount by sales.
| Three Months Ended | Six Months Ended | |||||||||||||||
|
Comparable Sales |
August 2, 2014 |
August 3, 2013 |
August 2, 2014 |
August 3, 2013 |
||||||||||||
| Comparable sales change | — | % | 1.2 | % | (0.2 | )% | 0.3 | % | ||||||||
| Drivers of change in comparable sales: | ||||||||||||||||
| Number of transactions | (1.3 | ) | (1.4 | ) | (1.8 | ) | (1.6 | ) | ||||||||
| Average transaction amount | 1.3 | 2.7 | 1.7 | 2.0 | ||||||||||||
| Selling price per unit | 3.0 | 1.6 | 2.4 | 0.5 | ||||||||||||
| Units per transaction | (1.7 | ) | 1.0 | (0.7 | ) | 1.4 | ||||||||||
The comparable sales increases or decreases above are calculated by comparing sales in fiscal year periods with comparable prior-year periods of equivalent length.
| Three Months Ended | Six Months Ended | |||||||||||||||
|
REDcard Penetration |
August 2, 2014 |
August 3, 2013 |
August 2, 2014 |
August 3, 2013 |
||||||||||||
| Target Debit Card | 11.1 | % | 9.4 | % | 11.2 | % | 9.0 | % | ||||||||
| Target Credit Cards | 9.7 | 9.3 | 9.4 | 8.9 | ||||||||||||
| Total REDcard Penetration | 20.8 | % | 18.7 | % | 20.6 | % | 17.9 | % | ||||||||
Represents the percentage of Target sales that are paid for using REDcards.
| Number of Stores | Retail Square Feet(a) | |||||||||||||||||
|
Number of Stores and Retail Square Feet |
August 2, 2014 |
February 1, 2014 |
August 3, 2013 |
August 2, 2014 |
February 1, 2014 |
August 3, 2013 |
||||||||||||
| General merchandise stores | 259 | 289 | 324 | 30,121 | 33,843 | 38,094 | ||||||||||||
| Expanded food assortment stores | 1,278 | 1,245 | 1,206 | 165,198 | 160,891 | 155,868 | ||||||||||||
| SuperTarget stores | 249 | 251 | 251 | 44,152 | 44,500 | 44,500 | ||||||||||||
| CityTarget stores | 8 | 8 | 7 | 820 | 820 | 703 | ||||||||||||
| TargetExpress stores | 1 | — | — | 21 | — | — | ||||||||||||
| Total | 1,795 | 1,793 | 1,788 | 240,312 | 240,054 | 239,165 | ||||||||||||
(a) In thousands: reflects total square feet, less office, distribution center and vacant space.
Subject to reclassification
| TARGET CORPORATION | ||||||||||||||||||||||||||||
| Canadian Segment | ||||||||||||||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||
|
Canadian Segment Results |
August 2, 2014 |
August 3, 2013 |
Change |
August 2, 2014 |
August 3, 2013 |
Change | ||||||||||||||||||||||
| Sales | $ | 449 | $ | 275 | 63.1 | % | $ | 842 | $ | 361 | 133.1 | % | ||||||||||||||||
| Cost of sales | 367 | 188 | 94.7 | 686 | 241 | 184.3 | ||||||||||||||||||||||
| Gross margin | 82 | 87 | (5.2 | ) | 156 | 120 | 30.2 | |||||||||||||||||||||
| SG&A expenses(a) | 216 | 207 | 4.8 | 434 | 400 | 8.8 | ||||||||||||||||||||||
| EBITDA | (134 | ) | (120 | ) | 12.1 | (278 | ) | (280 | ) | (0.4 | ) | |||||||||||||||||
| Depreciation and amortization(b) | 70 | 49 | 42.1 | 137 | 94 | 45.2 | ||||||||||||||||||||||
| EBIT(c) | $ | (204 | ) | $ | (169 | ) | 20.8 | % | $ | (415 | ) | $ | (374 | ) | 11.1 | % | ||||||||||||
(a) SG&A expenses include start-up and operating
expenses.
(b) Depreciation and amortization
results from depreciation of capital lease assets and leasehold
interests. The lease payment obligation gave rise to interest expense of
$19 million and $38 million for the three and six months ended August 2,
2014, respectively, and $19 million and $39 million for the three and
six months ended August 3, 2013.
(c) For the
three and six months ended August 2, 2014 foreign currency fluctuations
benefited EBIT by $14 million and $40 million respectively, and $2
million and $4 million for the three and six months ended August 3, 2013.
| Three Months Ended | Six Months Ended | |||||||||||||||
|
Canadian Segment Rate Analysis |
August 2, 2014 |
August 3, 2013 |
August 2, 2014 |
August 3, 2013 |
||||||||||||
| Gross margin rate | 18.4 | % | 31.6 | % | 18.5 | % | 33.2 | % | ||||||||
| SG&A expense rate | 48.3 | 75.2 | 51.6 | 110.6 | ||||||||||||
| EBITDA margin rate | (30.0 | ) | (43.6 | ) | (33.1 | ) | (77.4 | ) | ||||||||
| Depreciation and amortization expense rate | 15.6 | 17.9 | 16.3 | 26.1 | ||||||||||||
| EBIT margin rate | (45.6 | ) | (61.5 | ) | (49.4 | ) | (103.6 | ) | ||||||||
Rate analysis metrics are computed by dividing the applicable amount by sales.
|
Comparable Sales |
Three Months Ended |
|||
| Comparable sales change | (11.4 | )% | ||
| Drivers of change in comparable sales | ||||
| Number of transactions | (1.9 | ) | ||
| Average transaction amount | (7.9 | ) | ||
| Selling price per unit | 0.7 | |||
| Units per transaction | (8.5 | ) | ||
Comparable sales for the second quarter 2014 includes sales of 48 Canadian stores open at least 13 months.
| Three Months Ended | Six Months Ended | |||||||||||||||
|
REDcard Penetration |
August 2, 2014 |
August 3, 2013 |
August 2, 2014 |
August 3, 2013 |
||||||||||||
| Target Credit Cards | 2.5 | % | 1.1 | % | 2.2 | % | 1.0 | % | ||||||||
| Target Debit Card | 2.3 | 1.2 | 2.2 | 1.2 | ||||||||||||
| Total REDcard Penetration | 4.8 | % | 2.3 | % | 4.4 | % | 2.2 | % | ||||||||
Represents the percentage of Target sales that are paid for using REDcards.
| Number of Stores | Retail Square Feet(a) | |||||||||||||||||
|
Number of Stores and Retail Square Feet |
August 2, 2014 |
February 1, |
August 3, 2013 |
August 2, 2014 |
February 1, |
August 3, 2013 |
||||||||||||
| General merchandise stores | 130 | 124 | 68 | 15,025 | 14,189 | 7,774 | ||||||||||||
(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 (Adjusted EPS), which excludes the impact of the 2013 sale of our U.S. consumer credit card receivables portfolio, the loss 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 ongoing retail 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. Non-GAAP 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 non-GAAP adjusted EPS differently than we do, limiting the usefulness of the measure for comparisons with other companies. A detailed reconciliation is provided below.
| Three Months Ended | |||||||||||||||||||||||||||||||
| August 2, 2014 | August 3, 2013 | ||||||||||||||||||||||||||||||
| (millions, except per share data) (unaudited) |
Pretax |
Net of |
Per Share |
Pretax |
Net of |
Per Share |
Change | ||||||||||||||||||||||||
| GAAP diluted earnings per share | $ | 0.37 | $ | 0.95 | (61.5 | )% | |||||||||||||||||||||||||
| Adjustments | |||||||||||||||||||||||||||||||
| Loss on early retirement of debt | $ | 285 | $ | 174 | $ | 0.27 | $ | — | $ | — | $ | — | |||||||||||||||||||
| Data Breach related costs, net of insurance receivable (a) | 111 | 71 | 0.11 | — | — | — | |||||||||||||||||||||||||
| Reduction of beneficial interest asset | 11 | 7 | 0.01 | 29 | 18 | 0.03 | |||||||||||||||||||||||||
| Undeveloped land impairments | 16 | 9 | 0.01 | — | — | — | |||||||||||||||||||||||||
| Resolution of income tax matters | — | — | — | — | (3 | ) | — | ||||||||||||||||||||||||
| Adjusted diluted earnings per share | $ | 0.78 | $ | 0.98 | (20.6 | )% | |||||||||||||||||||||||||
| Six Months Ended | |||||||||||||||||||||||||||||||
| August 2, 2014 | August 3, 2013 | ||||||||||||||||||||||||||||||
| (millions, except per share data) (unaudited) |
Pretax |
Net of |
Per Share |
Pretax |
Net of |
Per Share |
Change |
||||||||||||||||||||||||
| GAAP diluted earnings per share | $ | 1.02 | $ | 1.72 | (40.5 | )% | |||||||||||||||||||||||||
| Adjustments | |||||||||||||||||||||||||||||||
| Loss on early retirement of debt | $ | 285 | $ | 174 | $ | 0.27 | $ | 445 | $ | 269 | $ | 0.42 | |||||||||||||||||||
| Data Breach related costs, net of insurance receivable (a) | 129 | 83 | 0.13 | — | — | — | |||||||||||||||||||||||||
| Reduction of beneficial interest asset | 29 | 18 | 0.03 | 45 | 28 | 0.04 | |||||||||||||||||||||||||
| Undeveloped land impairments | 16 | 9 | 0.01 | — | — | — | |||||||||||||||||||||||||
| Card brand conversion costs (b) | 13 | 8 | 0.01 | — | — | — | |||||||||||||||||||||||||
| Resolution of income tax matters | — | (1 | ) | — | — | (3 | ) | (0.01 |
) |
|
|||||||||||||||||||||
| Gain on receivables transaction (c) | — | — | — | (391 | ) | (247 | ) | (0.38 |
) |
|
|||||||||||||||||||||
| Adjusted diluted earnings per share | $ | 1.48 | $ | 1.79 | (17.5 | )% | |||||||||||||||||||||||||
Note: The sum of the non-GAAP adjustments may not equal the total adjustment amounts due to rounding. Beginning with the first quarter 2014, we no longer exclude Canadian Segment results from Adjusted EPS because fiscal 2014 will be our first full year of operating stores in Canada. For comparison purposes, prior year Adjusted EPS has been revised to include Canadian Segment results.
|
(a) |
For the three and six months ended August 2, 2014, we recorded $148 million and $175 million of pretax Data Breach-related expenses, respectively. Along with legal and other professional services, these expenses include an increase to the 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. We also recorded expected insurance proceeds of $38 million and $46 million for the three and six months, respectively, for net pretax expenses of $111 million and $129 million, respectively. | |
|
(b) |
Expense related to converting the co-branded REDcard program to MasterCard. | |
|
(c) |
Represents consideration received from the sale of our U.S. credit card receivables in the first quarter of 2013 in excess of the recorded amount of the receivables. Consideration included a beneficial interest asset of $225 million. | |
Subject to reclassification
Target Corporation
Investors:
John Hulbert, 612-761-6627
or
Financial
Media:
Eric Hausman, 612-761-2054
or
Target Media
Hotline, 612-696-3400
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