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Target Reports Third Quarter 2019 Earnings

Comparable Sales Increase 4.5 Percent

GAAP EPS from Cont. Ops. of $1.37 and Adj EPS of $1.36 vs. Guidance of $1.04 to $1.24

Company Raises Full-Year EPS Guidance

MINNEAPOLIS, Nov. 20, 2019 /PRNewswire/ -- 

  • Third quarter comparable sales grew 4.5 percent, on top of 5.1 percent last year, meaning that comparable sales have risen nearly 10 percent over the last two years.
  • Third quarter comparable sales growth reflects 2.8 percent growth in stores and a 1.7 percentage point contribution from digital sales.
  • Third quarter comparable digital channel sales grew 31 percent, on top of 49 percent last year. Same-day fulfillment services (Order Pick Up, Drive Up and Shipt) accounted for 80% of Target's digital comparable sales growth.
  • Third quarter comparable traffic grew 3.1 percent, driven by increases in both stores and digital channels.
  • Third quarter operating income grew 22.3 percent compared with last year.
  • GAAP EPS from continuing operations of $1.37 was 18.2 percent higher than last year. Adjusted EPS of $1.36 was 24.9 percent higher than last year.
  • Target now expects full-year 2019 GAAP EPS from continuing operations of $6.27 to $6.47 and Adjusted EPS of $6.25 to $6.45, compared with the prior range of $5.90 to $6.20.
  • For additional media materials, please visit: https://corporate.target.com/article/2019/11/q3-2019-earnings

Target Corporation (TGT) today announced its third quarter 2019 performance, including comparable sales growth of 4.5 percent and a 3.1 percent increase in comparable traffic.  The Company reported GAAP earnings per share (EPS) from continuing operations of $1.37 in third quarter 2019, up 18.2 percent from $1.16 in third quarter 2018.  Third quarter Adjusted EPS of $1.36 was 24.9 percent higher than $1.09 in third quarter 2018. The attached tables provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.

Brian Cornell, chairman and CEO of Target, said "The Target team did an excellent job serving our guests and executing our strategy throughout the third quarter. Our third quarter results are further proof of the durability of our strategy, as we're seeing industry-leading strength across multiple metrics, from the top line to the bottom line. Looking ahead, we have ushered in the holiday season with an unwavering commitment to guest service that complements our highly differentiated, value-driven assortment, our exceptional in-store shopping experience as well as an unmatched suite of easy and convenient fulfillment options."

Fourth Quarter and Full-Year 2019 Guidance

For the fourth quarter, Target expects comparable sales growth of 3 to 4 percent, and GAAP EPS from continuing operations of $1.55 to $1.75 and Adjusted EPS of $1.54 to $1.74. For the full year, the Company now expects GAAP EPS from continuing operations of $6.27 to $6.47 and Adjusted EPS of $6.25 to $6.45, compared with the prior range of $5.90 to $6.20. The difference between the GAAP and Adjusted ranges reflect an expected $0.01 impact from a discrete item in the fourth quarter and the $0.01 difference recognized through the third quarter.

Fourth quarter and full-year 2019 GAAP EPS from continuing operations may include the impact of additional discrete items which will be excluded in calculating Adjusted EPS.          

The Company announced today that it plans to issue a post-holiday financial update on Wednesday, January 15, 2020.

Operating Results

Total revenue of $18.7 billion increased 4.7 percent from $17.8 billion last year, reflecting sales growth combined with an 8.8 percent increase in other revenue. Third quarter sales growth of 4.7 percent reflected comparable sales growth of 4.5 percent combined with the contribution from non-mature stores. Comparable digital sales grew 31 percent, contributing 1.7 percentage points to total comparable sales growth.  Operating income was $1,002 million in third quarter 2019, up 22.3 percent from $819 million in third quarter 2018.

Third quarter operating income margin rate was 5.4 percent in 2019, compared with 4.6 percent in 2018. Third quarter gross margin rate was 29.8 percent, compared with 28.7 percent in 2018, reflecting the benefit of merchandising efforts to optimize costs, pricing, promotions and assortment, combined with favorable category sales mix. Third quarter SG&A expense rate was 22.3 percent in 2019, compared with 22.1 percent in 2018. This increase reflected higher marketing and compensation costs, partially offset by broad-based cost savings.

Interest Expense and Taxes

The Company's third quarter 2019 net interest expense was $113 million, compared with $115 million last year, reflecting lower average net debt balances compared to last year. Third quarter 2019 effective income tax rate from continuing operations was 21.7 percent, compared with 13.6 percent last year. Last year's effective income tax rate included discrete benefits of the Tax Cuts and Jobs Act of 2017 (Tax Act).

Shareholder Returns

The Company returned $631 million to shareholders in third quarter 2019, including:

  • Dividends of $337 million, compared with $337 million in third quarter 2018, reflecting a 3.1 percent increase in the dividend per share offset by a decline in share count.
  • Share repurchases totaling $294 million that retired 3.0 million shares of common stock at an average price of $99.25.

At the end of the third quarter, the Company had approximately $0.3 billion of remaining capacity under the $5 billion share repurchase program approved in 2016. In September 2019, Target's Board of Directors authorized a new $5 billion share repurchase program. Repurchases through this program will begin upon completion of the 2016 program.

For the trailing twelve months through third quarter 2019, after-tax return on invested capital (ROIC) was 15.0 percent, compared with 15.8 percent for the twelve months through third quarter 2018. Excluding the discrete impacts of the Tax Act, ROIC was 15.1 percent for the trailing twelve months ended November 2, 2019, compared with 13.9 percent in the comparable prior-year period.  See the tables of this release for additional information about the Company's ROIC calculation.

Conference Call Details

Target will webcast its third quarter earnings conference call at 7:00 a.m. CST today. Investors and the media are invited to listen to the call at investors.target.com (hover over "investors" then click on "events & presentations"). A telephone replay of the call will be available beginning at approximately 10:30 a.m. CST today through the end of business on November 22, 2019. The replay number is 800-477-4783.

Miscellaneous

Statements in this release regarding fourth quarter and full-year 2019 earnings per share and comparable sales 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 February 2, 2019. 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.

About Target

Minneapolis-based Target Corporation (TGT) serves guests at more than 1,800 stores and at Target.com. Since 1946, Target has given 5% of its profit to communities, which today equals millions of dollars a week. For the latest store count or 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




Nine Months Ended



(millions, except per share data) (unaudited)


November 2,

2019


November 3,

2018


Change


November 2,

2019


November 3,

2018


Change

Sales


$

18,414



$

17,590



4.7

%


$

53,997



$

51,699



4.4

%

Other revenue


251



231



8.8



716



680



5.3


Total revenue


18,665



17,821



4.7



54,713



52,379



4.5


Cost of sales


12,935



12,535



3.2



37,808



36,400



3.9


Selling, general and administrative expenses


4,153



3,937



5.5



11,728



11,347



3.4


Depreciation and amortization (exclusive of depreciation included in cost of sales)


575



530



8.5



1,717



1,639



4.8


Operating income


1,002



819



22.3



3,460



2,993



15.6


Net interest expense


113



115



(1.6)



359



352



2.0


Net other (income) / expense


(12)



(9)



36.5



(38)



(21)



83.8


Earnings from continuing operations before income taxes


901



713



26.3



3,139



2,662



17.9


Provision for income taxes


195



97



100.8



703



530



32.8


Net earnings from continuing operations


706



616



14.5



2,436



2,132



14.3


Discontinued operations, net of tax


8



6





11



7




Net earnings


$

714



$

622



14.8

%


$

2,447



$

2,139



14.4

%

Basic earnings per share













Continuing operations


$

1.38



$

1.17



18.2

%


$

4.75



$

4.01



18.5

%

Discontinued operations


0.02



0.01





0.02



0.01




Net earnings per share


$

1.40



$

1.18



18.5

%


$

4.77



$

4.02



18.6

%

Diluted earnings per share













Continuing operations


$

1.37



$

1.16



18.2

%


$

4.71



$

3.98



18.5

%

Discontinued operations


0.02



0.01





0.02



0.01




Net earnings per share


$

1.39



$

1.17



18.5

%


$

4.74



$

3.99



18.7

%

Weighted average common shares outstanding













Basic


509.7



525.9



(3.1)

%


512.5



531.5



(3.6)

%

Diluted


514.8



531.2



(3.1)

%


516.8



536.2



(3.6)

%

Antidilutive shares













Dividends declared per share


$

0.66



$

0.64



3.1

%


$

1.96



$

1.90



3.2

%

Note: Per share amounts may not foot due to rounding.

 

TARGET CORPORATION


Consolidated Statements of Financial Position


(millions, except footnotes) (unaudited)


November 2,

2019


February 2,

2019


November 3,

2018

Assets







Cash and cash equivalents


$

969



$

1,556



$

825


Inventory


11,396



9,497



12,393


Other current assets


1,440



1,466



1,421


Total current assets


13,805



12,519



14,639


Property and equipment







Land


6,040



6,064



6,069


Buildings and improvements


30,467



29,240



29,090


Fixtures and equipment


6,032



5,912



5,784


Computer hardware and software


2,636



2,544



2,660


Construction-in-progress


298



460



384


Accumulated depreciation


(19,089)



(18,687)



(18,380)


Property and equipment, net


26,384



25,533



25,607


Operating lease assets


2,151



1,965



1,997


Other noncurrent assets


1,401



1,273



1,329


Total assets


$

43,741



$

41,290



$

43,572


Liabilities and shareholders' investment







Accounts payable


$

11,258



$

9,761



$

11,959


Accrued and other current liabilities


4,191



4,201



4,096


Current portion of long-term debt and other borrowings


1,159



1,052



1,535


Total current liabilities


16,608



15,014



17,590


Long-term debt and other borrowings


10,513



10,223



10,104


Noncurrent operating lease liabilities


2,208



2,004



2,046


Deferred income taxes


1,215



972



970


Other noncurrent liabilities


1,652



1,780



1,782


Total noncurrent liabilities


15,588



14,979



14,902


Shareholders' investment







Common stock


42



43



43


Additional paid-in capital


6,006



6,042



5,867


Retained earnings


6,270



6,017



5,884


Accumulated other comprehensive loss


(773)



(805)



(714)


Total shareholders' investment


11,545



11,297



11,080


Total liabilities and shareholders' investment


$

43,741



$

41,290



$

43,572


Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 506,677,740, 517,761,600 and 521,810,597 shares issued and outstanding at November 2, 2019, February 2, 2019, and November 3, 2018, respectively.

Preferred Stock Authorized 5,000,000 shares, $0.01 par value; no shares were issued or outstanding during any period presented.

TARGET CORPORATION


Consolidated Statements of Cash Flows




Nine Months Ended

(millions) (unaudited)


November 2,

2019


November 3,

2018

Operating activities





Net earnings


$

2,447



$

2,139


Earnings from discontinued operations, net of tax


11



7


Net earnings from continuing operations


2,436



2,132


Adjustments to reconcile net earnings to cash provided by operations





Depreciation and amortization


1,905



1,826


Share-based compensation expense


116



106


Deferred income taxes


235



261


Noncash losses / (gains) and other, net


6



85


Changes in operating accounts





Inventory


(1,899)



(3,796)


Other assets


(10)



(140)


Accounts payable


1,473



3,298


Accrued and other liabilities


(121)



(158)


Cash provided by operating activities—continuing operations


4,141



3,614


Cash provided by operating activities—discontinued operations


18



10


Cash provided by operations


4,159



3,624


Investing activities





Expenditures for property and equipment


(2,403)



(2,873)


Proceeds from disposal of property and equipment


29



39


Other investments


14



15


Cash required for investing activities


(2,360)



(2,819)


Financing activities





Change in commercial paper, net




490


Additions to long-term debt


994




Reductions of long-term debt


(1,041)



(268)


Dividends paid


(995)



(1,001)


Repurchase of stock


(959)



(1,485)


Accelerated share repurchase pending final settlement


(450)



(450)


Stock option exercises


65



91


Cash required for financing activities


(2,386)



(2,623)


Net decrease in cash and cash equivalents


(587)



(1,818)


Cash and cash equivalents at beginning of period


1,556



2,643


Cash and cash equivalents at end of period


$

969



$

825


 

TARGET CORPORATION


Operating Results



Three Months Ended


Nine Months Ended

Rate Analysis

(unaudited)

November 2,

2019


November 3,

2018


November 2,

2019


November 3,

2018

Gross margin rate

29.8

%


28.7

%


30.0

%


29.6

%

SG&A expense rate

22.3



22.1



21.4



21.7


Depreciation and amortization (exclusive of depreciation included in cost of sales) expense rate

3.1



3.0



3.1



3.1


Operating income margin rate

5.4



4.6



6.3



5.7


Note:  Gross margin rate is calculated as gross margin (sales less cost of sales) divided by sales. All other rates are calculated by dividing the applicable amount by total revenue. Other revenue includes $177 million and $505 million of profit-sharing income under our credit card program agreement for the three and nine months ended November 2, 2019, respectively, and $169 million and $503 million for the three and nine months ended November 3, 2018, respectively.



Three Months Ended


Nine Months Ended

Comparable Sales

(unaudited)

November 2,

2019


November 3,

2018


November 2,

2019


November 3,

2018

Comparable sales change

4.5

%


5.1

%


4.2

%


4.9

%

Drivers of change in comparable sales








Number of transactions

3.1



5.3



3.3



5.1


Average transaction amount

1.4



(0.2)



0.9



(0.2)


Note: Amounts may not foot due to rounding.


Contribution to Comparable Sales Change

(unaudited)

Three Months Ended


Nine Months Ended

November 2,

2019


November 3,

2018


November 2,

2019


November 3,

2018

Stores channel comparable sales change

2.8

%


3.2

%


2.3

%


3.4

%

Digital channel contribution to comparable sales change

1.7



1.9



1.9



1.5


Total comparable sales change

4.5

%


5.1

%


4.2

%


4.9

%

Note: Amounts may not foot due to rounding.



Three Months Ended


Nine Months Ended

Sales by Channel

(unaudited)

November 2,

2019


November 3,

2018


November 2,

2019


November 3,

2018

Stores originated

92.5

%


94.0

%


92.7

%


94.4

%

Digitally originated

7.5



6.0



7.3



5.6


Total

100

%


100

%


100

%


100

%














Three Months Ended


Nine Months Ended

RedCard Penetration

(unaudited)

November 2,

2019


November 3,

2018


November 2,

2019


November 3,

2018

Target Debit Card

12.5

%


12.9

%


12.7

%


13.1

%

Target Credit Cards

10.7



10.8



10.6



10.8


Total RedCard Penetration

23.1

%


23.7

%


23.3

%


23.9

%

Note: Amounts may not foot due to rounding.


 

Number of Stores and Retail Square Feet

(unaudited)

Number of Stores


Retail Square Feet (a)

November 2,

2019

February 2,

2019

November 3,

2018


November 2,

2019

February 2,

2019

November 3,

2018

170,000 or more sq. ft.

272


272


273



48,619


48,604


48,778


50,000 to 169,999 sq. ft.

1,504


1,501


1,505



189,164


188,900


189,496


49,999 or less sq. ft.

86


71


68



2,475


2,077


1,984


Total

1,862


1,844


1,846



240,258


239,581


240,258


(a)

In thousands, reflects total square feet less office, distribution center, and vacant space.

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 to, generally accepted accounting principles in the United States (GAAP). The most comparable GAAP measure is diluted earnings per share from continuing operations (GAAP EPS). 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, limiting the usefulness of the measure for comparisons with other companies.



Three Months Ended





November 2, 2019


November 3, 2018



(millions, except per share data) (unaudited)


Pretax


Net of
Tax


Per Share
Amounts


Pretax


Net of
Tax


Per Share
Amounts


Change

GAAP diluted earnings per share from continuing operations






$

1.37







$

1.16



18.2

%

Adjustments















Tax Act (a)


$



$



$



$



$

(39)



$

(0.07)




Other (c)


(9)



(6)



(0.01)










Adjusted diluted earnings per share from continuing operations






$

1.36







$

1.09



24.9

%




Nine Months Ended





November 2, 2019


November 3, 2018



(millions, except per share data) (unaudited)


Pretax


Net of
Tax


Per Share
Amounts


Pretax


Net of
Tax


Per Share
Amounts


Change

GAAP diluted earnings per share from continuing operations






$

4.71







$

3.98



18.5

%

Adjustments















Tax Act (a)


$



$



$



$



$

(39)



$

(0.07)




Income tax matters (b)










(18)



(0.03)




Other (c)


(9)



(6)



(0.01)










Adjusted diluted earnings per share from continuing operations






$

4.70







$

3.87



21.4

%

Note: Amounts may not foot due to rounding.

(a)

Represents discrete items related to the Tax Cuts and Jobs Act of 2017 (Tax Act).

(b)

Represents benefits from the resolution of certain income tax matters unrelated to current period operations.

(c)

Represents an insurance recovery related to the 2013 data breach.

Earnings from continuing operations before interest expense and income taxes (EBIT) and earnings before interest expense, income taxes, depreciation and amortization (EBITDA) are non-GAAP financial measures which we believe provide meaningful information about our operational efficiency compared with our competitors by excluding the impact of differences in tax jurisdictions and structures, debt levels, and for EBITDA, capital investment. These measures are not in accordance with, or an alternative to, GAAP. The most comparable GAAP measure is net earnings from continuing operations. EBIT and EBITDA should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP. Other companies may calculate EBIT and EBITDA differently, limiting the usefulness of the measure for comparisons with other companies.

EBIT and EBITDA


Three Months Ended




Nine Months Ended



(millions) (unaudited)


November 2,

2019


November 3,

2018


Change


November 2,

2019


November 3,

2018


Change

Net earnings from continuing operations


$

706



$

616



14.5

%


$

2,436



$

2,132



14.3

%

+ Provision for income taxes


195



97



100.8



703



530



32.8


+ Net interest expense


113



115



(1.6)



359



352



2.0


EBIT


$

1,014



$

828



22.4

%


$

3,498



$

3,014



16.1

%

+ Total depreciation and amortization (a)


637



592



7.6



1,905



1,826



4.3


EBITDA


$

1,651



$

1,420



16.2

%


$

5,403



$

4,840



11.6

%

(a)

Represents total depreciation and amortization, including amounts classified within Depreciation and Amortization and within Cost of Sales.

We have also disclosed after-tax return on invested capital from continuing operations (ROIC), which is a ratio based on GAAP information. We believe this metric is useful in assessing the effectiveness of our capital allocation over time. Other companies may calculate ROIC differently, limiting the usefulness of the measure for comparisons with other companies.

After-Tax Return on Invested Capital

(dollars in millions) (unaudited)







Trailing Twelve Months



Numerator


November 2,

2019


November 3,

2018 (a)



Operating income


$

4,577



$

4,122




+ Net other income / (expense)


45



35




EBIT


4,622



4,157




+ Operating lease interest (b)


86



83




- Income taxes (c)(d)


1,043



524




Net operating profit after taxes


$

3,665



$

3,716





Denominator


November 2,

2019


November 3,

2018


October 28,

2017

Current portion of long-term debt and other borrowings


$

1,159



$

1,535



$

1,366


+ Noncurrent portion of long-term debt


10,513



10,104



11,090


+ Shareholders' equity


11,545



11,080



11,092


+ Operating lease liabilities (e)


2,390



2,208



2,041


- Cash and cash equivalents


969



825



2,725


- Net assets of discontinued operations (f)






4


Invested capital


$

24,638



$

24,102



$

22,860


Average invested capital (g)


$

24,369



$

23,481




After-tax return on invested capital (d)



15.0

%



15.8

%





After-tax return on invested capital excluding discrete impacts of Tax Act (d)



15.1

%



13.9

%





(a)

Consisted of 53 weeks.

(b)

Represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases. Calculated using the discount rate for each lease and recorded as a component of rent expense within SG&A Expenses. Operating lease interest is added back to operating income in the ROIC calculation to control for differences in capital structure between us and our competitors.

(c)

Calculated using the effective tax rates for continuing operations, which were 22.1 percent and 12.3 percent for the trailing twelve months ended November 2, 2019, and November 3, 2018, respectively. For the trailing twelve months ended November 2, 2019, and November 3, 2018, includes tax effect of $1,024 million and $514 million, respectively, related to EBIT, and $19 million and $10 million, respectively, related to operating lease interest.

(d)

The effective tax rate for the trailing twelve months ended November 2, 2019, and November 3, 2018, includes discrete tax items of $(3) million and $382 million, respectively, related to the Tax Act.

(e)

Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities.

(f)

Included in Other Assets and Liabilities.

(g)

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.

 

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