Target's Q1 earnings rose 1.2% from a year ago to US$697M as sales grew 6.1% to US$16.5B, comparable-store sales climbed 5.3%; company raises full-year guidance
May 16, 2012
– Target Corporation (NYSE: TGT - News) today reported first quarter net earnings of $697 million, or $1.04 per share. Adjusted earnings per share, a measure the company believes is useful in providing period-to-period comparisons of the results of its U.S. operations, were $1.11 in first quarter 2012, up 11.5 percent from $0.99 in 2011. A reconciliation of non-GAAP financial measures to GAAP measures is provided in the tables attached to this press release. All earnings per share figures refer to diluted earnings per share.
“We’re very pleased with our first quarter earnings, which benefited from better-than-expected sales,” said Gregg Steinhafel, chairman, president, and chief executive officer of Target Corporation. “While our outlook for the remainder of 2012 reflects continued economic uncertainty, we are confident in our strategy, keenly focused on delivering an affordable and inspirational merchandise assortment to our guests and committed to making thoughtful investments in our U.S. and Canadian business segments that we expect will reward our shareholders over time."
Fiscal 2012 Earnings Guidance
For second quarter 2012, the company expects adjusted EPS of $1.04 to $1.14 and GAAP EPS of $0.94 to $1.04.
For full-year 2012, the company has raised its guidance by 5 cents and now expects adjusted EPS of $4.60 to $4.80 and GAAP EPS of $4.10 to $4.30.
The difference between the GAAP and adjusted EPS ranges of 10 cents in the quarter and 50 cents for the full year represents the expected EPS impact of expenses related to the company’s Canadian market entry.
U.S. Retail Segment Results
As previously reported, sales increased 6.1 percent in the first quarter to $16.5 billion in 2012 from $15.6 billion in 2011, due to a 5.3 percent increase in comparable-store sales and the contribution from new stores. Segment earnings before interest expense and income taxes (EBIT) were $1,199 million in the first quarter of 2012, an increase of 12.9 percent from $1,062 million in 2011.
First quarter 2012 U.S. Retail Segment EBITDA and EBIT margin rates were 10.3 percent and 7.3 percent, respectively, compared with 10.1 percent and 6.8 percent in 2011. First quarter gross margin rate declined to 30.2 percent in 2012 from 30.4 percent in 2011, reflecting downward pressure from the company’s integrated growth strategies partially offset by a beneficial mix of higher-margin sales and underlying rate improvements within categories. U.S. Retail Segment first quarter selling, general and administrative (SG&A) expense rate was 19.9 percent in 2012 compared with 20.4 percent in 2011.
U.S. Credit Card Segment Results
First quarter average receivables decreased 6.0 percent to $6.1 billion in 2012 from $6.5 billion in 2011. First quarter 2012 portfolio spread to LIBOR was $137 million, or 9.1%, compared with $209 million, or 13.0%, in 2011. Performance in first quarter 2012 reflected a $35 million reduction in the allowance for doubtful accounts, compared with a $125 million reduction in first quarter 2011.
Canadian Segment Results
First quarter 2012 EBIT was $(55) million, due to start-up expenses, depreciation and amortization related to the company’s expected market entry in 2013. Total expenses related to investments in Target’s Canadian market entry reduced Target’s earnings per share by approximately 8 cents in first quarter 2012.1
1 This amount includes interest expense and tax expense that are not included in the segment measure of profit. A reconciliation of non-GAAP measures is included in the tables attached to this release.
Interest Expense and Taxes
Net interest expense for the quarter was $184 million, including $20 million of interest on capitalized leases related to Target’s Canadian market entry. Net interest expense was $183 million in first quarter 2011.
The company’s effective income tax rate was 36.7 percent in first quarter 2012, including the benefit from favorable resolution of various income tax matters. These tax items increased EPS by approximately 1 cent per share in first quarter 2012.
Capital Returned to Shareholders
In first quarter 2012, the company repurchased approximately 10.5 million shares of its common stock at an average price of $57.31, for a total investment of $604 million, and paid dividends of $201 million.
Target Corporation will webcast its first quarter earnings conference call at 9:30 a.m. CDT today. Investors and the media are invited to listen to the call through the company’s website at www.target.com/investors (click on “Events + Presentations” and then “Archives + Webcasts”). A telephone replay of the call will be available beginning at approximately 11:30 a.m. CDT today through the end of business on May 18, 2012. The replay number is (800) 642-1687 (passcode: 39811558).
Statements in this release regarding second quarter and fiscal 2012 earnings guidance 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 January 28, 2012.
In addition to the GAAP results provided in this release, the company provides adjusted diluted earnings per share for the three months ended April 28, 2012 and April 30, 2011. 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 U.S. 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.
Minneapolis-based Target Corporation (NYSE:TGT - News) serves guests at 1,764 stores across the United States and at Target.com. The company plans to open its first stores in Canada in 2013. In addition, the company operates a credit card segment that offers branded proprietary credit card products. Since 1946, Target has given 5 percent of its income through community grants and programs; today, that giving equals more than $3 million a week. For more information about Target’s commitment to corporate responsibility, visit Target.com/hereforgood.
Consolidated Statements of Operations
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Credit card revenues
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Selling, general and administrative expenses
Credit card expenses
Depreciation and amortization
Earnings before interest expense and income taxes
Net interest expense
Earnings before income taxes
Provision for income taxes
Basic earnings per share
Diluted earnings per share
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