Target Reports Fourth Quarter and Fiscal 2012 Earnings
Target Reports Fourth Quarter and Fiscal 2012 Earnings
Adjusted EPS of $1.65 in the fourth quarter and $4.76 for full-year 2012
GAAP EPS of $1.47 in the fourth quarter and $4.52 for full-year 2012
- Target's full-year 2012 adjusted earnings per share of $4.76 and GAAP earnings per share of $4.52 both exceeded the expected range provided at the beginning of the year.
- In 2012, U.S. Retail Segment EBIT grew 5.3 percent on 5.1 percent sales growth.
- The U.S. Credit Card Segment experienced a full-year 2012 spread to LIBOR of 9.1 percent, significantly better than expectations one year ago.
- In 2012, the Company returned more than $2.7 billion to shareholders through dividends and share repurchase, representing more than 90 percent of net earnings.
TargetCorporation (NYS: TGT) today reported fourth quarter net earnings of $961 million, or $1.47 per share, and full-year net earnings of $2,999 million, or $4.52 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 $1.65 in fourth quarter 2012, up 10.1 percent from $1.49 in 2011. Full-year adjusted earnings per share were $4.76, up 7.9 percent from $4.41 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 pleased with Target's fourth quarter performance, particularly in the face of a highly promotional retail environment and continued consumer uncertainty," said Gregg Steinhafel, chairman, president, and chief executive officer of Target Corporation. "Outstanding discipline and execution by our team allowed us to achieve our full-year financial and strategic goals in 2012. We believe these results position us well to deliver on significant plans in 2013, including completion of the largest store opening program in our company's history with 124 stores in Canada and additional Target and CityTarget locations in the U.S., investing in new processes and technology that will improve our guests' multichannel experience and closing the sale of our credit card receivables."
Fiscal 2013 Earnings Guidance
For fiscal 2013, the Company expects adjusted EPS of $4.85 to $5.05 and GAAP EPS of $4.70 to $4.90. The difference between the adjusted and GAAP EPS ranges reflects expected EPS dilution related to our Canadian Segment of approximately (45) cents, partially offset by expected accounting impacts of approximately 30 cents associated with the sale of Target's entire consumer credit card receivables portfolio to TD Bank Group, which the Company now expects to close in first quarter 2013.
In first quarter 2013, the Company expects adjusted EPS of $1.10 to $1.20 and GAAP EPS of $1.22 to $1.32. The difference between the adjusted and GAAP EPS ranges reflects expected EPS dilution related to our Canadian Segment of approximately (23) cents, more-than-offset by expected accounting impacts of approximately 35 cents associated with the sale of Target's entire consumer credit card receivables portfolio to TD Bank Group.
U.S. Retail Segment Results
As previously reported, sales increased 6.8 percent to $22.4 billion in fourth quarter 2012 from $20.9 billion last year, reflecting a 0.4 percent increase in comparable-store sales combined with the contribution from new stores and one additional accounting week1. Segment earnings before interest expense and income taxes (EBIT) were $1,677 million in the fourth quarter of 2012, an increase of 3.2 percent from $1,625 million in 2011.
Fourth quarter EBITDA and EBIT margin rates were 9.8 percent and 7.5 percent, respectively, compared with 10.3 percent and 7.8 percent in 2011. Fourth quarter gross margin rate declined to 27.8 percent in 2012 from 28.4 percent in 2011, reflecting the impact of the Company's integrated growth strategies combined with the impact of markdowns on seasonal merchandise. Fourth quarter selling, general and administrative (SG&A) expense rate was 18.0 percent in 2012, compared with 18.1 percent in 2011.
Full-year 2012 sales increased 5.1 percent to $72.0 billion from $68.5 billion in 2011, reflecting a 2.7 percent increase in comparable-store sales combined with the contribution from new stores and one additional accounting week1. Full-year segment EBIT was $5,019 million in 2012, an increase of 5.3 percent from $4,765 million in 2011.
Full-year 2012 EBITDA and EBIT margin rates were 9.8 percent and 7.0 percent, respectively, compared with 10.0 percent and 7.0 percent in 2011. Full-year gross margin rate was 29.7 percent in 2012, compared with 30.1 percent in 2011, reflecting the impact of the Company's integrated growth strategies. Full-year SG&A expense rate was 19.9 percent in 2012, compared with 20.1 percent in 2011.
1 The three- and twelve-month periods ended February 2, 2013 were 14- and 53-week periods, respectively, compared with 13- and 52-week periods in 2011. The extra week has been excluded from the comparable-store sales calculation.
U.S. Credit Card Segment Results2
Fourth quarter average receivables decreased 4.6 percent to $6.1 billion in 2012 from $6.4 billion in 2011. Fourth quarter 2012 portfolio spread to LIBOR was $141 million, or 8.5 percent, compared with $111 million, or 6.9 percent, in 2011. Performance in fourth quarter 2012 reflected a $10 million reduction in the allowance for doubtful accounts, compared with a $1 million reduction in fourth quarter 2011.
Average receivables for the full year decreased 5.1 percent to $6.0 billion in 2012 from $6.3 billion in 2011. Fiscal year 2012 portfolio spread to LIBOR was $555 million, or 9.1 percent, compared with $663 million, or 10.5 percent, in 2011. Fiscal year performance reflected a $95 million reduction in the allowance for doubtful accounts, compared with a $260 million reduction in 2011.
2 The Company intends to continue reporting a U.S. Credit Card Segment until the credit card receivables transaction with TD Bank Group closes in 2013. The segment results will continue to be reported on the same basis as historical results.
Canadian Segment Results
Fourth quarter and full-year 2012 EBIT was $(148) million and $(369) million, respectively, 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 18 cents in fourth quarter 2012 and 48 cents in fiscal 20123.
3 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 fourth quarter was $204 million, compared with $292 million in fourth quarter 2011. Full-year interest expense was $762 million in 2012, compared with $866 million in 2011. Decreases in fourth quarter and full-year interest expense were due primarily to an $87 million charge related to the early retirement of debt in fourth quarter 2011.
The Company's effective income tax rate was 34.3 percent in the fourth quarter and 34.9 percent for the full year 2012. The full-year 2012 effective income tax rate includes the favorable resolution of various income tax matters that benefited EPS by approximately 9 cents. In 2011, the favorable resolution of various income tax matters increased fourth quarter EPS by approximately 10 cents and increased full-year EPS by approximately 12 cents.
Capital Returned to Shareholders
In fourth quarter 2012, the Company repurchased approximately 10.4 million shares of its common stock at an average price of $61.96 for a total investment of $645 million. The Company also paid dividends of $234 million during the quarter.
For the full year, the Company repurchased approximately 32.2 million shares of its common stock at an average price of $58.96 for a total investment of $1.90 billion, and paid dividends of $869 million. Shares acquired in fiscal 2012 represent 4.8 percent of shares outstanding at the beginning of the fiscal year.
As a result of Target's agreement to sell its entire consumer credit card receivables portfolio to TD Bank Group, GAAP earnings reflect fourth quarter and full-year pre-tax gains of $5 million and $161 million, respectively. These gains are related to the accounting treatment of the consumer credit card receivables as "held for sale" assets.
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 March 1, 2013. The replay number is (855) 859-2056 (passcode: 78426370).
Statements in this release regarding full year and first quarter 2013 earnings guidance, the closing of the credit card receivables transaction and timing thereof, the deployment of proceeds and the transaction's expected impact on earnings performance 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 include: (i) the risk that the credit card receivables transaction may not close or may not close on the expected timeline, and (ii) the risks described in Item 1A of the Company's Form 10-K for the fiscal year ended January 28, 2012 and Form 10-Q for the fiscal quarter ended July 28, 2012.
In addition to the GAAP results provided in this release, the Company provides adjusted diluted earnings per share for the three and twelve months ended February 2, 2013 and January 28, 2012, 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 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 (NYS: TGT) serves guests at 1,778 stores across the United States and at Target.com. The Company plans to open its first stores in Canada in 2013. Since 1946, Target has given 5 percent of its profit through community grants and programs; today, that giving equals more than $4 million a week. For more information about Target's commitment to corporate responsibility, visit Target.com/hereforgood.
For more information, visit Target.com/Pressroom.
|Consolidated Statements of Operations|
|Three Months Ended||Twelve Months Ended|
|February 2,||January 28,||February 2,||January 28,|
|(millions, except per share data) (unaudited)||2013||2012||Change||2013||2012||Change|
|Credit card revenues||356||351||1.8||1,341||1,399||(4.1||)|
|Cost of sales||16,160||14,986||7.8||50,568||47,860||5.7|
|Selling, general and administrative expenses||4,229||3,876||9.1||14,914||14,106||5.7|
|Credit card expenses||135||162||(16.5||)||467||446||5.1|
|Depreciation and amortization||539||564||(4.4||)||2,142||2,131||0.5|
|Gain on receivables held for sale||(5||)||-||n/a||(161||)||-||n/a|
|Earnings before interest expense and income taxes||1,668||1,700||(1.9||)||5,371||5,322||0.9|
|Net interest expense||204||292||(30.2||)||762||866||(12.0||)|
|Earnings before income taxes||1,464||1,408||4.0||4,609||4,456||3.4|
|Provision for income taxes||503||427||17.8||1,610||1,527||5.4|
|Basic earnings per share||$||1.48||$||1.46||1.2||%||$||4.57||$||4.31||5.9||%|
|Diluted earnings per share||$||1.47||$||1.45||0.9||%||$||4.52||$||4.28||5.6||%|
|Weighted average common shares outstanding|
Note: The three and twelve months ended February 2, 2013 consisted of 14 weeks and 53 weeks, respectively, compared with 13 weeks and 52 weeks in the comparable prior-year periods.
Subject to reclassification
|Consolidated Statements of Financial Position|
|February 2,||January 28,|
|Cash and cash equivalents, including short-term investments of $130 and $194||$||784||$||794|
|Credit card receivables, held for sale||5,841||-|
|Credit card receivables, net of allowance of $0 and $430|
|Other current assets||1,860||1,810|
|Total current assets||16,388||16,449|
|Property and equipment|
|Buildings and improvements||28,653||26,837|
|Fixtures and equipment||5,362||5,141|
|Computer hardware and software||2,567||2,468|
|Property and equipment, net||30,653||29,149|
|Other noncurrent assets||1,122||1,032|
|Liabilities and shareholders' investment|
|Accrued and other current liabilities||3,981||3,644|
|Unsecured debt and other borrowings||1,494||3,036|
|Nonrecourse debt collateralized by credit card receivables||1,500||750|
|Total current liabilities||14,031||14,287|
|Unsecured debt and other borrowings||14,654||13,447|
|Nonrecourse debt collateralized by credit card receivables||-||250|
|Deferred income taxes||1,311||1,191|
|Other noncurrent liabilities||1,609||1,634|
|Total noncurrent liabilities||17,574||16,522|
|Additional paid-in capital|