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Target Reports Third Quarter 2012 Earnings

In addition to the GAAP results provided in this release, the company provides adjusted diluted earnings per share for the three and nine months ended October 27, 2012 and October 29, 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.

About Target

Minneapolis-based Target Corporation (NYSE:TGT) serves guests at 1,782 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.

 
 
TARGET CORPORATION
                   
Consolidated Statements of Operations
Three Months Ended Nine Months Ended
October 27, October 29, October 27, October 29,
(millions, except per share data) (unaudited)     2012     2011     Change       2012     2011     Change  
Sales $ 16,601 $ 16,054 3.4 % $ 49,589 $ 47,529 4.3 %
Credit card revenues       328       348     (5.8 )         986       1,048     (6.0 )  
Total revenues 16,929 16,402 3.2 50,575 48,577 4.1
Cost of sales 11,569 11,165 3.6 34,406 32,874 4.7
Selling, general and administrative expenses 3,704 3,525 5.1 10,686 10,230 4.4
Credit card expenses 106 109 (3.4 ) 333 283 17.4
Depreciation and amortization 542 546 (0.7 ) 1,603 1,568 2.2
Gain on receivables held for sale       (156 )     -     n/a           (156 )     -     n/a    
Earnings before interest expense and income taxes 1,164 1,057 10.1 3,703 3,622 2.3
Net interest expense       192       200     (4.1 )         558       574     (2.7 )  
Earnings before income taxes 972 857 13.4 3,145 3,048 3.2
Provision for income taxes       335       302     10.8           1,107       1,100     0.6    
Net earnings     $ 637     $ 555     14.8   %     $ 2,038     $ 1,948     4.6   %
Basic earnings per share     $ 0.97     $ 0.82     18.0   %     $ 3.09     $ 2.85     8.3   %
Diluted earnings per share     $ 0.96     $ 0.82     17.6   %     $ 3.06     $ 2.84     7.9   %
Weighted average common shares outstanding
Basic 654.8 673.2 (2.7 ) % 659.3 682.2 (3.4 ) %
Diluted       662.2       678.3     (2.4 ) %       665.8       686.9     (3.1 ) %
 
           
 
TARGET CORPORATION
 
Consolidated Statements of Financial Position
October 27, January 28, October 29,
(millions)     2012       2012       2011  
Assets (unaudited) (unaudited)
Cash and cash equivalents, including short-term investments of $800, $194 and $66 $ 1,469 $ 794 $ 821
Credit card receivables, held for sale 5,647 - -
Credit card receivables, net of allowance of $0, $430 and $431 - 5,927 5,713
Inventory 9,533 7,918 9,890
Other current assets       1,846         1,810         1,948  
Total current assets 18,495 16,449 18,372
Property and equipment
Land 6,188 6,122 6,069
Buildings and improvements 27,800 26,837 26,850
Fixtures and equipment 5,280 5,141 5,153
Computer hardware and software 2,418 2,468 2,457
Construction-in-progress 1,365 963 546
Accumulated depreciation       (12,982 )       (12,382 )       (12,035 )
Property and equipment, net 30,069 29,149 29,040
Other noncurrent assets       1,015         1,032         1,035  
Total assets     $ 49,579       $ 46,630       $ 48,447  
Liabilities and shareholders' investment
Accounts payable $ 8,050 $ 6,857 $ 8,053
Accrued and other current liabilities 3,631 3,644 3,273
Unsecured debt and other borrowings 2,528 3,036 2,313
Nonrecourse debt collateralized by credit card receivables       1,500         750         500  
Total current liabilities 15,709 14,287 14,139
Unsecured debt and other borrowings 14,526 13,447 12,897
Nonrecourse debt collateralized by credit card receivables - 250 3,259
Deferred income taxes 1,279 1,191 1,199
Other noncurrent liabilities       1,713         1,634         1,689  
Total noncurrent liabilities 17,518 16,522 19,044
Shareholders' investment
Common stock 55 56 56
Additional paid-in capital 3,854 3,487 3,431
Retained earnings 13,069 12,959 12,340
Accumulated other comprehensive loss
Pension and other benefit liabilities (581 ) (624 ) (516 )
Currency translation adjustment and cash flow hedges       (45 )       (57 )       (47 )
Total shareholders' investment       16,352         15,821         15,264  
Total liabilities and shareholders' investment     $ 49,579       $ 46,630       $ 48,447  
Common shares outstanding       654.5         669.3         671.4  
 
       
 
TARGET CORPORATION
 
Consolidated Statements of Cash Flows                
Nine Months Ended  
October 27, October 29,
(millions) (unaudited)     2012       2011  
Operating activities
Net earnings $ 2,038 $ 1,948
Reconciliation to cash flow
Depreciation and amortization 1,603 1,568
Share-based compensation expense 74 61
Deferred income taxes 73 397
Bad debt expense 141 67
Gain on receivables held for sale (156 ) -
Non-cash (gains)/losses and other, net (15 ) 76
Changes in operating accounts:
Accounts receivable originated at Target 97 120
Inventory (1,615 ) (2,294 )
Other current assets (98 ) (131 )
Other noncurrent assets - 49
Accounts payable 1,193 1,428
Accrued and other current liabilities (109 ) (360 )
Other noncurrent liabilities       122         46  
Cash flow provided by operations       3,348         2,975  
Investing activities
Expenditures for property and equipment (2,338 ) (3,750 )
Proceeds from disposal of property and equipment 35 7
Change in accounts receivable originated at third parties 192 253
Other investments       86         (114 )
Cash flow required for investing activities       (2,025 )       (3,604 )
Financing activities
Change in commercial paper, net - 1,211
Additions to long-term debt 1,971 1,000
Reductions of long-term debt (1,024 ) (272 )
Dividends paid (635 ) (549 )
Repurchase of stock (1,230 ) (1,693 )
Stock option exercises and related tax benefit 279 66
Other       (16 )       1  
Cash flow required for financing activities       (655 )       (236 )
Effect of exchange rate changes on cash and cash equivalents       7         (26 )
Net increase (decrease) in cash and cash equivalents 675 (891 )
Cash and cash equivalents at beginning of period       794         1,712  
Cash and cash equivalents at end of period     $ 1,469       $ 821  
 
 
TARGET CORPORATION
                       
U.S. Retail Segment
                                         
U.S. Retail Segment Results Three Months Ended Nine Months Ended
October 27, October 29, October 27, October 29,
(millions) (unaudited)     2012     2011     Change       2012     2011     Change  
Sales $ 16,601 $ 16,054 3.4 % $ 49,589 $ 47,529 4.3 %
Cost of sales       11,569       11,165     3.6           34,406       32,874     4.7  
Gross margin 5,032 4,889 2.9 15,183 14,655 3.6
SG&A expenses (a)       3,553       3,433     3.5           10,315       9,988     3.3  
EBITDA 1,479 1,456 1.6 4,868 4,667 4.3
Depreciation and amortization       516       525     (1.7 )         1,526       1,527     (0.1 )  
EBIT     $ 963     $ 931     3.4   %     $ 3,342     $ 3,140     6.4   %
EBITDA is earnings before interest expense, income taxes, depreciation and amortization.
EBIT is earnings before interest expense and income taxes.
(a) Loyalty program charges were $78 million and $74 million for the three months ended October 27, 2012 and October 29, 2011, respectively, and $217 million and $189 million for the nine months ended October 27, 2012 and October 29, 2011, respectively. In all periods, these amounts were recorded as reductions to SG&A expenses within the U.S. Retail Segment and increases to operations and marketing expenses within the U.S. Credit Card Segment.
               
U.S. Retail Segment Rate Analysis     Three Months Ended     Nine Months Ended  
October 27,   October 29,   October 27,   October 29,
(unaudited)     2012     2011     2012     2011  
Gross margin rate 30.3 % 30.5 % 30.6 % 30.8 %
SG&A expense rate 21.4 21.4 20.8 21.0
EBITDA margin rate 8.9 9.1 9.8 9.8
Depreciation and amortization expense rate 3.1 3.3 3.1 3.2
EBIT margin rate     5.8     5.8     6.7     6.6  
Rate analysis metrics are computed by dividing the applicable amount by sales.
                           
Comparable-Store Sales Three Months Ended     Nine Months Ended  
October 27, October 29, October 27, October 29,
(unaudited)     2012     2011     2012     2011  
Comparable-store sales change 2.9 % 4.3 % 3.7 % 3.4 %
Drivers of change in comparable-store sales:
Number of transactions 0.5 0.3 1.0 0.4
Average transaction amount 2.4 4.1 2.7 3.1
Selling price per unit 1.2 1.6 1.6 0.2
Units per transaction     1.2     2.5     1.0     2.9  

The comparable-store sales increases or decreases above are calculated by comparingsales in fiscal year periods with comparable prior-year periods of equivalent length.

                           
REDcard Penetration Three Months Ended     Nine Months Ended  
October 27, October 29, October 27, October 29,
(unaudited)     2012     2011     2012     2011  
Target Credit Cards 8.0 % 6.9 % 7.6 % 6.5 %
Target Debit Cards     6.0     2.6     5.2     2.1  
Total Store REDcard Penetration     14.0 %   9.5 %   12.8 %   8.6 %
Represents the percentage of Target store sales that are paid for using REDcards.
 
Number of Stores and Retail Square Feet     Number of Stores     Retail Square Feet (a)
October 27,     January 28,     October 29, October 27,     January 28,     October 29,
(unaudited)     2012     2012     2011     2012     2012     2011
Target general merchandise stores 395 637 640 47,038 76,999 77,349
Expanded food assortment stores 1,130 875 875 146,087 114,219 114,218
SuperTarget stores 251 251 252 44,500 44,503 44,681
CityTarget stores     5     -     -     514     -     -
Total     1,781     1,763     1,767     238,139     235,721     236,248
(a) In thousands; reflects total square feet, less office, distribution center and vacant space.
 
   
TARGET CORPORATION
             
U.S. Credit Card Segment
                                                 
U.S. Credit Card Segment Results Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
October 27, 2012 October 29, 2011 October 27, 2012 October 29, 2011
Annualized Annualized Annualized Annualized
(millions) (unaudited)     Amount     Rate (d)     Amount     Rate (d)     Amount     Rate (d)     Amount     Rate (d)
Finance charge revenue $ 265 18.0 % $ 279 18.1 % $ 801 17.9 % $ 849 18.0 %
Late fees and other revenue 44 3.0 47 3.1 126 2.8 133 2.8
Third party merchant fees       19     1.3       22     1.4       59     1.3       66     1.4
Total revenues       328     22.3       348     22.5       986     22.1       1,048     22.2
Bad debt expense 46 3.1 40 2.6 141 3.2 67 1.4
Operations and marketing expenses (a) 138 9.4 143 9.2 409 9.2 405 8.6
Depreciation and amortization       3     0.2       4     0.3       11     0.2       13     0.3
Total expenses       187     12.7       187     12.1       561     12.5       485     10.3
EBIT 141 9.6 161 10.4 425 9.5 563 11.9
Interest expense on nonrecourse debt
collateralized by credit card receivables       3             18             8             55      
Segment profit     $ 138           $ 143           $ 417           $ 508      
Average receivables funded by Target (b) $ 4,393 $ 2,427 $ 4,557 $ 2,443
Segment pretax ROIC (c)       12.5 %           23.6 %           12.2 %           27.7 %    
(a) See footnote (a) to our U.S. Retail Segment Results table for an explanation of our loyalty program charges.

(b) Amounts represent the portion of average credit card receivables, at par, funded by Target. These amounts exclude $1,500 million and $1,395 million for the three and nine months ended October 27, 2012, respectively, and $3,754 million and $3,843 million for the three and nine months ended October 29, 2011, respectively, of receivables funded by nonrecourse debt collateralized by credit card receivables.

(c) ROIC is return on invested capital, and this rate equals our segment profit divided by average credit card receivables, at par, funded by Target, expressed as an annualized rate.

(d) As an annualized percentage of average credit card receivables, at par.

                                 
Spread Analysis - Total Portfolio     Three Months Ended     Three Months Ended     Nine Months Ended     Nine Months Ended
October 27, 2012 October 29, 2011 October 27, 2012 October 29, 2011
Yield Yield Yield Yield
Amount     Annualized Amount     Annualized Amount     Annualized Amount     Annualized
(unaudited)     (in millions)     Rate       (in millions)     Rate       (in millions)     Rate       (in millions)     Rate
EBIT $ 141 9.6 % (c) $ 161 10.4 % (c) $ 425 9.5 % (c) $ 563 11.9 % (c)
LIBOR (a) 0.2 % 0.2 % 0.2 % 0.2 %
Spread to LIBOR (b)     $ 138     9.3 % (c)     $ 158     10.2 % (c)     $ 415     9.3 % (c)     $ 552     11.7 % (c)
Note: Annualized rates are calculated on a standalone basis.
(a) Balance-weighted one-month LIBOR.
(b) Spread to LIBOR is a metric used to analyze the performance of our total credit card portfolio because the majority of our portfolio earns finance charge revenue at rates tied to the Prime Rate, and the interest rate on all nonrecourse debt collateralized by credit card receivables is tied to LIBOR.

(c) As an annualized percentage of average credit card receivables, at par.

                   
Receivables Rollforward Analysis     Three Months Ended   Nine Months Ended  
October 27, October 29, October 27, October 29,
(millions) (unaudited)     2012     2011     Change   2012     2011     Change
Beginning credit card receivables, at par $ 5,905 $ 6,202 (4.8 ) % $ 6,357 $ 6,843 (7.1 ) %
Charges at Target 1,456 1,205 20.8 4,142 3,348 23.7
Charges at third parties 1,143 1,283 (10.9 ) 3,488 3,886 (10.2 )
Payments (2,902 ) (2,784 ) 4.2 (8,837 ) (8,577 ) 3.0
Other       234       238     (2.1 )     686       644     6.4  
Period-end credit card receivables, at par       5,836   (a)   6,144     (5.0 )     5,836   (a)   6,144     (5.0 )
Average credit card receivables, at par     $ 5,893     $ 6,181     (4.7 )   $ 5,952     $ 6,287     (5.3 )
Accounts with three or more payments (60+ days) past due as a percentage
of period-end credit card receivables, at par       2.8 %     3.3 %         2.8 %     3.3 %    
Accounts with four or more payments (90+ days) past due as a percentage
of period-end credit card receivables, at par       1.9 %     2.2 %         1.9 %     2.2 %    
                                   
Allowance for Doubtful Accounts Three Months Ended Nine Months Ended
October 27, October 29, October 27, October 29,
(millions) (unaudited)     2012     2011     Change   2012     2011     Change
Allowance at beginning of period $ 365 $ 480 (23.8 ) % $ 430 $ 690 (37.7 ) %
Bad debt expense 46 40 15.3 141 67 109.8
Write-offs (b) (95 ) (122 ) (21.0 ) (326 ) (448 ) (27.1 )
Recoveries (b)       29       33     (12.6 )     100       122     (17.6 )
Segment allowance at end of period       345   (a)   431     (20.1 )     345   (a)   431     (20.1 )
As a percentage of period-end credit
card receivables, at par       5.9 %     7.0 %         5.9 %     7.0 %    
Net write-offs as an annualized percentage of
average credit card receivables, at par       4.5 %     5.7 %         5.1 %     6.9 %    
(a) Period-end credit card receivables, at par, less the segment allowance of $345 million, plus the gain on receivables held for sale of $156 million represents credit card receivables, held for sale as reported on the Consolidated Statements of Financial Position.

(b) Write-offs include the principal amount of losses (excluding accrued and unpaid finance charges), and recoveries include current period collections on previously written-off balances. These amounts combined represent net write-offs.

                       
TARGET CORPORATION
 
Canadian Segment
                                                 
Canadian Segment Results Three Months Ended Nine Months Ended
October 27, October 29, October 27, October 29,
(millions) (unaudited)     2012       2011       Change       2012       2011       Change  
Sales $ - $ - - % $ - $ - - %
Cost of sales       -         -       -         -         -       -  
Gross margin - - - - - -
SG&A expenses (a)       72         18       317.4         154         53       188.4  
EBITDA (72 ) (18 ) 317.4 (154 ) (53 ) 188.4
Depreciation and amortization (b)       24         17       36.7         67         28       139.3  
EBIT     $ (96 )     $ (35 )     177.2 %     $ (221 )     $ (81 )     171.5 %
EBITDA is earnings/(loss) before interest expense, income taxes, depreciation and amortization.
EBIT is earnings/(loss) before interest expense and income taxes.
(a) SG&A expenses include start-up costs consisting primarily of compensation, benefits and consulting expenses.
(b) Depreciation and amortization results from depreciation of capital lease assets and leasehold interests. For the three and nine months ended October 27, 2012, the lease payment obligation also gave rise to $20 million and $58 million of interest expense, respectively, compared with $15 million and $25 million for the three and nine months ended October 29, 2011, respectively, recorded in our Consolidated Statements of Operations.
 
TARGET CORPORATION
               
Reconciliation of Non-GAAP Financial Measures
                                       
Three Months Ended Nine Months Ended
October 27, October 29, October 27, October 29,
(unaudited)     2012     2011     Change     2012     2011       Change
GAAP diluted earnings per share $ 0.96 $ 0.82 17.6 % $ 3.06 $ 2.84 7.9 %
Adjustments       (0.06 )     0.04             0.06       0.09        
Adjusted diluted earnings per share     $ 0.90     $ 0.86       4.3 %     $ 3.12     $ 2.93         6.8 %
A detailed reconciliation is provided below.
                                       
(millions, except per share data) (unaudited)     U.S. Retail    

U.S.Credit Card

  Total U.S.     Canadian     Other      

ConsolidatedGAAP Total

Three Months Ended October 27, 2012
Segment profit $ 963 $ 138 $ 1,100 $ (96 ) $ - $ 1,005
Other net interest expense (a) 168 20 - 189
Gain on receivables held for sale   -         -       (156 )       (156 )
Earnings before income taxes 932 (116 ) 156 972
Provision for income taxes (b)   337         (33 )     31   (d)     335  
Net earnings $ 595       $ (83 )   $ 125       $ 637  
Diluted earnings per share (c)                 $ 0.90       $ (0.13 )   $ 0.19       $ 0.96  
Three Months Ended October 29, 2011
Segment profit $ 931 $ 143 $ 1,074 $ (35 ) $ - $ 1,039
Other net interest expense (a)   167         15       -         182  
Earnings before income taxes 907 (50 ) - 857
Provision for income taxes (b)   323         (15 )     (6 ) (d)     302  
Net earnings $ 584       $ (35 )   $ 6       $ 555  
Diluted earnings per share (c)                 $ 0.86       $ (0.05 )   $ 0.01       $ 0.82  
 
Nine Months Ended October 27, 2012
Segment profit $ 3,342 $ 417 $ 3,759 $ (221 ) $ - $ 3,539
Other net interest expense (a) 491 58 - 550
Gain on receivables held for sale   -         -       (156 )       (156 )
Earnings before income taxes 3,268 (279 ) 156 3,145
Provision for income taxes (b)   1,187         (80 )     -   (d)     1,107  
Net earnings $ 2,081       $ (199 )   $ 156       $ 2,038  
Diluted earnings per share (c)                 $ 3.12       $ (0.30 )   $ 0.23       $ 3.06  
Nine Months Ended October 29, 2011
Segment profit $ 3,140 $ 508 $ 3,648 $ (81 ) $ - $ 3,567
Other net interest expense (a)   494         25       -         519  
Earnings before income taxes 3,154 (106 ) - 3,048
Provision for income taxes (b)   1,144         (30 )     (15 ) (d)     1,100  
Net earnings $ 2,010       $ (76 )   $ 15       $ 1,948  
Diluted earnings per share (c)                 $ 2.93       $ (0.11 )   $ 0.02       $ 2.84  
Note: Our segment measure of profit is used by management to evaluate the return on our investment and to make operating decisions. To provide additional transparency, we have disclosed non-GAAP adjusted diluted earnings per share, which excludes the impact of our planned 2013 Canadian market entry, the gain on receivables held for sale and favorable resolution of various income tax matters. We believe this information is useful in providing period-to-period comparisons of the results of our U.S. operations. The sum of the non-GAAP adjustments may not equal the total adjustment amounts due to rounding.
 
(a) Represents interest expense, net of interest income, not included in U.S. Credit Card segment profit. For the three and nine months ended October 27, 2012, U.S. Credit Card segment profit included $3 million and $8 million of interest expense on nonrecourse debt collateralized by credit card receivables, compared with $18 million and $55 million in the respective prior year periods. These amounts, along with other net interest expense, equal consolidated GAAP net interest expense.
(b) Taxes are allocated to our business segments based on estimated income tax rates applicable to the operations of the segment for the period.
(c) For the three and nine months ended October 27, 2012, average diluted shares outstanding were 662.2 million and 665.8 million, respectively, and for the three and nine months ended October 29, 2011, average diluted shares outstanding were 678.3 million and 686.9 million, respectively.
(d) Represents the effect of the resolution of income tax matters. The results for the three and nine months ended October 27, 2012 also include a $57 million tax effect related to the gain on receivables held for sale.




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