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Target (TGT)

Q4 2011 Earnings Call

February 23, 2012 10:30 am ET


Gregg W. Steinhafel - Chairman, Chief Executive Officer and President

Kathryn A. Tesija - Executive Vice President of Merchandising

Douglas A. Scovanner - Chief Financial Officer, Chief Accounting Officer and Executive Vice President

John Mulligan - Senior Vice President of Finance


Gregory S. Melich - ISI Group Inc., Research Division

Charles X. Grom - Deutsche Bank AG, Research Division

Robert W. Carroll - UBS Investment Bank, Research Division

Adrianne Shapira - Goldman Sachs Group Inc., Research Division

Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division

Wayne L. Hood - BMO Capital Markets U.S.


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Previous Statements by TGT
» Target Corp., Jan 2012 Sales/ Trading Statement Call, Feb 02, 2012
» Target Management Report December 2011 Sales/ Trading Statement (Transcript)
» Target's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. Welcome to the Target Corp.'s Fourth Quarter and Year End 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Thursday, February 23, 2012. I would now like to turn the conference over to Mr. Gregg Steinhafel, Chairman, President and Chief Executive Officer. Please go ahead, sir.

Gregg W. Steinhafel

Thank you. Good morning, everyone, and welcome to our 2011 Fourth Quarter and Year End Earnings Conference Call. On the line with me today are Kathy Tesija, Executive Vice President of Merchandising; Doug Scovanner, Executive Vice President and Chief Financial Officer; and John Mulligan, Senior Vice President, Treasury and Accounting, who as we announced last month, will succeed Doug as EVP and CFO beginning April 1.

This morning, I'll provide a high-level summary of our fourth quarter and full year results, along with our strategic priorities in 2012, and Kathy will discuss category results, guest insights and upcoming initiatives. Doug will provide detail on our fourth quarter financial performance and progress toward our long-term financial goals. And finally, John Mulligan will provide our outlook for the first quarter and full year 2012. Following John's remarks, we'll open the phone lines for a question-and-answer session.

As a reminder, we're joined on this conference call by investors and others who are listening today to our comments today via webcast. Following this conference call, John Hulbert, Doug and John Mulligan will be available throughout the day to answer any follow-up questions you may have. Also as a reminder, any forward-looking statements that we make this morning are subject to risks and uncertainties, the most important of which are described in our SEC filings.

Finally, in these remarks, we refer to adjusted earnings per share, which is a non-GAAP financial measure. A reconciliation of our GAAP results is included in this morning's press release, which is posted on our Investor Relations website.

We are pleased with Target's full year financial results, which reflect the ability of our teams to manage our businesses in an up and down environment. Our fourth quarter adjusted earnings per share, which we report as a measure of the performance of our U.S. businesses, were $1.49 per share this year, up 8.3% from 2010. For the year in total, our adjusted earnings per share were $4.41, up 14.3% from a year ago.

For the fourth quarter, our comparable store sales increased 2.2%, more than a percentage point below our expectations as we entered the quarter. This shortfall was concentrated in the peak of the holiday season as promotional activity throughout Retail was exceptionally intense, and we chose to maintain an appropriate balance between driving sales and profitability. Post-holiday, the pace of our sales returned to the much stronger pre-holiday pace, and we've seen sales momentum build, particularly in discretionary categories. Against that backdrop, our teams did an outstanding job maintaining the business, controlling fourth quarter inventory and maintaining our operating margin rate at healthy levels.

For the full year, we grew our comparable store sales by 3%, our best annual performance since 2007. This growth reflects investments made in our remodel program and the 5% Rewards loyalty program, both of which continue to drive incremental traffic and sales. These strategies make Target a more desirable shopping destination and enhance guest loyalty, both of which are critical for our long-term success.

As you all know, last year's macroeconomic environment was less than robust due to slow GDP growth, persistent high unemployment, housing weakness and stagnant incomes, particularly for lower and middle class consumers. Both our PFresh remodels and 5% REDcard Rewards loyalty program were particularly valuable in this environment, allowing us to maintain positive traffic and growing our comparable store sales in line with our long-term financial goals.

For the year, our teams did a great job of managing the profitability of our Retail sales, largely offsetting the gross margin pressure from our sales driving initiatives through expense leverage. This discipline kept our operating margins in line with our goal and past performance, while maintaining strong service levels in our stores.

And for both the quarter and the year, the Credit Card team did an outstanding job managing our receivables portfolio, generating outstanding profitability on a planned decline in the asset base. Of course, beyond the profits directly measured in our Credit Card segment, our credit and debit cards serve as the platform for our 5% Rewards and REDcard Free Shipping loyalty programs.

In our Canadian segment, we reached the halfway point between the commitment to expand into Canada and our expected store openings in spring 2013, and I'm very pleased with our progress. We have a strong executive team in place at our new headquarters in Mississauga, Ontario, and we continue to hire talented team members who will help bring the Target brand to life for our Canadian guests.

In addition, we're building 3 distribution centers across Canada, and we recently hosted our first all-day joint planning session with the Canadian vendor community to familiarize them with the Target brand and our expectations and begin developing the foundation for our joint business planning process.

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