01—Abstract
Summary
Summary of the 10-K filed April 12, 1999. Cited figures are marked; the original filing is the authoritative source.
Dayton Hudson Corporation (Target's parent, traded as TGT) reported a strong fiscal 1998 (year ended January 30, 1999).
Revenues rose 11.5% to $30.95 billiona, net earnings increased 24% to $935 million, and diluted EPS reached $1.98 versus $1.59 in 1997 (before unusual items, $2.06 vs. $1.64). Pre-tax segment profit grew 16% to $2.10 billion, driven by Target, which lifted pre-tax profit 23% to $1.58 billion on 6.1% comparable-store sales growth and a 6.8% profit margin. Mervyn's was the weak spot, with pre-tax profit falling 14% to $240 million, while the Department Store Division improved 16% to $279 million.
Cash flow from operations reached $1.86 billionb, and the company's financial position remains strong, with investment-grade ratings upgraded by Moody's and S&P during the year. Management plans to spend about $1.8 billion on capital expenditures in 1999, including 60 to 65 net new Target stores, and announced a $1 billion share repurchase program over the next two years, with no repurchases made in 1998. Guest credit continued to contribute meaningfully, with pre-tax credit contribution up 18% to $320 million and Target Guest Card holders exceeding 12 million.
Risks flagged in the filing include Year 2000 readiness (with about $27 millionc expensed in 1998 and roughly $20 million more expected), a $42 million mainframe outsourcing charge with further costs of $5 to $10 million in 1999, and the sensitivity of Target's growth to competition, consumer trends, and credit performance. Management guided to continued Target profit margin stability near 6.8%, mid-single-digit comparable-store sales growth, and an effective tax rate near 39%.
02—Key points
Key Highlights
- Revenues grew 11.5% to $30.95 billion in 1998, with comparable-store sales up 5.2% company-wide and 6.1% at Target.
- Diluted EPS rose to $1.98 from $1.59, or $2.06 before unusual items, which is 25% growth on an underlying basis.
- Target was the primary growth engine, with pre-tax profit up 23% to $1.58 billion and a profit margin of 6.8%, up from 6.3%.
- Mervyn's pre-tax profit fell 14% to $240 million on weaker markdown performance, though management expects measurable improvement in 1999.
- Cash flow from operations reached $1.86 billion, and the company announced a $1 billion share repurchase program over two years, with no buybacks yet executed in 1998.
- The Target Guest Card base grew to over 12 million accounts, and pre-tax credit contribution rose 18% to $320 million.
- Management plans about $1.8 billion in 1999 capital expenditures and 60 to 65 net new Target stores, with Year 2000 costs and a mainframe outsourcing transition as ongoing items.
03—Questions
Frequently Asked Questions
How did Dayton Hudson's core business perform in fiscal 1998?
Strongly overall. Revenues rose 11.5% to $30.95 billion, pre-tax segment profit increased 16% to $2.10 billion, and net earnings climbed to $935 million. Target, the largest division at 75% of revenues, drove most of the gain, with comparable-store sales up 6.1% and a profit margin that improved to 6.8%.
Were there any one-time items that affected 1998 earnings?
Yes. Results included a $42 million pre-tax mainframe outsourcing charge ($0.06 per share), a $20 million tax benefit from a favorable inventory shortage tax ruling ($0.04 per share), a net securitization loss of about $3 million, and a $27 million after-tax debt repurchase charge ($0.06 per share). Excluding these items, diluted EPS was $2.06.
What are the company's plans for capital spending and share buybacks in 1999?
Capital expenditures are expected to be about $1.8 billion, mostly for Target, including 60 to 65 net new Target stores and 46 full-scale Target remodels. The board authorized a $1 billion stock repurchase program in January 1999, to be completed over roughly two years, primarily through open-market purchases subject to market conditions.
What risks should investors watch in this filing?
Key risks include Year 2000 readiness, where some non-IT and business-partner systems remained in renovation or testing into mid-1999, with about $20 million in additional costs expected. Other risks include Mervyn's continued underperformance, dependence on credit operations and consumer credit trends, intense retail competition, and changes in consumer demand for trend-driven merchandise.
How strong is the balance sheet and debt position?
The balance sheet is solid. Shareholders' investment rose to $5.31 billion, total assets reached $15.67 billion, and long-term debt was $4.45 billion. The retail debt ratio fell to 41% from 45% a year earlier, and the company's long-term debt ratings were upgraded by Moody's (A3) and S&P (A-). It also has $1.6 billion in committed credit lines.
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