10-KPeriod: FY2013

TARGET CORP Annual Report, Year Ended Feb 2, 2013

Filed March 20, 2013For Securities:TGT

Summary

Target Corporation's 2013 10-K filing for the fiscal year ending February 2, 2013, highlights a period of significant strategic shifts, most notably the sale of its U.S. consumer credit card portfolio to TD Bank Group. This transaction, completed in March 2013, is expected to generate substantial cash proceeds, which the company intends to use for debt reduction and share repurchases, reinforcing its commitment to maintaining strong investment-grade credit ratings. Operationally, the company saw revenue growth driven by its U.S. Retail Segment, supported by comparable store sales increases and the addition of new stores. Despite slight pressure on gross margins due to the REDcard Rewards program and store remodels, the company managed its selling, general, and administrative expenses effectively. Looking ahead, Target is poised for its significant international expansion into Canada, with a substantial number of stores planned to open in 2013. This expansion, along with ongoing investments in its multichannel capabilities and digital presence, represents a key growth initiative. Investors should note the company's consistent dividend payments and ongoing share repurchase program as indicators of its commitment to shareholder returns, while also being mindful of the competitive retail landscape and macroeconomic factors that could influence future performance.

Financial Highlights

51 data points
Beta

Revenue

$73.30B

31.0% Gross Margin

Net Income

$3.00B

4.1% Net Margin

EPS (Diluted)

$4.52

Total Assets

$48.16B

Free Cash Flow

$2.98B

Financial Statements
Beta
Revenue$73.30B
Cost of Revenue$50.57B
Gross Profit$22.73B
SG&A Expenses$14.64B
Operating Income$5.21B
Interest Expense$684.00M
Net Income$3.00B
EPS (Basic)$4.57
EPS (Diluted)$4.52
Shares Outstanding (Basic)656.70M
Shares Outstanding (Diluted)663.30M

Key Highlights

  • 1Sale of U.S. consumer credit card portfolio to TD Bank Group for $5.7 billion cash, expected to be used for debt reduction and share repurchases.
  • 2Revenue growth in the U.S. Retail Segment driven by comparable store sales increases (2.7%) and new store contributions.
  • 3Significant expansion into Canada with plans to open 124 stores in 2013.
  • 4REDcard Rewards program and store remodels impacted gross margin rates, offset by underlying category improvements and disciplined expense management.
  • 5Continued investment in multichannel capabilities and digital presence to enhance guest experience.
  • 6Ongoing commitment to shareholder returns through a $5 billion share repurchase program and consistent dividend payments.
  • 7Strong liquidity maintained through operating cash flow and revolving credit facilities.

Frequently Asked Questions

The sale of the U.S. consumer credit card portfolio to TD Bank Group for $5.7 billion, completed in March 2013, is expected to result in a significant gain and provide substantial cash proceeds. Target plans to use these proceeds for debt reduction and to continue its share repurchase program, aiming to preserve its strong investment-grade credit ratings. Post-sale, Target will continue with account servicing and primary marketing functions, earning a portion of the portfolio's profits, which will be recognized as an offset to SG&A expenses.

Target is actively preparing for its Canadian market entry in fiscal 2013. This involves significant investment in building supply chain capabilities, technology systems, and recruiting qualified personnel. The company has announced plans to open 124 stores in Canada in 2013 and operates three distribution centers in the country, indicating a substantial commitment to this new market.

Key risks highlighted include intense competition in the retail sector, the challenge of differentiating its brand and offerings, and the need to maintain positive guest perceptions. The company is also exposed to risks related to executing its multichannel strategy effectively, responding to changing consumer preferences, macroeconomic conditions in the U.S., managing its large workforce, supply chain disruptions, product safety concerns, and data security breaches. The expansion into Canada also presents execution risks.

The 5% REDcard Rewards loyalty program, launched nationwide in October 2010, has contributed to increased sales and REDcard penetration. However, it also reduced gross margin rates as it offers a discount on virtually all purchases. While driving incremental sales, the program's discount directly impacts the gross margin percentage. Target also introduced free shipping at Target.com for REDcard holders in November 2011.