01—Abstract
Summary
Summary of the 10-K filed March 14, 2014. Cited figures are marked; the original filing is the authoritative source.
Target Corporation's 2014 10-K filing reveals a year marked by significant strategic shifts and a major cybersecurity incident.
The company completed the sale of its U.S. consumer credit card portfolio to TD Bank Group, which generated substantial cash proceeds but also led to a one-time gain. Operationally, Target launched its first international retail stores in Canada, a significant expansion that, while ambitious, initially fell short of expectations and contributed to segment losses. The most critical event during the fiscal year was a data breach affecting millions of customer payment cards and personal information.
This incident, which occurred in the fourth quarter of 2013, resulted in significant immediate costs, ongoing investigations, and numerous lawsuits. Management highlighted this breach as a major risk factor, impacting guest confidence and potentially having long-term effects on sales and reputation. The company is implementing chip-enabled smart card technology to enhance security.
02—Key points
Key Highlights
- Completed the sale of its U.S. consumer credit card portfolio to TD Bank Group, generating $5.7 billion in cash.
- Launched 124 new stores in Canada, marking its first international retail expansion.
- Experienced a significant data breach impacting approximately 40 million payment card accounts and up to 70 million individuals' personal information.
- Incurred $61 million in pretax Data Breach-related expenses in Q4 2013, with ongoing investigations and litigation.
- Reported a GAAP diluted EPS of $3.07, down from $4.52 in the prior year, partly due to Canadian segment losses and the data breach.
- Adjusted diluted EPS (excluding certain items) was $4.38, a decrease from $4.76 in the prior year.
- Increased REDcard penetration to 19.3% of total store sales, indicating strong adoption of its loyalty program despite the data breach.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Target Corp kept $0.03.
- Revenue$71.28B100.0%
- Cost of revenue−$50.04B70.2%
- Gross profit$21.24B29.8%
- Operating costs−$18.55B26.0%
- Operating income$2.69B3.8%
- Interest, other & tax−$723.0M1.0%
- Net income$1.97B2.8%
Where FY2014 revenue went
$71.28B- Cost of revenue: $50.04B, 70% of revenue
- SG&A: $14.46B, 20% of revenue
- Net income: $1.97B, 2.8% of revenue
- Other operating costs: $4.08B, 5.7% of revenue
- Interest, other & tax: $723.0M, 1.0% of revenue
Kept 2.8% as net incomeNet income $1.97B · 2.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed March 14, 2014Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $71.28B$73.30B | −2.8% |
| Cost of Revenue | $50.04B$50.57B | −1.0% |
| Gross Profit | $21.24B$22.73B | −6.6% |
| SG&A Expenses | $14.46B$14.64B | −1.2% |
| Operating Income | $2.69B$5.21B | −48.3% |
| Interest Expense | $1.05B$684.00M | +53.4% |
| Net Income | $1.97B$3.00B | −34.3% |
| EPS (Basic) | $3.10$4.57 | −32.2% |
| EPS (Diluted) | $3.07$4.52 | −32.1% |
| Shares Outstanding (Basic) | 635.10M656.70M | −3.3% |
| Shares Outstanding (Diluted) | 641.80M663.30M | −3.2% |
05—Questions
Frequently Asked Questions
What was the impact of the Data Breach on Target's financial performance and outlook?
The Data Breach, which occurred in Q4 2013, resulted in immediate expenses of $61 million (net of insurance proceeds) and ongoing legal, investigation, and professional service costs. While management stated that comparable sales recovered in January 2014 after a dip, the long-term impact on guest confidence and future sales remains uncertain. The company is facing numerous lawsuits and government investigations, which could result in material financial liabilities.
How is the Canadian expansion performing?
Target launched 124 stores in Canada in 2013, representing its first venture outside the U.S. However, initial sales and operating results have not met expectations. The Canadian Segment reported significant losses, impacting overall profitability. Management acknowledges the need to improve marketing and inventory management to gain market acceptance in Canada.
What is the significance of the credit card portfolio sale?
Target sold its U.S. consumer credit card portfolio to TD Bank Group in March 2013 for $5.7 billion in cash. This transaction generated a gain of $391 million and improved liquidity, allowing the company to repay debt and fund operations. While no longer owning the receivables, Target continues to perform account servicing and primary marketing functions, earning a substantial portion of the profits through a profit-sharing arrangement with TD.
How did Target's stock performance compare to its peers and the S&P 500?
Based on the provided cumulative total shareholder return graph, Target's stock performance lagged behind the S&P 500 Index and its current peer group over the five-year period ending February 1, 2014. While Target showed positive total return, the broader market indices and its peer group experienced higher growth.
06—Continue