01—Abstract
Summary
Summary of the 10-K filed March 11, 2016. Cited figures are marked; the original filing is the authoritative source.
Target Corporation's 2016 Form 10-K details a year of significant strategic shifts, including the sale of its pharmacy and clinic businesses to CVS and the previously announced exit from the Canadian market.
These divestitures, while creating short-term disruptions, are intended to sharpen the company's focus on its core U.S. retail operations and digital channels. The report highlights a 1.6% increase in sales to $73.8 billiona, driven by a 2.1% growth in comparable sales, with the digital channel contributing significantly to this growth. Financial performance showed improvement, with GAAP diluted earnings per share from continuing operations rising to $5.25 from $3.83 in the prior year, partly aided by a gain from the CVS transaction and a tax benefit related to the Canadian exit.
Looking ahead, Target is investing in its supply chain and omnichannel capabilities to enhance the guest experience. The company's financial health remains robust, supported by strong operating cash flow and a significant cash position bolstered by the divestiture proceeds.
While facing competitive pressures and evolving consumer preferences, Target is committed to innovation, strategic capital allocation including share repurchases and dividend increases, and maintaining its differentiated brand offering through owned and exclusive brands. Investors should monitor the integration of the CVS partnership and the ongoing efforts to drive digital sales and enhance in-store experiences.
02—Key points
Key Highlights
- Target completed the sale of its pharmacy and clinic businesses to CVS for $1.9 billion in cash, recognizing a $620 million pretax gain.
- Sales for the fiscal year ended January 30, 2016, increased by 1.6% to $73.8 billion.
- Comparable sales grew by 2.1%, with digital channel sales increasing by over 30%, contributing 0.8 percentage points to comparable sales growth.
- GAAP diluted earnings per share from continuing operations increased to $5.25 from $3.83 in the prior year.
- The company returned $3.4 billion to shareholders through share repurchases in 2015, marking the first repurchases since Q2 2013.
- Target continued to increase its dividend, with a 13.0% increase in total dividends paid in 2015 compared to 2014.
- The company continued its strategic shift by completing its exit from the Canadian market, which was classified as discontinued operations.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Target Corp kept $0.05.
- Revenue$73.78B100.0%
- Cost of revenue−$52.24B70.8%
- Gross profit$21.54B29.2%
- Operating costs−$18.22B24.7%
- Operating income$3.32B4.5%
- Interest, other & tax$42.0M0.1%
- Net income$3.36B4.6%
Where FY2016 revenue went
$73.78B- Cost of revenue: $52.24B, 71% of revenue
- SG&A: $14.66B, 20% of revenue
- Operating income: $3.32B, 4.5% of revenue
- Other operating costs: $3.56B, 4.8% of revenue
Kept 4.5% as operating incomeOperating income $3.32B · 4.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed March 11, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $73.78B$72.62B | +1.6% |
| Cost of Revenue | $52.24B$51.28B | +1.9% |
| Gross Profit | $21.54B$21.34B | +1.0% |
| SG&A Expenses | $14.66B$14.68B | −0.1% |
| Operating Income | $3.32B$2.45B | +35.6% |
| Interest Expense | $607.00M$882.00M | −31.2% |
| Net Income | $3.36B-$1.64B | +305.6% |
| EPS (Basic) | $5.35$-2.58 | +307.4% |
| EPS (Diluted) | $5.31$-2.56 | +307.4% |
| Shares Outstanding (Basic) | 627.70M634.70M | −1.1% |
| Shares Outstanding (Diluted) | 632.90M640.10M | −1.1% |
05—Questions
Frequently Asked Questions
What were the major strategic initiatives undertaken by Target in fiscal year 2015?
The two most significant strategic actions were the sale of Target's pharmacy and clinic businesses to CVS for $1.9 billion and the completion of its exit from the Canadian market. These moves aimed to streamline operations and refocus on core U.S. retail and digital growth.
How did Target's financial performance change compared to the previous year?
Target reported a 1.6% increase in sales to $73.8 billion and a significant improvement in earnings per share from continuing operations, rising to $5.25 from $3.83. This improvement was supported by comparable sales growth, the gain from the CVS transaction, and a tax benefit related to the Canadian exit.
What is the impact of the CVS transaction on Target's operations and finances?
The sale of pharmacy and clinic businesses to CVS generated $1.9 billion in cash, contributing to a stronger cash position and enabling share repurchases. CVS now operates these businesses within Target stores under a perpetual agreement, providing Target with an annual occupancy-related payment. The transaction is expected to be accretive to EPS and boost ROIC over time.
How is Target addressing competition and evolving consumer behavior, particularly in the digital space?
Target is investing in its supply chain and omnichannel capabilities to offer seamless shopping experiences across stores and digital channels. The significant growth in digital sales highlights progress in this area. The company also continues to emphasize its owned and exclusive brands to differentiate itself from competitors.
06—Continue