10-QPeriod: Q3 FY2009

TARGET CORP Quarterly Report for Q3 Ended Nov 1, 2008

Filed December 5, 2008For Securities:TGT

Summary

Target Corporation's (TGT) 10-Q filing for the period ending November 1, 2008, reveals a mixed financial performance amidst a challenging economic environment. Total revenues saw a modest increase year-over-year for both the quarter and the nine-month period, driven primarily by growth in the Retail Segment, partially offset by a decline in comparable-store sales. However, net earnings and diluted earnings per share experienced a notable decrease compared to the prior year, reflecting increased expenses and a challenging retail landscape. The company's balance sheet shows growth in total assets and liabilities, with a significant increase in unsecured debt and other borrowings. Inventory levels also rose. A key development is the sale of a 47% interest in its credit card receivables, accounted for as a secured borrowing, which impacts the presentation of credit card assets and liabilities. The company has also announced a temporary suspension of its share repurchase program due to its current business outlook, signaling caution in its capital allocation strategy.

Financial Highlights

45 data points
Beta

Revenue

$15.11B

33.0% Gross Margin

Net Income

$369.00M

2.4% Net Margin

EPS (Diluted)

$0.49

Total Assets

$47.04B

Free Cash Flow

-$845.00M

Financial Statements
Beta
Revenue$15.11B
Cost of Revenue$10.13B
Gross Profit$4.98B
SG&A Expenses$3.25B
Interest Expense$234.00M
Net Income$369.00M
EPS (Basic)$0.49
EPS (Diluted)$0.49
Shares Outstanding (Basic)753.50M
Shares Outstanding (Diluted)756.60M

Key Highlights

  • 1Total revenues increased by 1.9% for the quarter and 4.4% for the nine months ended November 1, 2008, compared to the prior year.
  • 2Net earnings decreased to $369 million for the quarter and $1,605 million for the nine months, down from $483 million and $1,821 million, respectively, in the prior year.
  • 3Diluted earnings per share also declined to $0.49 for the quarter and $2.06 for the nine months, from $0.56 and $2.11, respectively.
  • 4Comparable-store sales declined by 3.3% for the quarter and 1.5% for the nine months, indicating weakness in existing store performance.
  • 5The company sold a 47% interest in its credit card receivables in the second quarter of 2008, which was accounted for as a secured borrowing.
  • 6Inventory levels increased by 3.5% to $9,050 million compared to the prior year.
  • 7Target announced a temporary suspension of its open-market share repurchase program in November 2008 due to the current business outlook.

Frequently Asked Questions

The decrease in net earnings is attributed to several factors including increased bad debt expense in the Credit Card Segment, higher interest expenses due to increased debt balances, and negative capital market returns on company-owned life insurance investments used to hedge deferred compensation plans, which impacted the effective tax rate.

In the second quarter of 2008, Target sold a 47% interest in its credit card receivables. This transaction was accounted for as a secured borrowing. Consequently, the receivables remain on the balance sheet, but the associated debt issued by the trust is also presented. The payments made to the buyer are non-recourse to Target's general assets and are funded solely by the assets within the trust.

Target anticipates continued financial challenges and economic uncertainty impacting its performance. The Retail Segment is expected to face a weak sales outlook in the fourth quarter, pressuring margins. In the Credit Card Segment, higher annualized net write-off rates are expected. Due to this outlook and current business environment, Target announced a temporary suspension of its open-market share repurchase program in November 2008 to conserve capital and manage its financial resources.

The decline in comparable-store sales was primarily driven by a decrease in the number of transactions. This was partially offset by an increase in the average transaction amount, which was itself influenced by a decrease in units per transaction but an increase in dollars per unit within those transactions. Macroeconomic factors, competition, and consumer behavior are noted as influences.