10-QPeriod: Q2 FY2010

TARGET CORP Quarterly Report for Q2 Ended Aug 1, 2009

Filed August 28, 2009For Securities:TGT

Summary

Target Corporation's Q2 2009 filing for the period ending August 1, 2009, indicates a mixed financial performance amidst a challenging economic environment. Total revenues declined slightly year-over-year, impacting both the Retail and Credit Card segments. The Retail Segment experienced a notable decrease in comparable-store sales, yet managed to improve its gross margin rate through favorable markup/markdown performance and lower transportation costs, despite an unfavorable sales mix. Disciplined expense control in the Retail Segment helped mitigate some of the revenue pressure. The Credit Card Segment saw a decline in EBIT and segment profit compared to the prior year, largely due to increased bad debt expense and lower finance charge revenues influenced by a lower Prime Rate. However, the segment demonstrated stability and a slight improvement in Return on Invested Capital (ROIC) due to a reduction in Target's investment in average gross credit card receivables and effective management of expenses. Overall, the company demonstrated solid operational cash flow, enabling debt retirement and maintaining its commitment to dividends, while capital expenditures were reduced, reflecting a cautious outlook for the remainder of fiscal year 2009.

Financial Highlights

45 data points
Beta

Revenue

$15.07B

34.2% Gross Margin

Net Income

$594.00M

3.9% Net Margin

EPS (Diluted)

$0.79

Total Assets

$44.23B

Free Cash Flow

$550.00M

Financial Statements
Beta
Revenue$15.07B
Cost of Revenue$9.91B
Gross Profit$5.15B
SG&A Expenses$3.14B
Interest Expense$194.00M
Net Income$594.00M
EPS (Basic)$0.79
EPS (Diluted)$0.79
Shares Outstanding (Basic)752.00M
Shares Outstanding (Diluted)754.40M

Key Highlights

  • 1Total revenues decreased by 2.6% to $15.07 billion for the third quarter, and by 1.2% to $29.90 billion for the first six months, compared to the prior year periods.
  • 2Comparable-store sales declined by 6.2% for the third quarter, indicating ongoing consumer spending weakness, though this was an improvement from the prior quarter's trend.
  • 3The Retail Segment's gross margin rate improved to 31.9% for the quarter, driven by favorable markup/markdown performance and reduced transportation costs, partially offsetting negative sales mix impacts.
  • 4Credit Card Segment profit decreased to $63 million for the quarter due to higher bad debt expenses and lower finance charge revenues, though ROIC improved.
  • 5Operating cash flow remained strong, totaling $2.05 billion for the first six months, enabling debt maturities to be paid with internally generated funds.
  • 6Capital expenditures were significantly reduced, totaling $1.04 billion for the first six months, with full-year expectations around $2 billion, reflecting a cautious investment strategy.
  • 7The company maintained its commitment to returning capital to shareholders, with a 6.7% increase in declared dividends for the quarter.

Frequently Asked Questions

Comparable-store sales decreased by 6.2% for the three months ended August 1, 2009, compared to a 0.4% decrease in the same period last year. This decline was driven by fewer transactions and a lower average transaction amount.

The Credit Card Segment's profit for the quarter declined to $63 million from $74 million in the prior year. This was primarily due to a $47 million increase in bad debt expense, which outweighed improvements from terms changes. However, the segment's Return on Invested Capital (ROIC) improved to 8.8% from 8.2% due to a reduction in Target's investment in average gross credit card receivables.

Target demonstrated disciplined expense control in its Retail Segment, with SG&A expenses declining slightly despite an increase in the number of stores. Capital expenditures were significantly reduced to $1.04 billion for the first six months, and the company expects full-year capital expenditures to be slightly over $2 billion, reflecting a cautious approach to investment in the current economic climate.

Target remains cautious, expecting the pace of sales in the Retail Segment to be the key variable. While comparable-store sales comparisons in the fourth quarter are expected to be easier, inventory commitments are not based on expected improvements. Gross margin rate is expected to experience moderate compression in the third quarter before expanding in the fourth. For the Credit Card Segment, gross receivables are expected to decline further, with stable dollar delinquencies and write-offs similar to the first half of the year. The company anticipates generating over $4 billion in operating cash flow and reinvesting slightly over $2 billion in capital.