10-QPeriod: Q1 FY2014

TARGET CORP Quarterly Report for Q1 Ended May 4, 2013

Filed May 30, 2013For Securities:TGT

Summary

Target Corporation's (TGT) first quarter of fiscal year 2013, ending May 4, 2013, was marked by a significant strategic shift with the sale of its U.S. consumer credit card portfolio to TD Bank Group. This transaction generated a $391 million gain but also incurred a $445 million loss on early debt retirement. While total sales saw a modest 1.0% increase to $16.7 billion, diluted earnings per share decreased significantly by 26.0% to $0.77 from $1.04 in the prior year, largely due to these one-time items and a substantial loss in its nascent Canadian segment. The company is actively managing its capital structure, using proceeds from the credit card sale to reduce debt and continuing its share repurchase program, demonstrating a commitment to returning value to shareholders. Despite the earnings dip and challenges in Canada, Target's core U.S. retail operations showed slight sales growth, with a notable increase in REDcard penetration, indicating continued customer engagement with its loyalty programs.

Financial Highlights

45 data points
Beta

Revenue

$16.62B

30.9% Gross Margin

Net Income

$498.00M

3.0% Net Margin

EPS (Diluted)

$0.77

Total Assets

$44.23B

Free Cash Flow

$2.33B

Financial Statements
Beta
Revenue$16.62B
Cost of Revenue$11.51B
Gross Profit$5.14B
SG&A Expenses$3.40B
Operating Income$1.03B
Interest Expense$610.00M
Net Income$498.00M
EPS (Basic)$0.78
EPS (Diluted)$0.77
Shares Outstanding (Basic)642.10M
Shares Outstanding (Diluted)649.50M

Key Highlights

  • 1Completed the sale of its U.S. consumer credit card portfolio to TD Bank Group for $5.7 billion, resulting in a $391 million gain.
  • 2Incurred a $445 million loss on early retirement of debt related to the credit card portfolio sale.
  • 3Total sales increased by 1.0% to $16.7 billion for the quarter, but comparable-store sales decreased by 0.6%.
  • 4Diluted earnings per share (EPS) declined by 26.0% to $0.77, impacted by one-time transaction costs and losses in the Canadian segment.
  • 5Operating cash flow significantly improved to $3.23 billion from $1.31 billion in the prior year, boosted by cash proceeds from the credit card sale.
  • 6REDcard penetration increased to 17.1% of sales, up from 11.6% in the prior year, highlighting the growing adoption of its loyalty program.
  • 7The Canadian segment reported a substantial loss of $205 million as the company continued its market entry and store openings.

Frequently Asked Questions

The most significant strategic event was the sale of Target's U.S. consumer credit card portfolio to TD Bank Group on March 13, 2013. This transaction generated substantial cash proceeds and a one-time gain but also involved costs related to debt retirement.

While the sale resulted in a $391 million gain, it was offset by a $445 million loss on early debt retirement. Combined with other factors like the Canadian market entry, these items contributed to a 26.0% decrease in diluted EPS to $0.77 for the quarter.

The Canadian segment is in its early stages and incurred a significant loss of $205 million for the quarter, primarily due to start-up expenses and operating costs associated with new store openings. Sales were $86 million.

Target received $5.7 billion in cash from the sale. A portion was used to repay $1.5 billion in debt and another $1.4 billion was used to repurchase $970 million of debt. The company intends to use remaining proceeds to further reduce debt and continue share repurchases.