10-QPeriod: Q2 FY2014

TARGET CORP Quarterly Report for Q2 Ended Aug 3, 2013

Filed August 28, 2013For Securities:TGT

Summary

Target Corporation's 10-Q filing for the period ending August 2, 2013, reveals a mixed financial performance with notable strategic shifts. The company reported an increase in total revenues, driven by merchandise sales, but saw a decline in net earnings and earnings per share compared to the prior year's comparable periods. A significant event during this quarter was the sale of Target's U.S. consumer credit card portfolio to TD Bank Group, which resulted in a substantial gain and a considerable influx of cash. This transaction, while impacting short-term profitability, repositions the company's financial structure and focus. The company continues its aggressive expansion into Canada, incurring startup costs that are impacting the Canadian segment's profitability. Simultaneously, Target is actively engaged in share repurchases and dividend payments, indicating a commitment to returning capital to shareholders. Investors should note the ongoing investments in multichannel initiatives and store remodels, which are key to the company's long-term growth strategy, alongside the evolving REDcard penetration and its impact on sales.

Financial Highlights

46 data points
Beta

Revenue

$16.84B

31.9% Gross Margin

Net Income

$611.00M

3.6% Net Margin

EPS (Diluted)

$0.95

Total Assets

$44.16B

Free Cash Flow

-$137.00M

Financial Statements
Beta
Revenue$16.84B
Cost of Revenue$11.56B
Gross Profit$5.37B
SG&A Expenses$3.49B
Operating Income$1.16B
Interest Expense$152.00M
Net Income$611.00M
EPS (Basic)$0.96
EPS (Diluted)$0.95
Shares Outstanding (Basic)634.80M
Shares Outstanding (Diluted)642.00M

Key Highlights

  • 1Total revenues increased to $17.117 billion for the three months ended August 3, 2013, up from $16.779 billion in the prior year's period, primarily driven by merchandise sales.
  • 2Net earnings decreased to $611 million ($0.95 per diluted share) for the three months ended August 3, 2013, down from $704 million ($1.06 per diluted share) in the same period last year.
  • 3Target completed the sale of its U.S. consumer credit card portfolio to TD Bank Group, recognizing a gain of $391 million and receiving $5.7 billion in cash.
  • 4The company is actively expanding in Canada, opening 44 new stores during the quarter, bringing the total to 68, though this segment is currently operating at a loss.
  • 5Share repurchases were significant, with $1.474 billion invested in the first six months of the fiscal year, alongside dividend payments totaling $463 million.
  • 6REDcard penetration increased to 18.7% of total sales for the quarter, indicating growing customer loyalty and engagement with the program.

Frequently Asked Questions

The sale of the U.S. consumer credit card portfolio to TD Bank Group resulted in a one-time gain of $391 million recognized in the second quarter of 2013. It also generated $5.7 billion in cash proceeds, significantly bolstering Target's liquidity. While the gain boosted reported earnings, the ongoing profit-sharing arrangements and the elimination of credit card revenues from prior periods impact year-over-year comparisons.

Target is heavily investing in its Canadian expansion, opening 68 stores by August 3, 2013, and planning to open more. This expansion is incurring significant startup costs, leading to a reported loss in the Canadian segment for the periods presented. While this is a drag on current profitability, it is viewed as a strategic move for future growth.

Diluted EPS decreased to $0.95 for the three months ended August 3, 2013, compared to $1.06 in the prior year. For the six-month period, diluted EPS was $1.72, down from $2.10 in the prior year. This decline is attributed to various factors including the credit card portfolio sale's impact on year-over-year comparisons and ongoing investments.

Target continues to return capital to shareholders through dividend payments and share repurchases. Dividends paid totaled $463 million in the first six months of fiscal 2013, and the company repurchased $1.474 billion of its stock during the same period, indicating a continued focus on enhancing shareholder value.