10-QPeriod: Q3 FY2015

TARGET CORP Quarterly Report for Q3 Ended Nov 1, 2014

Filed November 26, 2014For Securities:TGT

Summary

Target Corporation's third quarter 2014 results show modest sales growth, with total sales increasing by 2.8% to $17.7 billion. While the U.S. segment saw comparable sales grow 1.2%, driven by a 0.6% digital channel contribution, the Canadian segment experienced a 1.6% comparable sales increase. The company's net earnings for the quarter were $352 million, or $0.55 per diluted share, a slight increase from the prior year. However, the report also highlights ongoing challenges, including the significant impact of the 2013 data breach, which continues to generate legal and investigative costs and has led to an accrual of $178 million in liabilities. Despite the lingering effects of the data breach and some operational pressures such as promotional activity impacting gross margin, Target demonstrates resilience through expense optimization efforts and a consistent dividend payout. The company's cash flow from operations remains a key strength, although it was lower year-over-year due to the absence of the credit card receivables sale proceeds recognized in the prior period. Management is focused on strategic initiatives and technology investments, with a watchful eye on the Canadian segment's performance and potential future impairments.

Financial Highlights

47 data points
Beta

Revenue

$17.25B

29.5% Gross Margin

Net Income

$352.00M

2.0% Net Margin

EPS (Diluted)

$0.55

Total Assets

$46.46B

Free Cash Flow

$55.00M

Financial Statements
Beta
Revenue$17.25B
Cost of Revenue$12.17B
Gross Profit$5.08B
SG&A Expenses$3.64B
Operating Income$916.00M
Interest Expense$146.00M
Net Income$352.00M
EPS (Basic)$0.55
EPS (Diluted)$0.55
Shares Outstanding (Basic)634.00M
Shares Outstanding (Diluted)639.60M

Key Highlights

  • 1Total sales for the third quarter of fiscal 2014 increased by 2.8% to $17.7 billion compared to the prior year.
  • 2U.S. Segment comparable sales grew by 1.2%, with digital sales showing strong growth of over 30%.
  • 3Net earnings for the quarter were $352 million, resulting in diluted earnings per share of $0.55, a slight increase from $0.54 in the prior year.
  • 4The company has accrued $178 million in liabilities related to the 2013 data breach, with ongoing legal and governmental investigations.
  • 5Gross margin rate decreased slightly due to promotional activity, while SG&A expense rate saw improvement due to optimization efforts.
  • 6The Canadian segment showed improved sales growth (43.8%) and comparable sales growth (1.6%), though it continues to operate at a segment loss.
  • 7Target maintained a consistent dividend payout, with dividends paid totaling $330 million in the quarter.

Frequently Asked Questions

Target reported total sales of $17.7 billion for the third quarter ended November 1, 2014, representing a 2.8% increase compared to the same period in the prior year. The U.S. Segment saw comparable sales growth of 1.2%, with digital sales contributing significantly, while the Canadian Segment achieved 1.6% comparable sales growth.

The 2013 data breach continues to have financial implications. As of November 1, 2014, Target had accrued $178 million in liabilities related to the breach, which includes estimates for probable losses from claims by payment card networks, guests, and governmental investigations. While insurance coverage has offset some costs, the ongoing legal and investigative expenses remain a significant factor.

The Canadian segment saw a substantial increase in sales by 43.8% to $479 million for the quarter, on comparable sales growth of 1.6%. However, it continues to report a segment operating loss (EBIT of $(211) million for the quarter), with significant SG&A expenses. The company recorded a $16 million impairment loss related to one Canadian store, but management believes it is more likely than not that they will realize the full Canadian deferred tax asset.

Target did not repurchase any shares on the open market during the three or nine months ended November 1, 2014. However, it did reacquire shares through the non-cash settlement of prepaid forward contracts. The company continued its commitment to returning capital to shareholders by paying dividends totaling $330 million in the third quarter of 2014, an increase of 21.4% per share from the prior year.