10-QPeriod: Q3 FY2016

TARGET CORP Quarterly Report for Q3 Ended Oct 31, 2015

Filed November 25, 2015For Securities:TGT

Summary

Target Corporation's (TGT) third-quarter 2015 results show a net sales increase to $17.6 billion, up 2.1% year-over-year, driven by a 1.9% increase in comparable sales and a notable 20% surge in digital channel sales. The company's strategic focus on its digital presence is yielding positive results, contributing significantly to overall comparable sales growth. Profitability saw a mixed picture: GAAP diluted EPS from continuing operations was $0.76, down from $0.82 in the prior year, but adjusted diluted EPS from continuing operations rose to $0.86 from $0.79, reflecting the exclusion of one-time charges. The company continued its commitment to returning capital to shareholders, repurchasing $2.2 billion in stock and paying $1 billion in dividends year-to-date. Significant operational shifts are underway, including the pending divestiture of the pharmacy and clinic businesses to CVS for approximately $1.9 billion, which is expected to generate a substantial pretax gain and contribute positively to future earnings and ROIC. Concurrently, Target is actively managing the wind-down of its Canadian operations, which has resulted in significant charges and adjustments to discontinued operations but is progressing towards resolution. The company also reported ongoing efforts to manage costs and improve efficiency through restructuring initiatives, alongside progress in resolving data breach-related liabilities.

Financial Highlights

47 data points
Beta

Revenue

$17.61B

29.4% Gross Margin

Net Income

$549.00M

3.1% Net Margin

EPS (Diluted)

$0.87

Total Assets

$41.45B

Free Cash Flow

$557.00M

Financial Statements
Beta
Revenue$17.61B
Cost of Revenue$12.44B
Gross Profit$5.17B
SG&A Expenses$3.74B
Operating Income$962.00M
Interest Expense$151.00M
Net Income$549.00M
EPS (Basic)$0.88
EPS (Diluted)$0.87
Shares Outstanding (Basic)623.70M
Shares Outstanding (Diluted)628.80M

Key Highlights

  • 1Third-quarter sales increased by 2.1% to $17.6 billion, with comparable sales growing by 1.9%.
  • 2Digital channel sales experienced robust growth of 20%, contributing positively to overall comparable sales.
  • 3Adjusted diluted EPS from continuing operations increased by 8.6% to $0.86, indicating underlying operational strength.
  • 4The company is undertaking a significant strategic move with the planned sale of its pharmacy and clinic businesses to CVS for approximately $1.9 billion.
  • 5Target returned $1.3 billion to shareholders in the third quarter through dividends and share repurchases, and $5.3 billion year-to-date under an expanded $10 billion share repurchase program.
  • 6The company is actively managing the exit from its Canadian operations, with ongoing charges and adjustments to discontinued operations.
  • 7Restructuring initiatives are underway to improve organizational effectiveness and achieve cost savings.

Frequently Asked Questions

Target's sales growth in Q3 2015 was primarily driven by a 1.9% increase in comparable sales, with a particularly strong performance in the digital channel, which saw a 20% increase in sales.

Target has entered into an asset purchase agreement with CVS for approximately $1.9 billion. The transaction is subject to regulatory approval and is expected to close in early 2016. Target anticipates a significant pretax gain upon closing and expects the proceeds to be used for settling liabilities and returning capital to shareholders.

The exit from Canada has resulted in discontinued operations, with associated losses reported in prior periods. In the current quarter, discontinued operations contributed a net gain of $73 million. The company is continuing to incur costs related to the liquidation process and potential claims under lease guarantees.

Target demonstrated a strong commitment to shareholder returns by repurchasing $2.2 billion in stock during the third quarter and $5.3 billion year-to-date under its expanded $10 billion share repurchase program. Additionally, the company paid $1 billion in dividends year-to-date.