10-QPeriod: Q3 FY2017

TARGET CORP Quarterly Report for Q3 Ended Oct 29, 2016

Filed November 23, 2016For Securities:TGT

Summary

Target Corporation's Q3 2016 10-Q filing for the period ending October 29, 2016, shows a decline in sales primarily due to the divestiture of its pharmacy and clinic businesses in December 2015. Despite this, the company demonstrated improved profitability metrics compared to the prior year period, with GAAP diluted earnings per share from continuing operations increasing significantly. Key financial highlights include a strengthened gross margin rate and a reduced SG&A expense rate, contributing to an improved EBIT margin. The company continued its robust capital return program, repurchasing substantial amounts of stock and increasing dividends. While overall sales decreased, the performance within comparable sales and digital channel growth indicates underlying operational focus. The company also issued new long-term debt and managed its liquidity effectively, maintaining strong credit ratings.

Financial Highlights

46 data points
Beta

Revenue

$16.44B

29.8% Gross Margin

Net Income

$608.00M

3.7% Net Margin

EPS (Diluted)

$1.06

Total Assets

$38.60B

Free Cash Flow

$893.00M

Financial Statements
Beta
Revenue$16.44B
Cost of Revenue$11.54B
Gross Profit$4.91B
SG&A Expenses$3.34B
Operating Income$1.06B
Interest Expense$142.00M
Net Income$608.00M
EPS (Basic)$1.07
EPS (Diluted)$1.06
Shares Outstanding (Basic)570.10M
Shares Outstanding (Diluted)574.80M

Key Highlights

  • 1Total sales decreased by 6.7% to $16,441 million in Q3 2016 compared to the prior year, largely attributed to the sale of the pharmacy and clinic businesses.
  • 2Comparable sales saw a slight decline of 0.2%, driven by a 1.2% decrease in traffic, partially offset by a 1.0% increase in average transaction amount.
  • 3Gross margin rate improved to 30.2% in Q3 2016 from 29.4% in Q3 2015, aided by product mix and cost savings, though offset by higher shipping costs.
  • 4Selling, General & Administrative (SG&A) expense rate decreased to 20.3% from 20.7%, benefiting from the pharmacy transaction and technology cost savings.
  • 5Diluted EPS from continuing operations significantly increased by 39.7% to $1.06 in Q3 2016.
  • 6The company returned $1.2 billion to shareholders in Q3 2016 through dividends and share repurchases, with an ongoing $5 billion share repurchase program authorized.
  • 7REDcard penetration increased to 24.3% of total sales in Q3 2016, up from 22.3% in the prior year period, indicating strong customer loyalty and engagement.

Frequently Asked Questions

The primary reason for the decrease in sales was the divestiture of Target's pharmacy and clinic businesses to CVS in December 2015. This sale removed a significant portion of prior-year sales from the current period's comparison.

Target showed improved profitability in Q3 2016. Despite lower sales, both gross margin rate and SG&A expense rate improved, leading to a significant increase in diluted earnings per share from continuing operations to $1.06, up from $0.76 in the prior year's quarter.

Target maintains a disciplined approach to capital allocation. This includes investing in growth opportunities, maintaining and growing its quarterly dividend, and repurchasing shares when capacity allows, aiming to maintain targeted investment-grade credit ratings. In Q3 2016 alone, they returned $1.2 billion to shareholders through dividends and share repurchases.

The filing indicates no material changes to Target's primary risk exposures or market risk management strategies from those previously disclosed. Internally, the company operates as a single segment, focusing on seamless purchasing across stores and digital channels. The number of stores remained relatively stable with minor changes.