10-QPeriod: Q1 FY2018

TARGET CORP Quarterly Report for Q1 Ended Apr 29, 2017

Filed May 22, 2017For Securities:TGT

Summary

Target Corporation's first quarter 2017 results (ending April 28, 2017) showed a slight year-over-year decrease in total sales to $16.0 billion, down from $16.2 billion in the prior year. This was attributed to a 1.3% decline in comparable sales, driven by decreases in both store traffic and average transaction amounts. Despite the overall sales dip, the company saw a significant 22% increase in comparable digital channel sales, indicating a shift in consumer behavior towards online purchasing. Profitability saw a mixed picture. Net earnings increased to $681 million from $632 million in the prior year, and basic EPS from continuing operations rose to $1.23 from $1.03. However, adjusted diluted EPS from continuing operations decreased slightly to $1.21 from $1.29. The company continued its commitment to shareholder returns, distributing $637 million in the first quarter through dividends and share repurchases, while also maintaining a strong focus on investing in profitable growth opportunities and maintaining its current operations.

Financial Highlights

50 data points
Beta

Revenue

$16.22B

29.7% Gross Margin

Net Income

$678.00M

4.2% Net Margin

EPS (Diluted)

$1.22

Total Assets

$38.56B

Cash & Equivalents

$2.68B

Free Cash Flow

$819.00M

Financial Statements
Beta
Revenue$16.22B
Cost of Revenue$11.20B
Gross Profit$4.82B
SG&A Expenses$3.35B
Operating Income$1.16B
Interest Expense$140.00M
Net Income$678.00M
EPS (Basic)$1.23
EPS (Diluted)$1.22
Shares Outstanding (Basic)552.40M
Shares Outstanding (Diluted)555.20M

Key Highlights

  • 1Total sales for the quarter decreased by 1.1% to $16.0 billion, with comparable sales down 1.3%.
  • 2Digital channel sales showed strong growth, increasing by 22% on a comparable basis.
  • 3Net earnings increased to $681 million ($1.23 per share) compared to $632 million ($1.06 per share) in the prior year's quarter.
  • 4Adjusted diluted EPS from continuing operations decreased by 6.1% to $1.21, primarily due to a significant $261 million loss on early debt extinguishment in the prior year's comparable period.
  • 5The company returned $637 million to shareholders through dividends ($332 million) and share repurchases ($305 million) during the quarter.
  • 6Gross margin rate slightly decreased to 30.5% from 30.9%, mainly due to increased shipping and digital fulfillment costs.
  • 7REDcard penetration increased to 24.5% of total sales, up from 23.4% in the prior year, indicating growing customer loyalty and engagement.

Frequently Asked Questions

The decrease in comparable sales by 1.3% was primarily driven by small declines in both the number of transactions and the average transaction amount. Store channel comparable sales also decreased by 2.2%.

In the prior year's comparable quarter (ended April 30, 2016), Target recorded a significant $261 million loss on early retirement of debt. For the current quarter (ended April 29, 2017), the company repaid $598 million of debt at maturity, which did not result in a material loss. Net interest expense decreased significantly year-over-year due to the absence of these debt extinguishment costs.

Target continues to prioritize returning excess cash to shareholders. In the first quarter of 2017, they returned $637 million through a combination of dividends and share repurchases. They also indicated an intent to continue growing dividends annually and repurchasing shares within their credit rating goals.

Target is evaluating new accounting standards for Revenue from Contracts with Customers (Topic 606) and Leases (ASU 2016-02). They do not expect the revenue standard to materially affect net earnings, financial position, or cash flows, though it may impact presentation of certain arrangements. The leases standard is expected to materially impact the Consolidated Statements of Financial Position by requiring the recording of operating leases on the balance sheet, but is not expected to materially affect consolidated net earnings or liquidity.