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Target Reports Third Quarter 2015 Earnings

The following excerpt is from the company's SEC filing.

Adjusted EPS up 8.6% to $0.86; Comparable sales up 1.9 percent

Third quarter Adjusted EPS of $0.86 was above the midpoint of the company’s guidance of $0.79 to $0.89. The Company now expects full-year 2015 Adjusted EPS of $4.65 to $4.75, compared with prior guidance of $4.60 to $4.75.

Third quarter comparable sales growth of 1.9 percent was near the high-end of the company’s expectations, driven by traffic growth of 1.4 percent. On a two-year stacked basis, sales and traffic growth were stronger in the third quarter than either of the first two quarters of the year.

Comparable sales in signature categories (Style, Baby, Kids and Wellness) grew more than 2.5 times faster than the company average.

Digital channel sales increased 20 percent, contributing 0.4 percentage points to comparable sales growth.

Target returned $1.3 billion to shareholders in the third quarter through dividends and share repurchases.

Corporation (NYSE: TGT) today reported third quarter 2015 adjusted earnings per share from continuing operations

(Adjusted EPS) of $0.86, up 8.6 percent from $0.79 in 2014. GAAP EPS from continuing operations was $0.76, compared with $0.82 in third quarter 2014, reflecting asset-impairment, data breach and restructuring expenses that were excluded from Adjusted EPS. Third Quarter GAAP EPS was $0.87, compared with $0.55 last year, as this year’s results reflect $0.11 of tax benefits related to investment losses in Canada, compared with $0.27 of after-tax losses related to Canadian

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Adjusted EPS, a non-GAAP financial measure, excludes restructuring charges and the impact of certain matters not related to the Company’s single segment, such as discontinued operations, data breach expenses and certain other expenses that are discretely managed. See the “Discontinued Operations” and “Miscellaneous” sections of this release for additional information about the items that have been excluded from Adjusted EPS.

Target Corporation Announces Third Quarter 2015 Earnings - Page 2 of 6

operations in last year’s results. The tables attached to this press release provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.

“We’re pleased with our third quarter financial results, as both sales and adjusted earnings per share were near the upper end of our expectations,” said Brian Cornell, chairman and CEO of Target. “The third quarter marked the fourth consecutive quarter in which we have grown traffic, and Target’s sales growth continues to be led by our signature categories: Style, Baby, Kids and Wellness. Our momentum is encouraging, especially in the face of stiffer prior-year comparisons. Our results highlight the benefit of a consistent, company-wide focus on our key strategic priorities, and that focus will continue to position Target well in the months and years ahead. As we look forward to the fourth quarter, our team is focused on strong execution throughout the holidays, and we are confident in our merchandising and marketing plans as we enter the most critical season of the year.”

Fiscal 2015 Earnings Guidance

In fourth quarter 2015, Target expects Adjusted EPS of $1.48 to $1.58, compared with $1.49 in fourth quarter 2014.

Target’s full-year 2015 GAAP EPS will include the following items, which are excluded from Adjusted EPS and reflected in our year-to-date GAAP results through the third quarter:

Restructuring costs of $135 million, or (13) cents per share

Net pre-tax data breach expenses of $38 million, or (4) cents per share

Pre-tax asset-impairment expenses of $39 million, or (5) cents per share

A 1 cent per share benefit from the favorable resolution of various income tax matters

A 6 cent per share benefit related to discontinued Canadian operations

Guidance for GAAP EPS does not include an estimate of future data breach-related expenses, restructuring costs, discontinued operations costs, the potential impact from the resolution of income tax matters or any impact from the potential close of the pharmacy sale transaction with CVS.

Target Corporation Announces Third Quarter 2015 Earnings - Page 3 of 6

Segment Results

Third quarter 2015 sales increased 2.1 percent to $17.6 billion from $17.3 billion last year, reflecting a 1.9 percent increase in comparable sales combined with sales from new stores. Digital channel sales grew 20 percent and contributed 0.4 percentage points to comparable sales growth. Segment earnings before interest expense and income taxes (EBIT) were $962 million in third quarter 2015, an increase of 5.0 percent from $916 million in 2014.

Third quarter EBITDA and EBIT margin rates were 8.6 percent and 5.5 percent, respectively, compared with 8.4 percent and 5.3 percent in 2014. Third quarter gross margin rate was 29.4 percent, compared with 29.5 percent in 2014, as benefits from a favorable merchandise mix and the comparison over last year’s intense promotional markdowns were offset by reimbursement pressure in Healthcare and the impact of investments in quality and innovation on the company’s owned and exclusive brands. Third quarter SG&A expense rate was 20.7 percent in 2015, compared with 21.1 percent in 2014, reflecting the discontinuation of an outdated retiree medical plan and continued expense discipline across the organization.

Interest Expense and Taxes from Continuing Operations

The Company’s third quarter 2015 net interest expense was $151 million, compared with $146 million last year. Third quarter 2015 effective income tax rate from continuing operations was 34.3 percent, compared with 30.6 percent last year. Last year’s effective income tax rate benefited from the favorable resolution of various tax matters, which reduced tax expense by $30 million in third quarter 2014.

Capital Returned to Shareholders

The Company returned $1,294 million to shareholders in third quarter 2015, representing more than 270 percent of net income from continuing operations.

In the quarter, the Company repurchased 12.1 million shares of common stock at an average price of $77.87, for a total investment of $942 million.

The Company also paid dividends of $352 million in the quarter, an increase of 6.7 percent from $330 million last year.

Year-to-date, the company has repurchased 27.3 million shares at an average price of $79.84, for a total investment of $2.2 billion. Under the current $10 billion share repurchase

Target Corporation Announces Third Quarter 2015 Earnings - Page 4 of 6

program, through third quarter 2015, the Company has repurchased 77.2 million shares of common stock at an average price of $68.86, for a total investment of approximately $5.3 billion.

For the trailing twelve months through third quarter 2015, after-tax return on invested capital (ROIC) was 13.0 percent, compared with 11.2 percent for the twelve months through third quarter 2014, driven by higher profits on a stable base of invested capital. See the...


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