MINNEAPOLIS--(BUSINESS WIRE)--Target Corporation (NYSE: TGT) today reported a third quarter 2016 comparable sales decline of 0.2 percent and GAAP earnings per share (EPS) from continuing operations of $1.06, an increase of 39.7 percent from third quarter 2015. Third quarter adjusted earnings per share from continuing operations2 (Adjusted EPS), which excludes the favorable resolution of income tax matters and certain items related to the pharmacy transaction, was $1.04, an increase of 22.1 percent from third quarter 2015. The attached tables provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.
1On Aug. 17, 2016, Target provided third quarter 2016 GAAP EPS from continuing operations and Adjusted EPS guidance of $0.75 to $0.95. |
2Adjusted EPS, a non-GAAP financial measure, excludes losses on the early retirement of debt, charges and other financial impacts related to the sale of the pharmacy and clinic businesses to CVS, and the impact of certain discretely managed items and certain other gains and expenses. See the “Miscellaneous” sections of this release, as well as the tables of this release, for additional information about the items that have been excluded from Adjusted EPS. |
“We are very pleased with our third quarter financial results, which reflect meaningful improvement in our traffic and sales trends and much stronger-than-expected profitability,” said Brian Cornell, chairman and CEO of Target. “Favorable gross margin mix and efficient execution by our team drove third quarter EPS performance well beyond our guidance. We also continued to gain market share in key Signature Categories and saw unexpectedly strong sales in the Back-to-School and Back-to-College season. As we move into the biggest quarter of the year, we are pleased with our inventory position and confident that our team will deliver a great guest experience as they bring our merchandising and marketing plans to life throughout the holiday season.”
Fourth Quarter and Fiscal 2016 Guidance
Target raised its
expectations for fourth quarter comparable sales and now expects growth
in the range of (1.0) percent to 1.0 percent, compared with prior
guidance of (2.0) to flat. In the fourth quarter of 2016, Target expects
both GAAP EPS from continuing operations and Adjusted EPS of $1.55 to
$1.75.
For full-year 2016, Target now expects GAAP EPS from continuing operations of $4.67 to $4.87, compared with prior guidance of $4.36 to 4.76. The Company expects full-year 2016 Adjusted EPS of $5.10 to $5.30, compared with prior guidance of $4.80 to $5.20. The 43-cent difference between these ranges reflects early debt-retirement losses and a small benefit from the resolution of income tax matters.
Fourth quarter and full-year 2016 GAAP EPS from continuing operations may include the impact of unforeseen discrete items which may be excluded in calculating Adjusted EPS. The Company is not currently aware of any such discrete items beyond those already reported in the first, second and third quarters of 2016.
Segment Results
Third quarter 2016 sales decreased 6.7
percent to $16.4 billion from $17.6 billion last year, reflecting a 0.2
percent decline in comparable sales combined with the removal of
pharmacy and clinic sales from this year’s results. Comparable digital
channel sales grew 26 percent and contributed 0.7 percentage points to
comparable sales growth. Segment earnings before interest expense and
income taxes (EBIT), which is Target’s measure of segment profit, were
$1,057 million in third quarter 2016, an increase of 9.9 percent from
$962 million in 2015.
Third quarter EBITDA and EBIT margin rates were 9.9 percent and 6.4 percent, respectively, compared with 8.6 percent and 5.5 percent, respectively, in 2015. Third quarter gross margin rate was 30.2 percent, compared with 29.4 percent in 2015, reflecting the benefit of the sale of the Company’s pharmacy and clinic businesses and strong Signature Category sales growth. Third quarter SG&A expense rate was 20.3 percent in 2016, compared with 20.7 percent in 2015, reflecting continued expense discipline across the organization.
Interest Expense and Taxes from Continuing Operations
The
Company’s third quarter 2016 net interest expense was $142 million,
compared with $151 million last year. Third quarter 2016 effective
income tax rate from continuing operations was 33.8 percent, compared
with 34.3 percent last year. The decrease was due to a variety of
factors, none of which was individually significant.
Shareholder Returns
The Company returned $1.2 billion to
shareholders in third quarter 2016, including:
- Dividends of $345 million, compared with $352 million in third quarter 2015.
-
Share repurchases totaling $878 million, including:
- Open market transactions that retired 8.1 million shares of common stock at an average price of $69.73, for a total investment of $564 million.
- An accelerated share repurchase (ASR) agreement that retired 4.6 million shares of common stock at an average price of $67.67, for a total investment of $314 million. Final settlement of the ASR occurred in November, and 1.3 million of the 4.6 million shares repurchased through the ASR were delivered in the fourth quarter.
In September 2016, Target’s Board of Directors authorized a new $5 billion share repurchase program. Repurchases through this program will begin upon completion of the prior $10 billion program. At the end of the third quarter, including the $314 million investment in the ASR, $300 million of capacity remained under the prior program.
For the trailing twelve months through third quarter 2016, after-tax return on invested capital (ROIC) was 16.3 percent, compared with 13.0 percent for the twelve months through third quarter 2015. Excluding the net gain on the sale of the pharmacy and clinic businesses, ROIC for the trailing twelve months through third quarter 2016 was 14.3 percent, reflecting higher profits on a modestly lower base of invested capital. See the “Reconciliation of Non-GAAP Financial Measures” section of this release for additional information about the Company’s ROIC calculation.
Conference Call Details
Target will webcast its third
quarter earnings conference call at 7 a.m. CST today. Investors and the
media are invited to listen to the call at Investors.Target.com
(hover over “company” then click on “events & presentations” in the
“investors” column). A telephone replay of the call will be available
beginning at approximately 10:30 a.m. CST today through the end of
business on Nov. 18, 2016. The replay number is 855-859-2056 (passcode:
56082205).
Miscellaneous
Statements in this release regarding fourth
quarter and full-year 2016 earnings per share and comparable sales
guidance are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are
subject to risks and uncertainties which could cause the Company’s
actual results to differ materially. The most important risks and
uncertainties are described in Item 1A of the Company’s Form 10-K for
the fiscal year ended Jan. 30, 2016. Forward-looking statements speak
only as of the date they are made, and the Company does not undertake
any obligation to update any forward-looking statement.
In addition to the GAAP results provided in this release, the Company provides Adjusted EPS for the three and nine-month periods ended Oct. 29, 2016, and Oct. 31, 2015, respectively. The Company also provides ROIC for the twelve-month periods ended Oct. 29, 2016, and Oct. 31, 2015, respectively, which is a ratio based on GAAP information, with the exception of adjustments made to capitalize operating leases. Operating leases are capitalized as part of the ROIC calculation to control for differences in capital structure between the Company and its competitors. Adjusted EPS, capitalized operating lease obligations and operating lease interest are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. Management believes Adjusted EPS is useful in providing period-to-period comparisons of the results of the Company’s ongoing retail operations. Management believes ROIC is useful in assessing the effectiveness of its capital allocation over time. The most comparable GAAP measure for Adjusted EPS is diluted EPS from continuing operations. The most comparable GAAP measure for capitalized operating lease obligations and operating lease interest is total rent expense. Adjusted EPS, capitalized operating lease obligations and operating lease interest should not be considered in isolation or as a substitution for analysis of the Company’s results as reported under GAAP. Other companies may calculate Adjusted EPS and ROIC differently than the Company does, limiting the usefulness of the measure for comparisons with other companies.
About Target
Minneapolis-based Target Corporation (NYSE:
TGT) serves guests at 1,802 stores and at Target.com. Since 1946, Target
has given 5 percent of its profit to communities, which today equals
more than $4 million a week. For more information, visit Target.com/Pressroom.
For a behind-the-scenes look at Target, visit Target.com/abullseyeview
or follow @TargetNews
on Twitter.
TARGET CORPORATION | ||||||||||||||||||
Consolidated Statements of Operations | ||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||
(millions, except per share data) (unaudited) |
October 29, |
October 31, |
Change |
October 29, 2016 |
October 31, 2015 |
Change | ||||||||||||
Sales | $ | 16,441 | $ | 17,613 | (6.7 | )% | $ | 48,805 | $ | 52,159 | (6.4 | )% | ||||||
Cost of sales | 11,471 | 12,440 | (7.8 | ) | 33,757 | 36,402 | (7.3 | ) | ||||||||||
Gross margin | 4,970 | 5,173 | (3.9 | ) | 15,048 | 15,757 | (4.5 | ) | ||||||||||
Selling, general and administrative expenses | 3,339 | 3,736 | (10.6 | ) | 9,741 | 10,745 | (9.3 | ) | ||||||||||
Depreciation and amortization | 570 | 561 | 1.6 | 1,686 | 1,651 | 2.1 | ||||||||||||
Earnings from continuing operations before interest expense and income taxes | 1,061 | 876 | 21.1 | 3,621 | 3,361 | 7.7 | ||||||||||||
Net interest expense | 142 | 151 | (6.0 | ) | 864 | 455 | 89.8 | |||||||||||
Earnings from continuing operations before income taxes | 919 | 725 | 26.7 | 2,757 | 2,906 | (5.1 | ) | |||||||||||
Provision for income taxes | 311 | 249 | 24.9 | 910 | 1,006 | (9.5 | ) | |||||||||||
Net earnings from continuing operations | 608 | 476 | 27.7 | 1,847 | 1,900 | (2.8 | ) | |||||||||||
Discontinued operations, net of tax | — | 73 | 73 | 37 | ||||||||||||||
Net earnings | $ | 608 | $ | 549 | 10.7 | % | $ | 1,920 | $ | 1,937 | (0.9 | )% | ||||||
Basic earnings per share | ||||||||||||||||||
Continuing operations | $ | 1.07 | $ | 0.76 | 39.7 | % | $ | 3.16 | $ | 3.00 | 5.5 | % | ||||||
Discontinued operations | — | 0.12 | 0.12 | 0.06 | ||||||||||||||
Net earnings per share | $ | 1.07 | $ | 0.88 | 21.1 | % | $ | 3.29 | $ | 3.06 | 7.6 | % | ||||||
Diluted earnings per share | ||||||||||||||||||
Continuing operations | $ | 1.06 | $ | 0.76 | 39.7 | % | $ | 3.14 | $ | 2.98 | 5.5 | % | ||||||
Discontinued operations | — | 0.11 | 0.12 | 0.06 | ||||||||||||||
Net earnings per share | $ | 1.06 | $ | 0.87 | 21.1 | % | $ | 3.26 | $ | 3.03 | 7.6 | % | ||||||
Weighted average common shares outstanding | ||||||||||||||||||
Basic | 570.1 | 623.7 | (8.6 | )% | 583.5 | 633.5 | (7.9 | )% | ||||||||||
Dilutive impact of share-based awards | 4.7 | 5.1 |
|
5.0 | 5.2 | |||||||||||||
Diluted | 574.8 | 628.8 | (8.6 | )% | 588.5 | 638.7 | (7.9 | )% | ||||||||||
Antidilutive shares | 0.2 | — | 0.1 | — | ||||||||||||||
Dividends declared per share | $ | 0.60 | $ | 0.56 | 7.1 | % | $ | 1.76 | $ | 1.64 | 7.3 | % | ||||||
Note: Per share amounts may not foot due to rounding. | ||||||||||||||||||
Subject to reclassification |
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TARGET CORPORATION | ||||||||||||
Consolidated Statements of Financial Position | ||||||||||||
(millions) |
October 29, 2016 |
January 30, 2016 |
October 31, 2015 |
|||||||||
(unaudited) | (unaudited) | |||||||||||
Assets | ||||||||||||
Cash and cash equivalents, including short term investments of $0, $3,008 and $1,154 | $ | 1,231 | $ | 4,046 | $ | 1,977 | ||||||
Inventory | 10,057 | 8,601 | 10,374 | |||||||||
Current assets of discontinued operations | 62 | 322 | 399 | |||||||||
Other current assets | 1,492 | 1,161 | 2,194 | |||||||||
Total current assets | 12,842 | 14,130 | 14,944 | |||||||||
Property and equipment | ||||||||||||
Land | 6,106 | 6,125 | 6,118 | |||||||||
Buildings and improvements | 27,518 | 27,059 | 26,912 | |||||||||
Fixtures and equipment | 5,467 | 5,347 | 5,283 | |||||||||
Computer hardware and software | 2,538 | 2,617 | 2,652 | |||||||||
Construction-in-progress | 219 | 315 | 428 | |||||||||
Accumulated depreciation | (16,946 | ) | (16,246 | ) | (15,921 | ) | ||||||
Property and equipment, net | 24,902 | 25,217 | 25,472 | |||||||||
Noncurrent assets of discontinued operations | 17 | 75 | 94 | |||||||||
Other noncurrent assets | 842 | 840 | 941 | |||||||||
Total assets | $ | 38,603 | $ | 40,262 | $ | 41,451 | ||||||
Liabilities and shareholders’ investment | ||||||||||||
Accounts payable | $ | 8,250 | $ | 7,418 | $ | 8,904 | ||||||
Accrued and other current liabilities | 3,662 | 4,236 | 3,868 | |||||||||
Current portion of long-term debt and other borrowings | 729 | 815 | 825 | |||||||||
Current liabilities of discontinued operations | 1 | 153 | 261 | |||||||||
Total current liabilities | 12,642 | 12,622 | 13,858 | |||||||||
Long-term debt and other borrowings | 12,097 | 11,945 | 11,887 | |||||||||
Deferred income taxes | 920 | 823 | 1,135 | |||||||||
Noncurrent liabilities of discontinued operations | 18 | 18 | 36 | |||||||||
Other noncurrent liabilities | 1,857 | 1,897 | 1,279 | |||||||||
Total noncurrent liabilities | 14,892 | 14,683 | 14,337 | |||||||||
Shareholders’ investment | ||||||||||||
Common stock | 47 | 50 | 52 | |||||||||
Additional paid-in capital | 5,598 | 5,348 | 5,314 | |||||||||
Retained earnings | 6,031 | 8,188 | 8,359 | |||||||||
Accumulated other comprehensive loss | ||||||||||||
Pension and other benefit liabilities | (571 | ) | (588 | ) | (431 | ) | ||||||
Currency translation adjustment and cash flow hedges | (36 | ) | (41 | ) | (38 | ) | ||||||
Total shareholders’ investment | 11,069 | 12,957 | 13,256 | |||||||||
Total liabilities and shareholders’ investment | $ | 38,603 | $ | 40,262 | $ | 41,451 | ||||||
Common Stock Authorized 6,000,000,000 shares, $.0833 par value; 563,676,785, 602,226,517 and 618,604,168 shares issued and outstanding at October 29, 2016, January 30, 2016 and October 31, 2015, respectively. |
||||||||||||
Preferred Stock Authorized 5,000,000 shares, $.01 par value; no shares were issued or outstanding at October 29, 2016, January 30, 2016 or October 31, 2015. |
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Subject to reclassification |
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TARGET CORPORATION | ||||||||
Consolidated Statements of Cash Flows | ||||||||
Nine Months Ended | ||||||||
(millions) (unaudited) |
October 29, 2016 |
October 31, 2015 |
||||||
Operating activities | ||||||||
Net earnings | $ | 1,920 | $ | 1,937 | ||||
Earnings from discontinued operations, net of tax | 73 | 37 | ||||||
Net earnings from continuing operations | 1,847 | 1,900 | ||||||
Adjustments to reconcile net earnings to cash provided by operations: | ||||||||
Depreciation and amortization | 1,686 | 1,651 | ||||||
Share-based compensation expense | 85 | 84 | ||||||
Deferred income taxes | 83 | (111 | ) | |||||
Loss on debt extinguishment | 422 | — | ||||||
Noncash losses and other, net | 12 | 37 | ||||||
Changes in operating accounts | ||||||||
Inventory | (1,455 | ) | (2,096 | ) | ||||
Other assets | (13 | ) | 95 | |||||
Accounts payable and accrued liabilities | 103 | 1,475 | ||||||
Cash provided by operating activities—continuing operations | 2,770 | 3,035 | ||||||
Cash provided by operating activities—discontinued operations | 111 | 804 | ||||||
Cash provided by operations | 2,881 | 3,839 | ||||||
Investing activities | ||||||||
Expenditures for property and equipment | (1,184 | ) | (1,129 | ) | ||||
Proceeds from disposal of property and equipment | 23 | 21 | ||||||
Proceeds from sale of business | — | 8 | ||||||
Other investments | 23 | 12 | ||||||
Cash required for investing activities—continuing operations | (1,138 | ) | (1,088 | ) | ||||
Cash provided by investing activities—discontinued operations | — | 19 | ||||||
Cash required for investing activities | (1,138 | ) | (1,069 | ) | ||||
Financing activities | ||||||||
Change in commercial paper, net | 89 | — | ||||||
Additions to long-term debt | 1,977 | — | ||||||
Reductions of long-term debt | (2,625 | ) | (72 | ) | ||||
Dividends paid | (1,011 | ) | (1,017 | ) | ||||
Repurchase of stock | (3,034 | ) | (2,196 | ) | ||||
Prepayment of accelerated share repurchase | (120 | ) | — | |||||
Stock option exercises | 166 | 282 | ||||||
Cash required for financing activities | (4,558 | ) | (3,003 | ) | ||||
Net decrease in cash and cash equivalents | (2,815 | ) | (233 | ) | ||||
Cash and cash equivalents at beginning of period | 4,046 | 2,210 | ||||||
Cash and cash equivalents at end of period | $ | 1,231 | $ | 1,977 | ||||
Subject to reclassification |
||||||||
TARGET CORPORATION | ||||||||||||||||||
Segment Results | ||||||||||||||||||
|
||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||
(millions) (unaudited) |
October 29, 2016 |
October 31, |
Change |
October 29, 2016 |
October 31, |
Change | ||||||||||||
Sales | $ | 16,441 | $ | 17,613 | (6.7 | )% | $ | 48,805 | $ | 52,159 | (6.4 | )% | ||||||
Cost of sales | 11,471 | 12,440 | (7.8 | ) | 33,757 | 36,402 | (7.3 | ) | ||||||||||
Gross margin | 4,970 | 5,173 | (3.9 | ) | 15,048 | 15,757 | (4.5 | ) | ||||||||||
SG&A expenses (b) | 3,343 | 3,650 | (8.4 | ) | 9,741 | 10,533 | (7.5 | ) | ||||||||||
EBITDA | 1,627 | 1,523 | 6.8 | 5,307 | 5,224 | 1.6 | ||||||||||||
Depreciation and amortization | 570 | 561 | 1.6 | 1,686 | 1,651 | 2.1 | ||||||||||||
EBIT | $ | 1,057 | $ | 962 | 9.9 | % | $ | 3,621 | $ | 3,573 | 1.3 | % | ||||||
Note: We operate as a single segment which includes all of our continuing operations, excluding net interest expense and certain other discretely managed items. Our segment operations are designed to enable guests to purchase products seamlessly in stores, online, or through mobile devices. |
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(a) Sales include $1,112 million and $3,240 million related to our former pharmacy and clinic businesses for the three and nine months ended October 31, 2015, respectively, and cost of sales include and $885 million and $2,572 million, respectively. The December 2015 sale of these businesses to CVS had no notable impact on EBITDA or EBIT. |
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(b) SG&A includes $168 million and $489 million of net profit-sharing income under our credit card program agreement for the three and nine months ended October 29, 2016, respectively, and $166 million and $477 million for the three and nine months ended October 31, 2015, respectively. |
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Three Months Ended | Nine Months Ended | |||||||||||
Segment Rate Analysis
(unaudited) |
October 29, 2016 |
October 31, 2015 |
October 29, 2016 |
October 31, 2015 |
||||||||
Gross margin rate | 30.2 | % | 29.4 | % | 30.8 | % | 30.2 | % | ||||
SG&A expense rate | 20.3 | 20.7 | 20.0 | 20.2 | ||||||||
EBITDA margin rate (a) | 9.9 | 8.6 | 10.9 | 10.0 | ||||||||
Depreciation and amortization expense rate | 3.5 | 3.2 | 3.5 | 3.2 | ||||||||
EBIT margin rate (a) | 6.4 | 5.5 | 7.4 | 6.8 | ||||||||
Note: Rate analysis metrics are computed by dividing the applicable amount by sales. | ||||||||||||
(a) Excluding sales of our former pharmacy and clinic businesses, EBITDA margin rates were 9.2 percent and 10.7 percent for the three and nine months ended October 31, 2015, respectively, and EBIT margin rates were 5.8 percent and 7.3 percent, respectively. |
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Three Months Ended | Nine Months Ended | |||||||||||
Sales by Channel
(unaudited) |
October 29, 2016 |
October 31,
2015 (a) |
October 29, 2016 |
October 31,
2015 (a) |
||||||||
Stores | 96.5 | % | 97.3 | % | 96.5 | % | 97.2 | % | ||||
Digital | 3.5 | 2.7 | 3.5 | 2.8 | ||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | ||||
(a) Excluding sales of our former pharmacy and clinic businesses, stores and digital channels sales were 97.1 percent and 2.9 percent of total sales, respectively, for the three and nine months ended October 31, 2015. |
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Three Months Ended | Nine Months Ended | |||||||||||
Comparable Sales
(unaudited) |
October 29, 2016 |
October 31, 2015 |
October 29, 2016 |
October 31, 2015 |
||||||||
Comparable sales change | (0.2 | )% | 1.9 | % | — | % | 2.2 | % | ||||
Drivers of change in comparable sales | ||||||||||||
Number of transactions | (1.2 | ) | 1.4 | (1.0 | ) | 1.3 | ||||||
Average transaction amount | 1.0 | 0.4 | 1.0 | 0.9 | ||||||||
Selling price per unit | 3.5 | 2.5 | 3.0 | 3.8 | ||||||||
Units per transaction | (2.5 | ) | (2.1 | ) | (2.0 | ) | (2.8 | ) | ||||
Note: Amounts may not foot due to rounding. |
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Contribution to Comparable Sales Change
(unaudited) |
Three Months Ended | Nine Months Ended | ||||||||||
October 29, 2016 |
October 31, 2015 |
October 29, 2016 |
October 31, 2015 |
|||||||||
Stores channel comparable sales change | (1.0 | )% | 1.4 | % | (0.7 | )% | 1.6 | % | ||||
Digital channel contribution to comparable sales change | 0.7 | 0.4 | 0.6 | 0.6 | ||||||||
Total comparable sales change | (0.2 | )% | 1.9 | % | — | % | 2.2 | % | ||||
Note: Amounts may not foot due to rounding. |
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Three Months Ended | Nine Months Ended | |||||||||||
REDcard Penetration
(unaudited) |
October 29, 2016 |
October 31,
2015 (a) |
October 29, 2016 |
October 31,
2015 (a) |
||||||||
Target Debit Card | 12.9 | % | 12.1 | % | 12.9 | % | 12.0 | % | ||||
Target Credit Cards | 11.4 | 10.2 | 11.0 | 9.9 | ||||||||
Total REDcard Penetration | 24.3 | % | 22.3 | % | 23.9 | % | 22.0 | % | ||||
Note: Amounts may not foot due to rounding. | ||||||||||||
(a) Excluding sales of our former pharmacy and clinic businesses, total REDcard penetration was 23.5 percent and 23.1 percent for the three and nine months ended October 31, 2015, respectively. |
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Number of Stores and Retail Square Feet (unaudited) |
Number of Stores | Retail Square Feet (a) | ||||||||||
October 29, 2016 |
January 30, 2016 |
October 31, 2015 |
October 29, 2016 |
January 30, 2016 |
October 31, 2015 |
|||||||
170,000 or more sq. ft. | 278 | 278 | 280 | 49,685 | 49,688 | 50,036 | ||||||
50,000 to 169,999 sq. ft. | 1,503 | 1,505 | 1,516 | 189,496 | 189,677 | 190,873 | ||||||
49,999 or less sq. ft. | 19 | 9 | 9 | 464 | 174 | 174 | ||||||
Total | 1,800 | 1,792 | 1,805 | 239,645 | 239,539 | 241,083 | ||||||
(a) In thousands: reflects total square feet, less office, distribution center and vacant space. |
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Subject to reclassification |
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TARGET CORPORATION
Reconciliation of Non-GAAP Financial Measures
To provide additional transparency, we have disclosed non-GAAP adjusted diluted earnings per share from continuing operations (Adjusted EPS). This metric excludes certain items presented below. We believe this information is useful in providing period-to-period comparisons of the results of our continuing operations. This measure is not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The most comparable GAAP measure is diluted earnings per share from continuing operations. Adjusted EPS should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP. Other companies may calculate Adjusted EPS differently than we do, limiting the usefulness of the measure for comparisons with other companies.
Adjusted EPS | Three Months Ended | |||||||||||||||||||||||||
October 29, 2016 | October 31, 2015 | |||||||||||||||||||||||||
(millions, except per share data) (unaudited) | Pretax |
Net of |
Per Share |
Pretax |
Net of |
Per Share |
Change | |||||||||||||||||||
GAAP diluted earnings per share from continuing operations | $ | 1.06 | $ | 0.76 | 39.7 | % | ||||||||||||||||||||
Adjustments | ||||||||||||||||||||||||||
Restructuring costs (a) | $ | — | $ | — | $ | — | $ | 21 | $ | 13 | $ | 0.02 | ||||||||||||||
Impairments (b) | — | — | — | 39 | 29 | 0.05 | ||||||||||||||||||||
Other (c) | (4 | ) | (3 | ) | — | 26 | 20 | 0.03 | ||||||||||||||||||
Resolution of income tax matters | — | (5 | ) | (0.01 | ) | — | — | — | ||||||||||||||||||
Adjusted diluted earnings per share from continuing operations | $ | 1.04 | $ | 0.86 | 22.1 | % | ||||||||||||||||||||
Nine Months Ended | ||||||||||||||||||||||||||
October 29, 2016 | October 31, 2015 | |||||||||||||||||||||||||
(millions, except per share data) (unaudited) | Pretax |
Net of |
Per Share |
Pretax |
Net of |
Per Share |
Change | |||||||||||||||||||
GAAP diluted earnings per share from continuing operations | $ | 3.14 | $ | 2.98 | 5.5 | % | ||||||||||||||||||||
Adjustments | ||||||||||||||||||||||||||
Loss on early retirement of debt | $ | 422 | $ | 257 | $ | 0.44 | $ | — | $ | — | $ | — | ||||||||||||||
Restructuring costs (a) | — | — | — | 135 | 85 | 0.13 | ||||||||||||||||||||
Impairments (b) | — | — | — | 39 | 29 | 0.05 | ||||||||||||||||||||
Other (c) | — | — | — | 38 | 27 | 0.04 | ||||||||||||||||||||
Resolution of income tax matters | — | (8 | ) | (0.01 | ) | — | (8 | ) | (0.01 | ) | ||||||||||||||||
Adjusted diluted earnings per share from continuing operations | $ | 3.56 | $ | 3.18 | 11.9 | % | ||||||||||||||||||||
Note: Amounts may not foot due to rounding. | ||||||||||||||||||||||||||
(a) Costs related to our corporate restructuring announced during the first quarter of 2015. |
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(b) Expenses related to the impairment of long-lived and intangible assets. |
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(c) For the three and nine months ended October 29, 2016, represents items related to the Pharmacy Transaction. For the three and nine months ended October 31, 2015, represents costs related to the 2013 data breach. |
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We have also disclosed after-tax return on invested capital from continuing operations (ROIC), which is a ratio based on GAAP information, with the exception of adjustments made to capitalize operating leases. Operating leases are capitalized as part of the ROIC calculation to control for differences in capital structure between us and our competitors. We believe this metric provides a meaningful measure of the effectiveness of our capital allocation over time. Other companies may calculate ROIC differently than we do, limiting the usefulness of the measure for comparisons with other companies.
After-Tax Return on Invested Capital | |||||||||
Numerator | Trailing Twelve Months | ||||||||
(dollars in millions) (unaudited) |
October 29, 2016 |
October 31, 2015 |
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Earnings from continuing operations before interest expense and income taxes | $ | 5,790 | $ | 4,946 | |||||
+ Operating lease interest (a)(b) | 72 | 90 | |||||||
Adjusted earnings from continuing operations before interest expense and income taxes | 5,862 | 5,036 | |||||||
- Income tax effect (c) | 1,849 | 1,717 | |||||||
Net operating profit after taxes | $ | 4,013 | $ | 3,319 | |||||
Denominator
(dollars in millions) (unaudited) |
October 29, 2016 |
October 31, 2015 |
November 1, 2014 |
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Current portion of long-term debt and other borrowings | $ | 729 | $ | 825 | $ | 483 | |||
+ Noncurrent portion of long-term debt | 12,097 | 11,887 | 12,551 | ||||||
+ Shareholders' equity | 11,069 | 13,256 | 16,373 | ||||||
+ Capitalized operating lease obligations (b)(d) | 1,192 | 1,503 | 1,639 | ||||||
- Cash and cash equivalents | 1,231 | 1,977 | 718 | ||||||
- Net assets of discontinued operations | 60 | 197 | 4,550 | ||||||
Invested capital | $ | 23,796 | $ | 25,298 | $ | 25,778 | |||
Average invested capital (e) | $ | 24,547 | $ | 25,538 | |||||
After-tax return on invested capital (f) | 16.3% | 13.0% | |||||||
(a) Represents the add-back to operating income to reflect the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as capital leases, using eight times our trailing twelve months rent expense and an estimated interest rate of six percent. |
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(b) See the following Reconciliation of Capitalized Operating Leases table for the adjustments to our GAAP total rent expense to obtain the hypothetical capitalization of operating leases and related operating lease interest. |
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(c) Calculated using the effective tax rate for continuing operations, which was 31.5% and 34.1% for the trailing twelve months ended October 29, 2016 and October 31, 2015. For the trailing twelve months ended October 29, 2016 and October 31, 2015, includes tax effect of $1,826 million and $1,686 million, respectively, related to EBIT and $23 million and $31 million, respectively, related to operating lease interest. |
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(d) Calculated as eight times our trailing twelve months rent expense. |
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(e) Average based on the invested capital at the end of the current period and the invested capital at the end of the comparable prior period. |
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(f) Excluding the net gain on the sale of our pharmacy and clinic businesses, ROIC was 14.3 percent for the trailing twelve months ended October 29, 2016. |
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Capitalized operating lease obligations and operating lease interest are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The most comparable GAAP measure is total rent expense. Capitalized operating lease obligations and operating lease interest should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP. | |||||||||
Reconciliation of Capitalized Operating Leases | Trailing Twelve Months | ||||||||
(dollars in millions) (unaudited) |
October 29, 2016 |
October 31, 2015 |
November 1, 2014 |
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Total rent expense | $ | 149 | $ | 188 | $ | 205 | |||
Capitalized operating lease obligations (total rent expense x 8) | 1,192 | 1,503 | 1,639 | ||||||
Operating lease interest (capitalized operating lease obligations x 6%) | 72 | 90 | 98 | ||||||
Subject to reclassification |