Target Corporation reported net earnings of $936 million for the quarter ended Jan. 30, 2010, compared with $609 million in the quarter ended Jan. 31, 2009. Earnings per share in the fourth quarter increased 53.3% to $1.24 from 81 cents in the same period a year ago. On a full year basis, earnings per share were $3.30, a 15.2% increase from $2.86 in 2008. All earnings per share figures refer to diluted earnings per share.

“Were very pleased with our fourth quarter and full year 2009 financial performance, which reflect substantial innovation and disciplined execution by teams across the company,” said Gregg Steinhafel, chairman, president, and chief executive officer of Target Corporation. “Fourth quarter retail segment performance was well above our expectations due to stronger-than-expected holiday sales, combined with well-controlled inventories and disciplined expense controls. In 2010, we expect our guest traffic trends and sales of discretionary categories to benefit from broader implementation of our new merchandise initiatives as well as a continued modest recovery in the economy, and believe Target will continue to gain profitable market share.”

Retail Segment Results

Sales increased 3.7% in the fourth quarter to $19.7 billion in 2009 from $19.0 billion in 2008, due to the contribution from new stores and a 0.6% increase in comparable-store sales. Retail segment earnings before interest expense and income taxes (EBIT) were $1.56 billion in the fourth quarter of 2009, an increase of 24.7 percent from $1.25 billion in 2008.

Fourth quarter gross margin rate increased 1.8 percentage points to 29.1%, driven by rate improvement within categories slightly offset by the impact of faster sales growth in non-discretionary, lower margin-rate categories. Category rate favorability was driven in part by lower levels of clearance sales, which declined more than 20% from the fourth quarter of 2008.

Fourth quarter selling, general and administrative (SG&A) expenses increased 4.8% from fourth quarter 2008, in line with expectations.

For fiscal 2009, sales increased 0.9% to $63.4 billion from $62.9 billion in 2008, due to the contribution from new stores, partially offset by a 2.5% decline in comparable store sales. Full year retail segment EBIT increased 7.3% to $4.4 billion in 2009 from $4.1 billion in 2008.

Gross margin rate for fiscal 2009 increased 0.7 percentage points to 30.5%, as rate improvements within categories were partially offset by the impact of sales mix. Fiscal 2009 selling, general and administrative (SG&A) expense rate was 20.5 percent, compared to 20.4% in 2008.

Credit Card Segment Results

Fourth quarter average receivables decreased 10.2% to $8.1 billion in 2009 from $9.1 billion in 2008. Average receivables directly funded by Target declined 23.9 percent in the fourth quarter to $2.7 billion from $3.6 billion in 2008.

Fourth quarter bad debt expense was $284 million in 2009, a 43.2% reduction from $500 million in 2008, when the company added significantly to its allowance for doubtful accounts. Credit card segment profit for the quarter was $39 million, compared with a loss of $135 million in fourth quarter 2008. Annualized segment pre-tax return on invested capital was 5.7% in the fourth quarter 2009, compared with negative 15.0 percent in 2008.

Average receivables for fiscal 2009 decreased 4.0% to $8.4 billion from $8.7 billion in 2008. Average receivables directly funded by Target in 2009 declined 31.6% to $2.9 billion from $4.2 billion in 2008.

Full year 2009 segment profit increased 29.4% to $201 million from $155 million in 2008. The company added $6 million to the allowance for doubtful accounts in 2009. Full year pre-tax return on the capital invested by Target in this segment was 7.0 percent in 2009, up from 3.7% in 2008.

Interest Expense and Taxes

Net interest expense for the quarter decreased $1 million from fourth quarter 2008, driven by lower average debt balances offset by a higher average portfolio interest rate and a $16 million charge related to the early retirement of debt. Full-year interest expense decreased $65 million from fiscal 2008, driven by a lower average portfolio interest rate partially offset by a $16 million charge related to the early retirement of debt.

The company�€�s effective income tax rate for the fourth quarter was 33.5% in 2009. This rate is approximately 3.5 to 4.0 percentage points less than the company�€�s expected annual long-term structural rate, due to a greater than normal portion of earnings not subject to tax, and certain discrete state and federal items. This lower provision for income taxes increased EPS by an amount equal to approximately 7 cents per share in the quarter and for the year. For the full year, the effective income tax rate was 35.7%, down from 37.4% in 2008.

Share Repurchase

In the fourth quarter, under the share repurchase program originally announced in November 2007 and resumed in January 2010, the company repurchased approximately 8.3 million shares of its common stock at an average price of $50.74, for a total investment of $423 million.

Program-to-date through the end of the fourth quarter, the company has acquired approximately 103.6 million shares of its common stock at an average price per share of $51.36, reflecting a total investment of approximately $5.3 billion.

Consolidated Statements of Operations                                    
Three Months Ended Twelve Months Ended
Jan. 30, Jan. 31, Jan. 30, Jan. 31,
(millions, except per share data)    
(unaudited) (unaudited) (unaudited)
Sales $ 19,719 $ 19,023 3.7 % $ 63,435 $ 62,884 0.9 %
Credit card revenues       462         537       (13.9 )       1,922         2,064       (6.9 )  
Total revenues 20,181 19,560 3.2 65,357 64,948 0.6
Cost of sales 13,982 13,824 1.1 44,062 44,157 (0.2 )
Selling, general and administrative expenses 3,673 3,519 4.4 13,078 12,954 1.0
Credit card expenses 368 586 (37.1 ) 1,521 1,609 (5.5 )
Depreciation and amortization       536         474       13.3         2,023         1,826       10.8    
Earnings before interest expense and income taxes 1,622 1,157

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