Target Reports Fourth Quarter and Fiscal 2011 Earnings

MINNEAPOLIS - February 23, 2012
Target Corporation (NYSE: TGT) today reported fourth quarter net earnings of $981 million, or $1.45 per share, and full year net earnings of $2,929 million, or $4.28 per share. Adjusted earnings per share, a measure we believe is useful in providing period-to-period comparisons of the results of our U.S. operations, were $1.49 in the fourth quarter and $4.41 for the full year, representing increases of 8.3 percent and 14.3 percent, respectively. Fourth quarter results were at the high end of our most recent guidance. A reconciliation of non-GAAP financial measures to GAAP measures is provided in the tables attached to this press release. All earnings per share figures refer to diluted earnings per share.
 
“Target generated strong financial performance in 2011, overcoming sluggish economic growth, restrained consumer spending and an intensely promotional holiday season,” said Gregg Steinhafel, chairman, president, and chief executive officer of Target Corporation. “For the full year, our U.S. businesses generated 14.3 percent growth in adjusted earnings per share, and we experienced our strongest growth in comparable-store sales since 2007. As we look ahead to 2012, we’ll continue to focus on bringing our “Expect More. Pay Less.” brand promise to life for our guests, providing unique, well-designed merchandise while driving value and loyalty with initiatives like 5% Rewards and REDcard Free Shipping. In addition, we’ll continue to invest in our store, online and mobile channels, open our first CityTarget locations in July and prepare for the opening of our first Canadian Target stores in early 2013.”
 
Fiscal 2012 Earnings Guidance
For fiscal 2012, the company expects adjusted EPS of $4.55 to $4.75 and GAAP EPS of $4.05 to $4.25. The 50 cent difference between these two ranges represents the EPS impact on the year of the expected expenses related to the Canadian market entry.
 
In first quarter 2012, the company expects adjusted EPS of $0.97 to $1.07 and GAAP EPS of $0.88 to $0.98. The 9 cent difference between these two ranges represents the EPS impact in the quarter of the expected expenses related to the Canadian market entry.
 
U.S. Retail Segment Results
As the company first reported in its sales release on February 2, 2012, Target’s sales in fourth quarter 2011 increased 3.3 percent to $20.9 billion from $20.3 billion a year ago, due to a 2.2 percent increase in comparable-store sales and the contribution from new stores. Segment earnings before interest expense and income taxes (EBIT) were $1,625 million in the fourth quarter of 2011, an increase of 1.1 percent from $1,608 million in 2010.
 
Fourth quarter 2011 U.S. Retail Segment EBITDA and EBIT margin rates were 10.3 percent and 7.8 percent, respectively, compared with 10.6 percent and 7.9 percent in 2010. Fourth quarter gross margin rate declined to 28.4 percent in 2011 from 28.7 percent in 2010, reflecting the impact of the company’s integrated growth strategies partially offset by underlying rate improvements within categories. The retail segment fourth quarter selling, general and administrative (SG&A) expense rate was 18.1 percent in 2011, unchanged from 2010.
 
Fiscal 2011 sales increased 4.1 percent to $68.5 billion from $65.8 billion in 2010, due to a 3.0 percent increase in comparable-store sales and the contribution from new stores. Full-year retail segment EBIT increased 2.9 percent to $4.8 billion in 2011 from $4.6 billion in 2010.
 
Full year 2011 retail segment EBITDA and EBIT margin rates were 10.0 percent and 7.0 percent, respectively, compared with 10.2 percent and 7.0 percent in 2010. Gross margin rate for fiscal 2011 was 30.1 percent compared with 30.5 percent in 2010, reflecting the company’s integrated growth strategies partially offset by underlying rate improvements within categories.
 
U.S. Credit Card Segment Results
Fourth quarter average receivables decreased 7.6 percent to $6.4 billion in 2011 from $6.9 billion in 2010. Average receivables directly funded by Target decreased 8.2 percent in the fourth quarter to $2.7 billion from $3.0 billion in 2010.
 
Fourth quarter portfolio spread to LIBOR was 6.9 percent in 2011 compared with 9.5 percent in 2010, as last year’s performance benefited from an $85 million reduction in the allowance for doubtful accounts. Segment profit for the quarter was $98 million in 2011, compared with $151 million in fourth quarter 2010. Annualized segment pre-tax return on invested capital was 14.3 percent in fourth quarter 2011, compared with 20.3 percent in 2010.
Average receivables for fiscal 2011 decreased 11.1 percent to $6.3 billion from $7.1 billion in 2010. Average receivables directly funded by Target decreased 9.3 percent to $2.5 billion from $2.8 billion in 2010.
 
Fiscal 2011 spread to LIBOR was 10.5 percent, compared with 8.5 percent in 2010. Full-year 2011 segment profit increased to $606 million from $541 million in 2010. The year-end allowance for doubtful accounts decreased to $430 million in 2011 from $690 million in 2010, reflecting improving portfolio risk levels and a 7.1 percent decrease in year-end receivables. Full-year segment pre-tax return on invested capital was 24.1 percent in 2011 compared with 19.5 percent in 2010.
 
Canadian Segment Results
Fourth quarter and full-year 2011 EBIT were $(40) million and $(122) million, respectively, due to start-up expenses and depreciation related to the company’s expected market entry in 2013. Consolidated expenses related to investments in Target’s Canadian market entry reduced Target’s earnings per share by approximately 6 cents in fourth quarter 2011 and 17 cents for fiscal 2011.1
 
[1] These amounts include interest expense and tax expense that are not included in the segment measure of profit. A reconciliation of non-GAAP measures is included in the tables attached to this release.
 
Interest Expense and Taxes
Net interest expense for the quarter was $292 million, including $87 million due to early extinguishment of non-recourse debt collateralized by credit-card receivables and $19 million of interest on capitalized leases related to Target’s Canadian market entry. Net interest expense was $190 million in fourth quarter 2010.
 
Full-year interest expense was $866 million in 2011, including $87 million due to early extinguishment of non-recourse debt collateralized by credit-card receivables and $44 million of interest on capitalized leases related to Target’s Canadian market entry. Net interest expense was $757 million in 2010.
The company’s effective income tax rate was 30.3 percent in fourth quarter 2011 and 34.3 percent for full-year 2011. Both fourth quarter and full-year 2011 effective income tax rates reflect the favorable resolution of various income tax matters.  These tax items increased EPS by approximately 10 cents per share in fourth quarter 2011, and approximately 12 cents per share for full-year 2011. In 2010, the favorable resolution of various income tax matters increased fourth quarter EPS by approximately 7 cents and increased full-year EPS by approximately 14 cents.
 
Share Repurchase
In fourth quarter 2011, the company repurchased approximately 3.1 million shares of its common stock at an average price of $52.35, for a total investment of $161 million.  For the full year, the company acquired approximately 37.2 million shares of its common stock at an average price per share of $50.89, for a total investment of approximately $1.9 billion. Shares acquired in 2011 represent 5.3 percent of shares outstanding at the beginning of the fiscal year.
 
Miscellaneous
Target Corporation will webcast its fourth quarter earnings conference call at 9:30 a.m. CST today. Investors and the media are invited to listen to the call through the company’s website at www.target.com/investors (click on “Events + Presentations” and then “Archives + Webcasts”). A telephone replay of the call will be available beginning at approximately 11:30 a.m. CST today through the end of business on February 24, 2012. The replay number is (800) 642-1687 (passcode: 20428291).
 
Statements in this release regarding expected store openings and fiscal 2012 earnings guidance are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements speak only as of the date they are made and 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 January 29, 2011.
 
In addition to the GAAP results provided in this release, the company provides adjusted diluted earnings per share for the three and twelve months ended January 28, 2012 and January 29, 2011. 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. Management believes adjusted EPS is useful in providing period-to-period comparisons of the results of our U.S. operations. Adjusted EPS 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 differently than the company does, limiting the usefulness of the measure for comparative purposes. 
 
About Target
Minneapolis-based Target Corporation (NYSE:TGT) serves guests at 1,763 stores across the United States and at Target.com. The company plans to open its first stores in Canada in 2013. In addition, the company operates a credit card segment that offers branded proprietary credit card products. Since 1946, Target has given 5 percent of its income through community grants and programs; today, that giving equals more than $3 million a week. For more information about Target’s commitment to corporate responsibility, visit Target.com/hereforgood.
 
For more information, visit Target.com/Pressroom.

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