Target Reports Fourth Quarter and Full-Year 2016 Earnings

 

  • Fourth quarter comparable sales decreased 1.5 percent, compared to the guidance range of (1.5%) to (1.0%)1.
  • Fourth quarter comparable digital channel sales increased 34 percent, contributing 1.8 percentage points of comparable sales growth.
  • Fourth quarter comparable sales growth in Signature Categories outpaced total comparable sales by nearly 3 percentage points.
  • Fourth quarter comparable traffic increased 0.2 percent.
  • Fourth quarter GAAP earnings per share (EPS) from continuing operations of $1.46 and Adjusted EPS2 of $1.45, compared with the Company’s guidance range of $1.45 to $1.55.
  • For full-year 2016, GAAP EPS from continuing operations declined 12.7 percent to $4.58, reflecting a loss of $0.44 on the early retirement of debt. 
  • Full-year Adjusted EPS2 increased 6.7 percent to $5.01.
  • Target returned $5.0 billion to shareholders in 2016 through dividends and share repurchases.

Target Corporation (NYSE: TGT) today announced its fourth quarter and full-year 2016 results.  The Company reported GAAP earnings per share (EPS) from continuing operations of $1.46 in fourth quarter and $4.58 for full-year 2016, compared with $2.31 and $5.25 in 2015, respectively.  Fourth quarter Adjusted EPS were $1.45, down 4.6 percent from $1.52 in 2015. Full-year Adjusted EPS of $5.01 was 6.7 percent higher

than $4.69 in 2015. The attached tables provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.

“Our fourth quarter results reflect the impact of rapidly-changing consumer behavior, which drove very strong digital growth but unexpected softness in our stores,” said Brian Cornell, chairman and CEO of Target.  “At our meeting with the financial community this morning, we will provide detail on the meaningful investments we’re making in our business and financial model which will position Target for long-term, sustainable growth in this new era in retail. We will accelerate our investments in a smart network of physical and digital assets as well as our exclusive and differentiated assortment, including the launch of more than 12 new brands, representing more than $10 billion of our sales, over the next two years. In addition, we will invest in lower gross margins to ensure we are clearly and competitively priced every day. While the transition to this new model will present headwinds to our sales and profit performance in the short term, we are confident that these changes will best-position Target for continued success over the long term.”

Fiscal 2017 Guidance
Target’s 2017 guidance reflects the impact of the Company’s transition to a new financial model, which will be covered in the Company’s meeting with the financial community later today.

In first quarter 2017, Target expects a low-to-mid single digit decline in comparable sales, and both GAAP EPS from continuing operations and Adjusted EPS of $0.80 to $1.00.

For full-year 2017, Target expects a low-single digit decline in comparable sales, and both GAAP EPS from continuing operations and Adjusted EPS of $3.80 to $4.20.

First quarter and full-year 2017 GAAP EPS from continuing operations may include the impact of certain discrete items, which will be excluded in calculating Adjusted EPS. In the past, these items have included losses on the early retirement of debt, data breach expenses, restructuring costs, and certain other items that are discretely managed. The Company is not currently aware of any such discrete items.

Segment Results
Fourth quarter 2016 sales decreased 4.3 percent to $20.7 billion from $21.6 billion last year, reflecting a 1.5 percent decline in comparable sales combined with the removal of pharmacy and clinic sales from this year’s results. Comparable digital channel sales grew 34 percent and contributed 1.8 percentage points of comparable sales growth. Segment earnings before interest expense and income taxes (EBIT), which is Target’s measure of segment profit, were $1,344 million in fourth quarter 2016, a decrease of 13.5 percent from $1,554 million in 2015.

Fourth quarter EBITDA and EBIT margin rates were 9.5 percent and 6.5 percent, respectively, compared with 9.8 percent and 7.2 percent, respectively, in 2015. Fourth quarter gross margin rate was 26.9 percent, compared with 27.9 percent in 2015, reflecting markdown pressure from promotional and clearance activity and costs associated with the mix shift between the Company’s store and digital channels, partially offset by the benefit of the sale of the Company’s pharmacy and clinic businesses, a favorable merchandise mix, and cost of goods savings. Fourth quarter SG&A expense rate was 17.5 percent in 2016, compared with 18.1 percent in 2015, reflecting the benefit of the sale of the Company’s pharmacy and clinic businesses and continued expense discipline across the organization.

Interest Expense and Taxes from Continuing Operations
The Company’s fourth quarter 2016 net interest expense was $140 million, compared with $152 million last year. Fourth quarter 2016 effective income tax rate from continuing operations was 32.0 percent, compared with 29.6 percent last year. Last year’s tax rate reflected the impact of the gain on the December 2015 sale of the pharmacy and clinic businesses.

Shareholder Returns
The Company returned $902 million to shareholders in fourth quarter 2016, including:

  • Dividends of $337 million, compared with $345 million in fourth quarter 2015.
  • Share repurchases totaling $565 million, including:

o   Open market transactions that retired 3.2 million shares of common stock at an average price of $66.52, for a total investment of $211 million.

o   An accelerated share repurchase (ASR) agreement that retired 4.6 million shares of common stock at an average price of $76.77, for a total investment of $355 million.

As expected, during the fourth quarter the Company completed its previous share repurchase program, which was approved in 2012 and extended to $10 billion in 2015.  Upon completion of the prior program, the Company began repurchasing shares under its current $5 billion share repurchase program, which was approved in September 2016. Under the current program, the Company invested $264 million in the fourth quarter, leaving approximately $4.7 billion remaining under the current program at the end of the quarter.

For the trailing twelve months through fourth quarter 2016, after-tax return on invested capital (ROIC) was 15.0 percent, compared with 16.0 percent for the twelve months through fourth quarter 2015. Last year’s ROIC rate reflected the benefit of the gain on the December 2015 sale of the pharmacy and clinic businesses. Excluding that benefit, ROIC for the twelve months through fourth quarter 2015 was 13.9 percent.  See the “Reconciliation of Non-GAAP Financial Measures” section of this release for additional information about the Company’s ROIC calculation.

Webcast Details
Target will webcast its financial community meeting, including Q&A, at 8 a.m. CST today. Investors and the media are invited to listen to the meeting at Investors.Target.com (hover over “company” then click on “events & presentations” in the “investors” column). A replay of the webcast will be available beginning at approximately 1 p.m. CST today.

Miscellaneous
Statements in this release regarding first quarter and full-year 2017 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 twelve-month periods ended Jan. 28, 2017, and Jan. 30, 2016. The Company also provides ROIC for the twelve-month periods ended Jan. 28, 2017, and Jan. 30, 2016, 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 the Company’s 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.

Related: Review Target's Complete Q4 and Full-Year 2016 Financial Statements

Related: Investing to Grow: Target Commits More Than $7 Billion to Adapt to Rapidly Evolving Guest Preferences

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 millions of dollars 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 Q4 and Full-Year 2016 Earnings

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