Company Announcements

Target Corporation Reports Second Quarter Earnings

MINNEAPOLIS, Aug. 18, 2021 /PRNewswire/ --

  • Second quarter comparable sales grew 8.9 percent, on top of record growth of 24.3 percent last year.
    • Comparable sales growth was driven entirely by traffic.
    • Store comparable sales increased 8.7 percent, on top of 10.9 percent growth last year.
    • Digital comparable sales grew 10 percent, following growth of 195 percent last year.
    • Digital sales continue to be led by same-day services (Order Pickup, Drive Up and Shipt), which grew nearly 55 percent this year, on top of more than 270 percent last year.
    • More than 95 percent of Target's second quarter sales were fulfilled by its stores.
  • All five core merchandise categories delivered positive comparable sales, on top of last year's historic sales performance.
  • Second quarter GAAP EPS of $3.65 was 8.9 percent higher than last year, and Adjusted EPS1 of $3.64 was 7.9 percent higher than last year. Second quarter GAAP and Adjusted EPS have doubled since Q2 2019.
  • Target's Board of Directors has approved a new, $15 billion share repurchase program.
  • For additional media materials, please visit:
    https://corporate.target.com/article/2021/08/q2-2021-earnings

Target Corporation (NYSE: TGT) today announced its second quarter 2021 financial results, which reflected increases in both sales and profitability on top of record growth a year ago. The Company reported second quarter GAAP earnings per share (EPS) of $3.65, up 8.9 percent from $3.35 in 2020. Second quarter Adjusted EPS of $3.64 grew 7.9 percent compared with $3.38 in 2020. The attached tables provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.

1 Adjusted EPS, a non-GAAP financial measure, excludes the impact of certain discretely managed items. See the tables of this release for additional information about the items that have been excluded from Adjusted EPS.

Brian Cornell, chairman and CEO of Target Corporation, said, "In the second quarter, our business generated continued growth on top of record increases a year ago, reinforcing Target's leadership position in retail. We've spent years building and investing in the durable model we have today, which is supported by a differentiated strategy and the best team in retail.

Even after unprecedented growth over the last two years, we see much more opportunity ahead of us, and we're leaning into opportunities to invest in the long-term growth and resiliency of our business. Our team and operating model can seamlessly adapt to changes in the environment, and we're well-positioned to deliver outstanding performance in the back half of the year."

Fiscal 2021 Guidance

For the second half of 2021, the Company expects high single digit growth in comparable sales, near the high end of the previous guidance range.

The Company now expects its full year operating income margin rate will be 8 percent or higher.

Operating Results

Comparable sales grew 8.9 percent in the second quarter, reflecting comparable store sales growth of 8.7 percent and comparable digital sales growth of 10 percent. Total revenue of $25.2 billion grew 9.5 percent compared with last year, driven by total sales growth of 9.4 percent and a 20.0 percent increase in other revenue. Operating income was $2.5 billion in second quarter 2021, up 7.2 percent from $2.3 billion in 2020.

Second quarter operating income margin rate was 9.8 percent in 2021 compared with 10.0 percent in 2020. Second quarter gross margin rate was 30.4 percent, compared with 30.9 percent in 2020. This year's gross margin rate reflected pressure from higher merchandise and freight costs and the comparison over last year's change in the sales return reserve estimate.  These pressures were partially offset by the benefit of low markdowns, favorable category mix, and a shift in fulfillment mix into lower-cost same-day fulfillment options. Second quarter SG&A expense rate was 19.3 percent in 2021, compared with 19.4 percent in 2020, reflecting the benefit of leverage from strong sales growth, partially offset by expense rate increases to normalized levels in various expense categories, such as marketing.

Interest Expense and Taxes

The Company's second quarter 2021 net interest expense was $104 million, compared with $122 million last year. The decrease was primarily due to lower average debt balances.

Second quarter 2021 effective income tax rate was 23.4 percent, compared with 22.8 percent last year. The rate increase was driven by significantly higher earnings, which diluted the benefit of fixed and discrete tax items.

Capital Deployment and Return on Invested Capital

The Company paid dividends of $336 million in the second quarter, compared with $330 million last year, reflecting a 3.0 percent increase in the dividend per share, partially offset by a decline in average share count.

The Company repurchased $1.5 billion worth of its shares in second quarter 2021, retiring 6.6 million shares of common stock at an average price of $233.81.  As of the end of the second quarter, the Company had approximately $1.8 billion of remaining capacity under the repurchase program approved by Target's Board of Directors in September 2019.

In addition, the Company announced today that Target's Board of Directors has authorized a new, $15 billion share repurchase program.  Repurchases under this program will begin upon completion of the 2019 program.

"For decades, Target's capital deployment priorities have remained the same: First, we fully invest in our business, in projects that meet our strategic and financial criteria.  Then, we return capital to our shareholders through a thoughtful balance of dividends and share repurchases, within the limits of our middle-A debt ratings," said Michael Fiddelke, executive vice president and chief financial officer of Target Corporation. "Our continued strong operating performance and ability to generate cash have supported meaningful investments in our team and our business, along with the return of capital through both dividends and share repurchases.  This new authorization reflects our confidence in the sustained, strong performance of our business, which will enable continued share repurchases in keeping with our long-standing capital deployment goals."

For the trailing twelve months through second quarter 2021, after-tax return on invested capital (ROIC) was 31.7 percent, compared with 17.2 percent for the trailing twelve months through second quarter 2020. The increase in ROIC was driven primarily by increased profitability. The tables in this release provide additional information about the Company's ROIC calculation.

Webcast Details

Target will webcast its second quarter earnings conference call at 7:00 a.m. CT today. Investors and the media are invited to listen to the meeting at Investors.Target.com (click on link under "Upcoming Events"). A replay of the webcast will be provided when available. The replay number is 1-800-925-2388.

Miscellaneous

Statements in this release regarding second half and full year comparable sales growth and operating margin rates 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 actions 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 30, 2021. 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.

About Target

Minneapolis-based Target Corporation (NYSE: TGT) serves guests at more than 1,900 stores and at Target.com, with the purpose of helping all families discover the joy of everyday life. Since 1946, Target has given 5% of its profit to communities, which today equals millions of dollars a week. Additional company information can be found by visiting its corporate website and press center and by following @TargetNews.

For more on the Target Foundation, click here.

 


TARGET CORPORATION


Consolidated Statements of Operations



Three Months Ended




Six Months Ended



(millions, except per share data) (unaudited)


July 31, 2021


August 1, 2020


Change


July 31, 2021


August 1, 2020


Change

Sales


$

24,826



$

22,696



9.4

%


$

48,705



$

42,067



15.8

%

Other revenue


334



279



20.0



652



523



24.8


Total revenue


25,160



22,975



9.5



49,357



42,590



15.9


Cost of sales


17,280



15,673



10.3



33,996



30,183



12.6


Selling, general and administrative expenses


4,849



4,460



8.8



9,358



8,520



9.8


Depreciation and amortization (exclusive of depreciation included in cost of sales)


564



542



4.0



1,162



1,119



3.9


Operating income


2,467



2,300



7.2



4,841



2,768



74.9


Net interest expense


104



122



(15.5)



212



239



(11.7)


Net other (income) / expense


(7)



(11)



(31.3)



(350)



11



NM(a)


Earnings before income taxes


2,370



2,189



8.3



4,979



2,518



97.7


Provision for income taxes


553



499



11.3



1,065



544



95.9


Net earnings


$

1,817



$

1,690



7.4

%


$

3,914



$

1,974



98.2

%

Basic earnings per share


$

3.68



$

3.38



9.0

%


$

7.89



$

3.94



100.1

%

Diluted earnings per share


$

3.65



$

3.35



8.9

%


$

7.82



$

3.91



100.1

%

Weighted average common shares outstanding













Basic


493.1



500.1



(1.4)

%


495.8



500.6



(0.9)

%

Diluted


497.5



504.4



(1.4)

%


500.4



505.1



(0.9)

%

Antidilutive shares













Dividends declared per share


$

0.90



$

0.68



32.4

%


$

1.58



$

1.34



17.9

%

(a)

Not meaningful.

 

TARGET CORPORATION


Consolidated Statements of Financial Position

(millions, except footnotes) (unaudited)


July 31, 2021


January 30, 2021


August 1, 2020

Assets







Cash and cash equivalents


$

7,368



$

8,511



$

7,284


Inventory


11,259



10,653



8,876


Other current assets


1,604



1,592



1,463


Total current assets


20,231



20,756



17,623


Property and equipment







Land


6,148



6,141



6,027


Buildings and improvements


32,133



31,557



30,946


Fixtures and equipment


5,892



5,914



5,665


Computer hardware and software


2,260



2,765



2,631


Construction-in-progress


944



780



811


Accumulated depreciation


(20,133)



(20,278)



(19,341)


Property and equipment, net


27,244



26,879



26,739


Operating lease assets


2,503



2,227



2,233


Other noncurrent assets


1,407



1,386



1,405


Total assets


$

51,385



$

51,248



$

48,000


Liabilities and shareholders' investment







Accounts payable


$

12,632



$

12,859



$

10,726


Accrued and other current liabilities


5,600



6,122



5,057


Current portion of long-term debt and other borrowings


1,190



1,144



109


Total current liabilities


19,422



20,125



15,892


Long-term debt and other borrowings


11,589



11,536



14,188


Noncurrent operating lease liabilities


2,462



2,218



2,241


Deferred income taxes


1,146



990



1,121


Other noncurrent liabilities


1,906



1,939



1,980


Total noncurrent liabilities


17,103



16,683



19,530


Shareholders' investment







Common stock


41



42



42


Additional paid-in capital


6,332



6,329



6,248


Retained earnings


9,200



8,825



7,121


Accumulated other comprehensive loss


(713)



(756)



(833)


Total shareholders' investment


14,860



14,440



12,578


Total liabilities and shareholders' investment


$

51,385



$

51,248



$

48,000


Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 489,651,196, 500,877,129 and 500,252,831 shares issued and outstanding as of July 31, 2021, January 30, 2021, and August 1, 2020, respectively.

Preferred Stock Authorized 5,000,000 shares, $0.01 par value; no shares were issued or outstanding during any period presented.

TARGET CORPORATION


Consolidated Statements of Cash Flows



Six Months Ended

(millions) (unaudited)


July 31, 2021


August 1, 2020

Operating activities





Net earnings


$

3,914



$

1,974


Adjustments to reconcile net earnings to cash provided by operating activities:





Depreciation and amortization


1,300



1,245


Share-based compensation expense


138



104


Deferred income taxes


143



(12)


Gain on Dermstore sale


(335)




Noncash losses / (gains) and other, net


7



86


Changes in operating accounts:





Inventory


(606)



116


Other assets


3



(14)


Accounts payable


(311)



795


Accrued and other liabilities


(831)



822


Cash provided by operating activities


3,422



5,116


Investing activities





Expenditures for property and equipment


(1,338)



(1,414)


Proceeds from disposal of property and equipment


15



10


Proceeds from Dermstore sale


356




Other investments


(5)



2


Cash required for investing activities


(972)



(1,402)


Financing activities





Additions to long-term debt




2,480


Reductions of long-term debt


(72)



(126)


Dividends paid


(676)



(662)


Repurchase of stock


(2,850)



(706)


Stock option exercises


5



7


Cash (required for) / provided by financing activities


(3,593)



993


Net (decrease) / increase in cash and cash equivalents


(1,143)



4,707


Cash and cash equivalents at beginning of period


8,511



2,577


Cash and cash equivalents at end of period


$

7,368



$

7,284


 

TARGET CORPORATION


Operating Results

Rate Analysis


Three Months Ended


Six Months Ended

(unaudited)


July 31, 2021


August 1, 2020


July 31, 2021


August 1, 2020

Gross margin rate


30.4

%


30.9

%


30.2

%


28.3

%

SG&A expense rate


19.3



19.4



19.0



20.0


Depreciation and amortization (exclusive of depreciation included in cost of sales) expense rate


2.2



2.4



2.4



2.6


Operating income margin rate


9.8



10.0



9.8



6.5


Note:  Gross margin rate is calculated as gross margin (sales less cost of sales) divided by sales. All other rates are calculated by dividing the applicable amount by total revenue. Other revenue includes $172 million and $343 million of profit-sharing income under our credit card program agreement for the three and six months ended July 31, 2021, respectively, and $158 million and $324 million for the three and six months ended August 1, 2020, respectively.


Comparable Sales


Three Months Ended


Six Months Ended

(unaudited)


July 31, 2021


August 1, 2020


July 31, 2021


August 1, 2020

Comparable sales change


8.9

%


24.3

%


15.3

%


17.7

%

Drivers of change in comparable sales









Number of transactions


12.7



4.6



14.8



1.6


Average transaction amount


(3.4)



18.8



0.5



15.8



Comparable Sales by Channel


Three Months Ended


Six Months Ended

(unaudited)


July 31, 2021


August 1, 2020


July 31, 2021


August 1, 2020

Stores originated comparable sales change


8.7

%


10.9

%


13.0

%


6.0

%

Digitally originated comparable sales change


9.9



195.4



27.3



168.9



Sales by Channel


Three Months Ended


Six Months Ended

(unaudited)


July 31, 2021


August 1, 2020


July 31, 2021


August 1, 2020

Stores originated


83.0

%


82.8

%


82.3

%


83.7

%

Digitally originated


17.0



17.2



17.7



16.3


Total


100

%


100

%


100

%


100

%


Sales by Fulfillment Channel


Three Months Ended


Six Months Ended

(unaudited)


July 31, 2021


August 1, 2020


July 31, 2021


August 1, 2020

Stores


96.6

%


96.0

%


96.4

%


96.3

%

Other


3.4



4.0



3.6



3.7


Total


100

%


100

%


100

%


100

%

Note: Sales fulfilled by stores include in-store purchases and digitally originated sales fulfilled by shipping merchandise from stores to guests, Order Pickup, Drive Up, and Shipt.


RedCard Penetration


Three Months Ended


Six Months Ended

(unaudited)


July 31, 2021


August 1, 2020


July 31, 2021


August 1, 2020

Target Debit Card


11.6

%


11.8

%


11.9

%


12.2

%

Target Credit Cards


8.7



8.7



8.6



9.2


Total RedCard Penetration


20.3

%


20.5

%


20.4

%


21.4

%

Note: Amounts may not foot due to rounding.


Number of Stores and Retail Square Feet


Number of Stores


Retail Square Feet(a)

(unaudited)


July 31,
2021


January 30,
2021


August 1,
2020


July 31,
2021


January 30,
2021


August 1,
2020

170,000 or more sq. ft.


273



273



272



48,798



48,798



48,613


50,000 to 169,999 sq. ft.


1,510



1,509



1,505



189,624



189,508



189,224


49,999 or less sq. ft.


126



115



94



3,709



3,342



2,745


Total


1,909



1,897



1,871



242,131



241,648



240,582


(a)

In thousands, reflects total square feet less office, distribution center, and vacant space.

 

TARGET CORPORATION

Reconciliation of Non-GAAP Financial Measures

To provide additional transparency, we have disclosed non-GAAP adjusted diluted earnings per share (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 operations. This measure is not in accordance with, or an alternative to, generally accepted accounting principles in the United States (GAAP). The most comparable GAAP measure is diluted earnings per share. Adjusted EPS should not be considered in isolation or as a substitution for analysis of our results as reported in accordance with GAAP. Other companies may calculate Adjusted EPS differently, limiting the usefulness of the measure for comparisons with other companies.

Reconciliation of Non-GAAP

Adjusted EPS


Three Months Ended




July 31, 2021


August 1, 2020



(millions, except per share data) (unaudited)


Pretax


Net of Tax


Per Share


Pretax


Net of Tax


Per Share


Change

GAAP diluted earnings per share






$

3.65







$

3.35



8.9

%

Adjustments















Gain on investment (a)


$



$



$



$

(9)



$

(6)



$

(0.01)




Other (b)


(5)



(4)



(0.01)



25



18



0.04




Adjusted diluted earnings per share






$

3.64







$

3.38



7.9

%



Reconciliation of Non-GAAP

Adjusted EPS


Six Months Ended




July 31, 2021


August 1, 2020



(millions, except per share data) (unaudited)


Pretax


Net of Tax


Per Share


Pretax


Net of Tax


Per Share


Change

GAAP diluted earnings per share






$

7.82







$

3.91



100.1

%

Adjustments















Gain on Dermstore sale


$

(335)



$

(269)



$

(0.54)



$



$



$




Loss on investment (a)








12



9



0.02




Other (b)


36



27



0.05



25



18



0.04




Adjusted diluted earnings per share






$

7.34







$

3.96



85.1

%

Note: Amounts may not foot due to rounding.

(a)

Represented a (gain) / loss on our investment in Casper Sleep Inc., which was not core to our operations. We sold this investment during the fourth quarter of 2020.

(b)

Includes civil unrest-related losses, net of associated insurance recoveries, and headquarters office space impairments,  none of which were individually significant.

Earnings before interest expense and income taxes (EBIT) and earnings before interest expense, income taxes, depreciation and amortization (EBITDA) are non-GAAP financial measures. We believe these measures provide meaningful information about our operational efficiency compared with our competitors by excluding the impact of differences in tax jurisdictions and structures, debt levels, and, for EBITDA, capital investment. These measures are not in accordance with, or an alternative to, GAAP. The most comparable GAAP measure is net earnings. EBIT and EBITDA should not be considered in isolation or as a substitution for analysis of our results as reported in accordance with GAAP. Other companies may calculate EBIT and EBITDA differently, limiting the usefulness of the measures for comparisons with other companies.


EBIT and EBITDA


Three Months Ended




Six Months Ended



(dollars in millions) (unaudited)


July 31, 2021


August 1, 2020


Change


July 31, 2021


August 1, 2020


Change

Net earnings


$

1,817



$

1,690



7.4

%


$

3,914



$

1,974



98.2

%

 + Provision for income taxes


553



499



11.3



1,065



544



95.9


 + Net interest expense


104



122



(15.5)



212



239



(11.7)


EBIT


$

2,474



$

2,311



7.1

%


$

5,191



$

2,757



88.2

%

 + Total depreciation and amortization (a)


633



604



4.9



1,300



1,245



4.5


EBITDA


$

3,107



$

2,915



6.6

%


$

6,491



$

4,002



62.2

%

(a)

Represents total depreciation and amortization, including amounts classified within Depreciation and Amortization and within Cost of Sales.

We have also disclosed after-tax ROIC, which is a ratio based on GAAP information, with the exception of the add-back of operating lease interest to operating income. We believe this metric is useful in assessing the effectiveness of our capital allocation over time. Other companies may calculate ROIC differently, limiting the usefulness of the measure for comparisons with other companies.


After-Tax Return on Invested Capital





(dollars in millions) (unaudited)









Trailing Twelve Months





Numerator


July 31, 2021


August 1, 2020





Operating income


$

8,611



$

4,968






 + Net other income / (expense)


346



(28)






EBIT


8,957



4,940






 + Operating lease interest (a)


84



87






  - Income taxes (b)


1,918



1,076






Net operating profit after taxes


$

7,123



$

3,951







Denominator


July 31, 2021


August 1, 2020


August 3, 2019

Current portion of long-term debt and other borrowings


$

1,190



$

109



$

1,153


 + Noncurrent portion of long-term debt


11,589



14,188



10,365


 + Shareholders' investment


14,860



12,578



11,836


 + Operating lease liabilities (c)


2,695



2,448



2,285


  - Cash and cash equivalents


7,368



7,284



1,656


Invested capital


$

22,966



$

22,039



$

23,983


Average invested capital (d)


$

22,502



$

23,011





After-tax return on invested capital


31.7

%


17.2

%





(a)

Represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases. Calculated using the discount rate for each lease and recorded as a component of rent expense within SG&A. Operating lease interest is added back to Operating Income in the ROIC calculation to control for differences in capital structure between us and our competitors.

(b)

Calculated using the effective tax rates, which were 21.2 percent and 21.4 percent for the trailing twelve months ended July 31, 2021, and August 1, 2020, respectively. For the twelve months ended July 31, 2021, and August 1, 2020, includes tax effect of $1.9 billion and $1.1 billion, respectively, related to EBIT, and $18 million and $19 million, respectively, related to operating lease interest.

(c)

Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities, respectively.

(d)

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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SOURCE Target Corporation