Highlights From TGT's Q1 Conference Call: Guidance Remains Sound

May 20, 2009 1:43 PM EDT

Target Corp. (NYSE: TGT) reports Q1 EPS of $0.69, 10 cents better than the analyst estimate of $0.59. Revenue for the quarter was $14.83 billion, versus the consensus of $14.81 billion. Shares are up 3.8% today.

Highlights From TGT's Q1 Conference Call:

• Same store sales fell 3.7% during the quarter.
  
• In the retail segment, Target continues to see positive comparable store sales. Profitablity was higher than expected because outstanding gross margin performance.
  
• (CEO) We believe Pershing Square has presented a risky speculative relate portfolio, has made claims about Target's food and credit card businesses that clearly reflect a lack of understanding of our strategy and has nominated a slate of directors who have openly acknowledged that they have no definitive plan to create value for Target shareholders over time.
  
• We simply do not believe that the election of any of the Pershing Square nominees would enhance the creation of shareholders value or be in the best interest of our shareholders.
  
• We are very pleased with our first quarter results released this morning. We are seeing encouraging science of stability and the operating results of both our retail and credit segments.
  
• Our focus on food, including the test of our new expanded food format is positioning us to drive frequent and sales as we continue to evolve our assortment to satisfy our guest's needs and their desire for a convenient one stop shopping destination.
  
• Early stage delinquencies have declined in each of the last three months, write-offs are in line with our expectations, our assessment of the portfolio's risk led to a slight decline at the end of the first quarter and unlike many other credit card issuers our portfolio in the quarter was profitable of the we believe all of these initiatives are consistent with our long share strategy and position us to succeed in any economic environment.
  
• (VP, Marketing) We are already seeing evidence that many of our in initiatives are benefiting our business and we are optimistic that initiatives we plan to implement later in the year will also drive
  favorable results.
  
• While Target experiences shifts in economy, our research shows both very favorable guest affinity for our brand and indications of some rebounding of consume confidence.
  
• We exited the first quarter with inventories in very good condition which has contributed to favorable markdown rates, margin performance and overall profitability.
  
• Target.com will be revamped to book reviews and suggestions making it a completely new experience for our guests.
  
• (CFO) Yet a lot of uncertainty the remained particularly about the overall economic environment that we might be facing going forward. Against that back drop our first quarter retail measured in EBITDA and EBIT, whether in dollars or percentage of sales turned out to be much better than our expectation at this time.
  
• Focusing first on our sales, total results were up slightly and same store results were down 3.7%.
  
• Annualized revenue yield of 21.7% of receivables was about 200 basis points lower than the yield in last year's first quarter due primarily to a lower prime interest rate.
  
• Most importantly, net write-offs were right on our previous expectations and we continued to enjoy much better early stage delinquency metrics than just 90 days ago.
  
• In February I said that we expected to generate in excess of 4 billion dollars of cash flow from operations this year and that if achieved, this would be more than ample to fund all of our needs...This guidance remains sound today.
  
• We'll decide sometime in the next six months we might commit to additional new stores in our final round of offerings in October of 2010. We'll also decide sometime in the next six months how fast to plan the potential 2010 rollout of an expanded food assortment, including perishables, in our general merchandise store as well.
  
• We continue to expect net write-offs to remain stable in the second quarter at a level near our first quarter experience of approximately 300 million dollars.
  
• The medium first call estimates for Target envision EPS of 63 cents in the second quarter and 1.46 for the second half of this year. Today, from our point of view, these seem achievable.
  
• (Q&A) Could you tell a little more on terms of SG&A. I know there were a few things that you said are timing related. Should we be thinking SG&A dollars this year will be growing two to three percent or is it possible to keep it flat or even slightly down? (A): Gregg, that's a great question and it depends heavily on the pace of sales. I think it's still good advice to think that we will favorably leverage SG&A for the year, at say a positive one percent or so, same store sales performance and deleverage to the spent same sale stores are below that, so it really and then on the gross margin side, if I remember
  correctly that's a little bit more than that's been running, is that just straight with the comps or did some of the mix change in the categories. (A): It's comps across the categories and it's a little worse but we're talking about a handful of basis points compared to some of our recent experience. For the year last year it was 60. There were periods that were obviously more than 60 during the year.
  
• Just have both talked to sourcing calls down anywhere from 3 to 10% in the back half of 2009 and more so in 2010. I know you have more different sourcing by region. I was wondering if that's a decent ballpark for you and how that could support gross profit margins within the year? (A): I would say that's within the range of what we would expect. I would guess probably more like five to seven or eight. And we've seen some of that already this year, but we believe that it will grow as we move through the quarters here. And in terms of how that translates to gross profit, you know, I think a lot of that will be reinvested in pricing to make sure that we're offering the best value to our guests and you know so I at this point it's hard for me to tell you exactly what I think will flow through, but I would say most of that is going to be reinvested in the product. (A): Yeah, I would agree. We expect these same kinds of price decrease that we're experiencing. Other retailers are going to get the same kinds of pricing decreases so it's really about making sure that we're competitive, that we're growing our mart share, particularly in these profitable discretionary categories so that's really the number one private to be right in terms of price in the marketplace and if we can flow a little to the bottom line, but first and foremost is being competitive an increasing our market share.
  
• In terms of store plans you had mentioned you're still in the planning stages but perhaps just revisit the range, I think we were five to 30 in 2010, is that still the right range and depending on where you come out that's how we should think about openings in 2010? (A): Yes. What we have committed to five stores in 2010 at this point that was the same number that we disclosed 90 days ago. We haven't put any new stores into that pipeline during that period. We have the potential, we said 90 days ago we had the potential to add as many as 25 more for the October 2010 cycle. We still have the potentially to add lots and lots of stores in the October cycle but probably not as many as 25 at this point.

Target Corporation (Target) operates Target general merchandise stores with an assortment of general merchandise and food items, as well as SuperTarget stores with a line of food and general merchandise items.

Related Categories

Corporate News
Earnings

Stocks Mentioned

Related Entities

• William Ackman
• Pershing Square Capital

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