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Form 8-K TARGET CORP For: Nov 16

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November 16, 2016 6:33 AM EST


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported) November 16, 2016
 
Target Corporation
(Exact name of registrant as specified in its charter)
Minnesota
 
1-6049
 
41-0215170
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(I.R.S. Employer Identification No.)
1000 Nicollet Mall, Minneapolis, Minnesota 55403
(Address of principal executive offices, including zip code)
(612) 304-6073
(Registrant’s telephone number, including area code)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 



Item 2.02.             Results of Operations and Financial Condition.
 
On November 16, 2016, Target Corporation issued a News Release containing its financial results for the three months ended October 29, 2016.  The News Release is attached hereto as Exhibit 99.
 
Item 9.01.             Financial Statements and Exhibits.
 
(d)                                 Exhibits.
 
(99)                          Target Corporation’s News Release dated November 16, 2016 containing its financial results for the three months ended October 29, 2016.

2


SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
TARGET CORPORATION
 
 
Date: November 16, 2016
/s/ Cathy R. Smith
 
Cathy R. Smith
 
Executive Vice President and Chief Financial Officer

3


EXHIBIT INDEX
 
Exhibit
 
Description
 
Method
of Filing
 
 
 
 
 
(99)
 
Target Corporation’s News Release dated November 16, 2016 containing its financial results for the three months ended October 29, 2016.
 
Furnished Electronically


4
Exhibit 99


 releasebullseyea05.jpg

FOR IMMEDIATE RELEASE
Contacts:
John Hulbert, Investors, (612) 761-6627
 
Erin Conroy, Media, (612) 761-5928
 
Target Media Hotline, (612) 696-3400
 
Target Reports Third Quarter 2016 Earnings
GAAP EPS from continuing operations of $1.06, up 40 percent from third quarter 2015
Adjusted EPS of $1.04, up 22 percent from third quarter 2015

•
Third quarter GAAP EPS from continuing operations of $1.06 and Adjusted EPS of $1.04 were both above the high end of guidance1.
•
Third quarter comparable sales decreased 0.2 percent, near the high-end of the guidance range of flat to down 2 percent.
•
Comparable sales growth in Signature Categories outpaced total comparable sales by more than 3 percentage points; digital channel sales increased by 26 percent.
•
Target returned $1.2 billion to shareholders in the third quarter through dividends and share repurchases.
•
For additional media materials, please visit:
https://corporate.target.com/press/multimedia/2016/11/Target-Q3-2016-Earnings

MINNEAPOLIS (Nov. 16, 2016) - Target Corporation (NYSE: TGT) today reported a third quarter 2016 comparable sales decline of 0.2 percent and GAAP earnings per share (EPS) from continuing operations of $1.06, an increase of 39.7 percent from third quarter 2015. Third quarter adjusted earnings per share from continuing operations2 (Adjusted EPS), which excludes the favorable resolution of income tax matters and certain items related to the pharmacy transaction, was $1.04, an increase of 22.1 percent from third quarter 2015. The attached tables provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.

– more –
 
1On Aug. 17, 2016, Target provided third quarter 2016 GAAP EPS from continuing operations and Adjusted EPS guidance of $0.75 to $0.95.
2Adjusted EPS, a non-GAAP financial measure, excludes losses on the early retirement of debt, charges and other financial impacts related to the sale of the pharmacy and clinic businesses to CVS, and the impact of certain discretely managed items and certain other gains and expenses. See the “Miscellaneous” sections of this release, as well as the tables of this release, for additional information about the items that have been excluded from Adjusted EPS.


 



Target Corporation Announces Third Quarter 2016 Earnings - Page 2 of 5
“We are very pleased with our third quarter financial results, which reflect meaningful improvement in our traffic and sales trends and much stronger-than-expected profitability,” said Brian Cornell, chairman and CEO of Target. “Favorable gross margin mix and efficient execution by our team drove third quarter EPS performance well beyond our guidance. We also continued to gain market share in key Signature Categories and saw unexpectedly strong sales in the Back-to-School and Back-to-College season. As we move into the biggest quarter of the year, we are pleased with our inventory position and confident that our team will deliver a great guest experience as they bring our merchandising and marketing plans to life throughout the holiday season.”
Fourth Quarter and Fiscal 2016 Guidance
Target raised its expectations for fourth quarter comparable sales and now expects growth in the range of (1.0) percent to 1.0 percent, compared with prior guidance of (2.0) to flat. In the fourth quarter of 2016, Target expects both GAAP EPS from continuing operations and Adjusted EPS of $1.55 to $1.75.
For full-year 2016, Target now expects GAAP EPS from continuing operations of $4.67 to $4.87, compared with prior guidance of $4.36 to 4.76. The Company expects full-year 2016 Adjusted EPS of $5.10 to $5.30, compared with prior guidance of $4.80 to $5.20. The 43-cent difference between these ranges reflects early debt-retirement losses and a small benefit from the resolution of income tax matters.
Fourth quarter and full-year 2016 GAAP EPS from continuing operations may include the impact of unforeseen discrete items which may be excluded in calculating Adjusted EPS. The Company is not currently aware of any such discrete items beyond those already reported in the first, second and third quarters of 2016.
Segment Results
Third quarter 2016 sales decreased 6.7 percent to $16.4 billion from $17.6 billion last year, reflecting a 0.2 percent decline in comparable sales combined with the removal of pharmacy and clinic sales from this year’s results. Comparable digital channel sales grew 26 percent and contributed 0.7 percentage points to comparable sales growth. Segment earnings before interest expense and income taxes (EBIT), which is Target’s measure of segment profit, were $1,057 million in third quarter 2016, an increase of 9.9 percent from $962 million in 2015.


– more –


Target Corporation Announces Third Quarter 2016 Earnings - Page 3 of 5
Third quarter EBITDA and EBIT margin rates were 9.9 percent and 6.4 percent, respectively, compared with 8.6 percent and 5.5 percent, respectively, in 2015. Third quarter gross margin rate was 30.2 percent, compared with 29.4 percent in 2015, reflecting the benefit of the sale of the Company’s pharmacy and clinic businesses and strong Signature Category sales growth. Third quarter SG&A expense rate was 20.3 percent in 2016, compared with 20.7 percent in 2015, reflecting continued expense discipline across the organization.
Interest Expense and Taxes from Continuing Operations
The Company’s third quarter 2016 net interest expense was $142 million, compared with $151 million last year. Third quarter 2016 effective income tax rate from continuing operations was 33.8 percent, compared with 34.3 percent last year. The decrease was due to a variety of factors, none of which was individually significant.
Shareholder Returns
The Company returned $1.2 billion to shareholders in third quarter 2016, including:
•
Dividends of $345 million, compared with $352 million in third quarter 2015.
•
Share repurchases totaling $878 million, including:
◦
Open market transactions that retired 8.1 million shares of common stock at an average price of $69.73, for a total investment of $564 million.
◦
An accelerated share repurchase (ASR) agreement that retired 4.6 million shares of common stock at an average price of $67.67, for a total investment of $314 million. Final settlement of the ASR occurred in November, and 1.3 million of the 4.6 million shares repurchased through the ASR were delivered in the fourth quarter.
In September 2016, Target’s Board of Directors authorized a new $5 billion share repurchase program. Repurchases through this program will begin upon completion of the prior $10 billion program. At the end of the third quarter, including the $314 million investment in the ASR, $300 million of capacity remained under the prior program.
For the trailing twelve months through third quarter 2016, after-tax return on invested capital (ROIC) was 16.3 percent, compared with 13.0 percent for the twelve months through third quarter 2015. Excluding the net gain on the sale of the pharmacy and clinic businesses,

– more –


Target Corporation Announces Third Quarter 2016 Earnings - Page 4 of 5
ROIC for the trailing twelve months through third quarter 2016 was 14.3 percent, reflecting higher profits on a modestly lower base of invested capital. See the “Reconciliation of Non-GAAP Financial Measures” section of this release for additional information about the Company’s ROIC calculation.
Conference Call Details
Target will webcast its third quarter earnings conference call at 7 a.m. CST today. Investors and the media are invited to listen to the call at Investors.Target.com (hover over “company” then click on “events & presentations” in the “investors” column). A telephone replay of the call will be available beginning at approximately 10:30 a.m. CST today through the end of business on Nov. 18, 2016. The replay number is 855-859-2056 (passcode: 56082205).
Miscellaneous
Statements in this release regarding fourth quarter and full-year 2016 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 nine-month periods ended Oct. 29, 2016, and Oct. 31, 2015, respectively. The Company also provides ROIC for the twelve-month periods ended Oct. 29, 2016, and Oct. 31, 2015, respectively, 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 its capital allocation over time. The



– more –


Target Corporation Announces Third Quarter 2016 Earnings - Page 5 of 5

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.
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 more than $4 million 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 CORPORATION
 
Consolidated Statements of Operations
 
 
Three Months Ended
 
 

 
Nine Months Ended
 
 

(millions, except per share data) (unaudited)
 
October 29,
2016
 
October 31,
2015
 
Change
 
October 29,
2016
 
October 31,
2015
 
Change
Sales
 
$
16,441

 
$
17,613

 
(6.7
)%
 
$
48,805

 
$
52,159

 
(6.4
)%
Cost of sales
 
11,471

 
12,440

 
(7.8
)
 
33,757

 
36,402

 
(7.3
)
Gross margin
 
4,970

 
5,173

 
(3.9
)
 
15,048

 
15,757

 
(4.5
)
Selling, general and administrative expenses
 
3,339

 
3,736

 
(10.6
)
 
9,741

 
10,745

 
(9.3
)
Depreciation and amortization
 
570

 
561

 
1.6

 
1,686

 
1,651

 
2.1

Earnings from continuing operations before interest expense and income taxes
 
1,061

 
876

 
21.1

 
3,621

 
3,361

 
7.7

Net interest expense
 
142

 
151

 
(6.0
)
 
864

 
455

 
89.8

Earnings from continuing operations before income taxes
 
919

 
725

 
26.7

 
2,757

 
2,906

 
(5.1
)
Provision for income taxes
 
311

 
249

 
24.9

 
910

 
1,006

 
(9.5
)
Net earnings from continuing operations
 
608

 
476

 
27.7

 
1,847

 
1,900

 
(2.8
)
Discontinued operations, net of tax
 
—

 
73

 


 
73

 
37

 
 
Net earnings
 
$
608

 
$
549

 
10.7
 %
 
$
1,920

 
$
1,937

 
(0.9
)%
Basic earnings per share
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
1.07

 
$
0.76

 
39.7
 %
 
$
3.16

 
$
3.00

 
5.5
 %
Discontinued operations
 
—

 
0.12

 
 
 
0.12

 
0.06

 
 
Net earnings per share
 
$
1.07

 
$
0.88

 
21.1
 %
 
$
3.29

 
$
3.06

 
7.6
 %
Diluted earnings per share
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
1.06

 
$
0.76

 
39.7
 %
 
$
3.14

 
$
2.98

 
5.5
 %
Discontinued operations
 
—

 
0.11

 
 
 
0.12

 
0.06

 
 
Net earnings per share
 
$
1.06

 
$
0.87

 
21.1
 %
 
$
3.26

 
$
3.03

 
7.6
 %
Weighted average common shares outstanding
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
570.1

 
623.7

 
(8.6
)%
 
583.5

 
633.5

 
(7.9
)%
Dilutive impact of share-based awards
 
4.7

 
5.1

 
0

 
5.0

 
5.2

 
 
Diluted
 
574.8

 
628.8

 
(8.6
)%
 
588.5

 
638.7

 
(7.9
)%
Antidilutive shares
 
0.2

 
—

 
 
 
0.1

 
—

 
 
Dividends declared per share
 
$
0.60

 
$
0.56

 
7.1
 %
 
$
1.76

 
$
1.64

 
7.3
 %

Note: Per share amounts may not foot due to rounding.

Subject to reclassification



TARGET CORPORATION
 
Consolidated Statements of Financial Position
(millions)
 
October 29,
2016
 
January 30,
2016
 
October 31,
2015
 
 
(unaudited)
 
 

 
(unaudited)
Assets
 
 
 
 
 
 
Cash and cash equivalents, including short term investments of $0, $3,008 and $1,154
 
$
1,231

 
$
4,046

 
$
1,977

Inventory
 
10,057

 
8,601

 
10,374

Current assets of discontinued operations
 
62

 
322

 
399

Other current assets
 
1,492

 
1,161

 
2,194

Total current assets
 
12,842

 
14,130

 
14,944

Property and equipment
 
 

 
 

 
 

Land
 
6,106

 
6,125

 
6,118

Buildings and improvements
 
27,518

 
27,059

 
26,912

Fixtures and equipment
 
5,467

 
5,347

 
5,283

Computer hardware and software
 
2,538

 
2,617

 
2,652

Construction-in-progress
 
219

 
315

 
428

Accumulated depreciation
 
(16,946
)
 
(16,246
)
 
(15,921
)
Property and equipment, net
 
24,902

 
25,217

 
25,472

Noncurrent assets of discontinued operations
 
17

 
75

 
94

Other noncurrent assets
 
842

 
840

 
941

Total assets
 
$
38,603

 
$
40,262

 
$
41,451

Liabilities and shareholders’ investment
 
 

 
 

 
 

Accounts payable
 
$
8,250

 
$
7,418

 
$
8,904

Accrued and other current liabilities
 
3,662

 
4,236

 
3,868

Current portion of long-term debt and other borrowings
 
729

 
815

 
825

Current liabilities of discontinued operations
 
1

 
153

 
261

Total current liabilities
 
12,642

 
12,622

 
13,858

Long-term debt and other borrowings
 
12,097

 
11,945

 
11,887

Deferred income taxes
 
920

 
823

 
1,135

Noncurrent liabilities of discontinued operations
 
18

 
18

 
36

Other noncurrent liabilities
 
1,857

 
1,897

 
1,279

Total noncurrent liabilities
 
14,892

 
14,683

 
14,337

Shareholders’ investment
 
 

 
 

 
 

Common stock
 
47

 
50

 
52

Additional paid-in capital
 
5,598

 
5,348

 
5,314

Retained earnings
 
6,031

 
8,188

 
8,359

Accumulated other comprehensive loss
 
 
 
 

 
 
Pension and other benefit liabilities
 
(571
)
 
(588
)
 
(431
)
Currency translation adjustment and cash flow hedges
 
(36
)
 
(41
)
 
(38
)
Total shareholders’ investment
 
11,069

 
12,957

 
13,256

Total liabilities and shareholders’ investment
 
$
38,603

 
$
40,262

 
$
41,451

Common Stock Authorized 6,000,000,000 shares, $.0833 par value; 563,676,785, 602,226,517 and 618,604,168 shares issued and outstanding at October 29, 2016, January 30, 2016 and October 31, 2015, respectively.
 
Preferred Stock Authorized 5,000,000 shares, $.01 par value; no shares were issued or outstanding at October 29, 2016, January 30, 2016 or October 31, 2015.


 Subject to reclassification



TARGET CORPORATION
 
Consolidated Statements of Cash Flows
 
 
Nine Months Ended
(millions) (unaudited)
 
October 29,
2016
 
October 31,
2015
Operating activities
 
 

 
 

Net earnings
 
$
1,920

 
$
1,937

Earnings from discontinued operations, net of tax
 
73

 
37

Net earnings from continuing operations
 
1,847

 
1,900

Adjustments to reconcile net earnings to cash provided by operations:
 
 

 
 

Depreciation and amortization
 
1,686

 
1,651

Share-based compensation expense
 
85

 
84

Deferred income taxes
 
83

 
(111
)
Loss on debt extinguishment
 
422

 
—

Noncash losses and other, net
 
12

 
37

Changes in operating accounts
 
 

 
 

Inventory
 
(1,455
)
 
(2,096
)
Other assets
 
(13
)
 
95

Accounts payable and accrued liabilities
 
103

 
1,475

Cash provided by operating activities—continuing operations
 
2,770

 
3,035

Cash provided by operating activities—discontinued operations
 
111

 
804

Cash provided by operations
 
2,881

 
3,839

Investing activities
 
 

 
 

Expenditures for property and equipment
 
(1,184
)
 
(1,129
)
Proceeds from disposal of property and equipment
 
23

 
21

Proceeds from sale of business
 
—

 
8

Other investments
 
23

 
12

Cash required for investing activities—continuing operations
 
(1,138
)
 
(1,088
)
Cash provided by investing activities—discontinued operations
 
—

 
19

Cash required for investing activities
 
(1,138
)
 
(1,069
)
Financing activities
 
 

 
 

Change in commercial paper, net
 
89

 
—

Additions to long-term debt
 
1,977

 
—

Reductions of long-term debt
 
(2,625
)
 
(72
)
Dividends paid
 
(1,011
)
 
(1,017
)
Repurchase of stock
 
(3,034
)
 
(2,196
)
Prepayment of accelerated share repurchase
 
(120
)
 
—

Stock option exercises
 
166

 
282

Cash required for financing activities
 
(4,558
)
 
(3,003
)
Net decrease in cash and cash equivalents
 
(2,815
)
 
(233
)
Cash and cash equivalents at beginning of period
 
4,046

 
2,210

Cash and cash equivalents at end of period
 
$
1,231

 
$
1,977

 

 Subject to reclassification



TARGET CORPORATION
 
Segment Results
 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 

(millions) (unaudited)
 
October 29,
2016
 
October 31,
2015 (a)
 
Change
 
October 29,
2016
 
October 31,
2015 (a)
 
Change
Sales
 
$
16,441

 
$
17,613

 
(6.7
)%
 
$
48,805

 
$
52,159

 
(6.4
)%
Cost of sales
 
11,471

 
12,440

 
(7.8
)
 
33,757

 
36,402

 
(7.3
)
Gross margin
 
4,970

 
5,173

 
(3.9
)
 
15,048

 
15,757

 
(4.5
)
SG&A expenses (b)
 
3,343

 
3,650

 
(8.4
)
 
9,741

 
10,533

 
(7.5
)
EBITDA
 
1,627

 
1,523

 
6.8

 
5,307

 
5,224

 
1.6

Depreciation and amortization
 
570

 
561

 
1.6

 
1,686

 
1,651

 
2.1

EBIT
 
$
1,057

 
$
962

 
9.9
 %
 
$
3,621

 
$
3,573

 
1.3
 %
Note: We operate as a single segment which includes all of our continuing operations, excluding net interest expense and certain other discretely managed items. Our segment operations are designed to enable guests to purchase products seamlessly in stores, online, or through mobile devices.
(a) Sales include $1,112 million and $3,240 million related to our former pharmacy and clinic businesses for the three and nine months ended October 31, 2015, respectively, and cost of sales include and $885 million and $2,572 million, respectively. The December 2015 sale of these businesses to CVS had no notable impact on EBITDA or EBIT.
(b) SG&A includes $168 million and $489 million of net profit-sharing income under our credit card program agreement for the three and nine months ended October 29, 2016, respectively, and $166 million and $477 million for the three and nine months ended October 31, 2015, respectively.

 
Three Months Ended
 
Nine Months Ended
Segment Rate Analysis
(unaudited)
October 29,
2016
 
October 31,
2015
 
October 29,
2016
 
October 31,
2015
Gross margin rate
30.2
%
 
29.4
%
 
30.8
%
 
30.2
%
SG&A expense rate
20.3

 
20.7

 
20.0

 
20.2

EBITDA margin rate (a)
9.9

 
8.6

 
10.9

 
10.0

Depreciation and amortization expense rate
3.5

 
3.2

 
3.5

 
3.2

EBIT margin rate (a)
6.4

 
5.5

 
7.4

 
6.8

Note: Rate analysis metrics are computed by dividing the applicable amount by sales.
(a) Excluding sales of our former pharmacy and clinic businesses, EBITDA margin rates were 9.2 percent and 10.7 percent for the three and nine months ended October 31, 2015, respectively, and EBIT margin rates were 5.8 percent and 7.3 percent, respectively.

 
Three Months Ended
 
Nine Months Ended
Sales by Channel
(unaudited)
October 29,
2016
 
October 31,
2015 (a)
 
October 29,
2016
 
October 31,
2015 (a)
Stores
96.5
%
 
97.3
%
 
96.5
%
 
97.2
%
Digital
3.5

 
2.7

 
3.5

 
2.8

Total
100
%
 
100
%
 
100
%
 
100
%
(a) Excluding sales of our former pharmacy and clinic businesses, stores and digital channels sales were 97.1 percent and 2.9 percent of total sales, respectively, for the three and nine months ended October 31, 2015.




 
Three Months Ended
 
Nine Months Ended
Comparable Sales
(unaudited)
October 29,
2016
 
October 31,
2015
 
October 29,
2016
 
October 31,
2015
Comparable sales change
(0.2
)%
 
1.9
 %
 
—
 %
 
2.2
 %
Drivers of change in comparable sales
 

 
 

 
 

 
 

Number of transactions
(1.2
)
 
1.4

 
(1.0
)
 
1.3

Average transaction amount
1.0

 
0.4

 
1.0

 
0.9

Selling price per unit
3.5

 
2.5

 
3.0

 
3.8

Units per transaction
(2.5
)
 
(2.1
)
 
(2.0
)
 
(2.8
)
Note: Amounts may not foot due to rounding.

Contribution to Comparable Sales Change
(unaudited)
Three Months Ended
 
Nine Months Ended
October 29,
2016
 
October 31,
2015
 
October 29,
2016
 
October 31,
2015
Stores channel comparable sales change
(1.0
)%
 
1.4
%
 
(0.7
)%
 
1.6
%
Digital channel contribution to comparable sales change
0.7

 
0.4

 
0.6

 
0.6

Total comparable sales change
(0.2
)%
 
1.9
%
 
—
 %
 
2.2
%
Note: Amounts may not foot due to rounding.
 
 
Three Months Ended
 
Nine Months Ended
REDcard Penetration
(unaudited)
October 29,
2016
 
October 31,
2015 (a)
 
October 29,
2016
 
October 31,
2015 (a)
Target Debit Card
12.9
%
 
12.1
%
 
12.9
%
 
12.0
%
Target Credit Cards
11.4

 
10.2

 
11.0

 
9.9

Total REDcard Penetration
24.3
%
 
22.3
%
 
23.9
%
 
22.0
%
Note: Amounts may not foot due to rounding.
(a) Excluding sales of our former pharmacy and clinic businesses, total REDcard penetration was 23.5 percent and 23.1 percent for the three and nine months ended October 31, 2015, respectively.
 
Number of Stores and Retail Square Feet
(unaudited)
Number of Stores
 
Retail Square Feet (a)
October 29,
2016
January 30,
2016
October 31,
2015
 
October 29,
2016
January 30,
2016
October 31,
2015
170,000 or more sq. ft.
278

278

280

 
49,685

49,688

50,036

50,000 to 169,999 sq. ft.
1,503

1,505

1,516

 
189,496

189,677

190,873

49,999 or less sq. ft.
19

9

9

 
464

174

174

Total
1,800

1,792

1,805

 
239,645

239,539

241,083

(a)  In thousands: reflects total square feet, less office, distribution center and vacant space.

Subject to reclassification



TARGET CORPORATION
 
Reconciliation of Non-GAAP Financial Measures

To provide additional transparency, we have disclosed non-GAAP adjusted diluted earnings per share from continuing operations (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 continuing operations. 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 from continuing operations. Adjusted EPS should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP. Other companies may calculate Adjusted EPS differently than we do, limiting the usefulness of the measure for comparisons with other companies.
Adjusted EPS
 
Three Months Ended
 
 
 
 
October 29, 2016
 
October 31, 2015
 
 
(millions, except per share data) (unaudited)
 
Pretax

 
Net of Tax

 
Per Share Amounts

 
Pretax

 
Net of Tax

 
Per Share Amounts

 
Change

GAAP diluted earnings per share from continuing operations
 
 
 
 
 
$
1.06

 
 
 
 
 
$
0.76

 
39.7
%
Adjustments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring costs (a)
 
$
—

 
$
—

 
$
—

 
$
21

 
$
13

 
$
0.02

 
 
Impairments (b)
 
—

 
—

 
—

 
39

 
29

 
0.05

 
 
Other (c)
 
(4
)
 
(3
)
 
—

 
26

 
20

 
0.03

 
 
Resolution of income tax matters
 
—

 
(5
)
 
(0.01
)
 
—

 
—

 
—

 
 
Adjusted diluted earnings per share from continuing operations
 
 
 
 
 
$
1.04

 
 
 
 
 
$
0.86

 
22.1
%

 
 
Nine Months Ended
 
 
 
 
October 29, 2016
 
October 31, 2015
 
 
(millions, except per share data) (unaudited)
 
Pretax

 
Net of Tax

 
Per Share Amounts

 
Pretax

 
Net of Tax

 
Per Share Amounts

 
Change

GAAP diluted earnings per share from continuing operations
 
 
 
 
 
$
3.14

 
 
 
 
 
$
2.98

 
5.5
%
Adjustments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss on early retirement of debt
 
$
422

 
$
257

 
$
0.44

 
$
—

 
$
—

 
$
—

 
 
Restructuring costs (a)
 
—

 
—

 
—

 
135

 
85

 
0.13

 
 
Impairments (b)
 
—

 
—

 
—

 
39

 
29

 
0.05

 
 
Other (c)
 
—

 
—

 
—

 
38

 
27

 
0.04

 
 
Resolution of income tax matters
 
—

 
(8
)
 
(0.01
)
 
—

 
(8
)
 
(0.01
)
 
 
Adjusted diluted earnings per share from continuing operations
 
 
 
 
 
$
3.56

 
 
 
 
 
$
3.18

 
11.9
%

Note: Amounts may not foot due to rounding.
(a) Costs related to our corporate restructuring announced during the first quarter of 2015.
(b) Expenses related to the impairment of long-lived and intangible assets.
(c) For the three and nine months ended October 29, 2016, represents items related to the Pharmacy Transaction. For the three and nine months ended October 31, 2015, represents costs related to the 2013 data breach.



We have also disclosed after-tax return on invested capital from continuing operations (ROIC), 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 us and our competitors. We believe this metric provides a meaningful measure of the effectiveness of our capital allocation over time. Other companies may calculate ROIC differently than we do, limiting the usefulness of the measure for comparisons with other companies.
After-Tax Return on Invested Capital
 
 
 
 
 
 
 
Numerator
 
Trailing Twelve Months
 
 
(dollars in millions) (unaudited)
 
October 29,
2016
 
October 31,
2015
 
 
Earnings from continuing operations before interest expense and income taxes
 
$
5,790

 
$
4,946

 
 
+ Operating lease interest (a)(b)
 
72

 
90

 
 
Adjusted earnings from continuing operations before interest expense and income taxes
 
5,862

 
5,036

 
 
- Income tax effect (c)
 
1,849

 
1,717

 
 
Net operating profit after taxes
 
$
4,013

 
$
3,319

 
 

Denominator
(dollars in millions) (unaudited)
 
October 29,
2016
 
October 31,
2015
 
November 1,
2014
Current portion of long-term debt and other borrowings
 
$
729

 
$
825

 
$
483

+ Noncurrent portion of long-term debt
 
12,097

 
11,887

 
12,551

+ Shareholders' equity
 
11,069

 
13,256

 
16,373

+ Capitalized operating lease obligations (b)(d)
 
1,192

 
1,503

 
1,639

- Cash and cash equivalents
 
1,231

 
1,977

 
718

- Net assets of discontinued operations
 
60

 
197

 
4,550

Invested capital
 
$
23,796

 
$
25,298

 
$
25,778

Average invested capital (e)
 
$
24,547

 
$
25,538

 
 
After-tax return on invested capital (f)
 
16.3
%
 
13.0
%
 
 
(a) Represents the add-back to operating income to reflect the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as capital leases, using eight times our trailing twelve months rent expense and an estimated interest rate of six percent.
(b) See the following Reconciliation of Capitalized Operating Leases table for the adjustments to our GAAP total rent expense to obtain the hypothetical capitalization of operating leases and related operating lease interest.
(c) Calculated using the effective tax rate for continuing operations, which was 31.5% and 34.1% for the trailing twelve months ended October 29, 2016 and October 31, 2015. For the trailing twelve months ended October 29, 2016 and October 31, 2015, includes tax effect of $1,826 million and $1,686 million, respectively, related to EBIT and $23 million and $31 million, respectively, related to operating lease interest.
(d) Calculated as eight times our trailing twelve months rent expense.
(e) 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.
(f) Excluding the net gain on the sale of our pharmacy and clinic businesses, ROIC was 14.3 percent for the trailing twelve months ended October 29, 2016.

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. The most comparable GAAP measure is total rent expense. Capitalized operating lease obligations and operating lease interest should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP.
Reconciliation of Capitalized Operating Leases
 
Trailing Twelve Months
(dollars in millions) (unaudited)
 
October 29,
2016
 
October 31,
2015
 
November 1,
2014
Total rent expense
 
$
149

 
$
188

 
$
205

Capitalized operating lease obligations (total rent expense x 8)
 
1,192

 
1,503

 
1,639

Operating lease interest (capitalized operating lease obligations x 6%)
 
72

 
90

 
98

Subject to reclassification


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