Target Reports Q1 Results
Target Corporation reported its first quarter 2013 results yesterday. The retailer says that it had net earnings of $498 million, or $0.77 per share, which includes:
• Losses related to the early retirement of debt of 41 cents per share
• EPS dilution related to the Canadian segment of 24 cents per share
• Net accounting gains of 36 cents per share associated with the sale of Target’s entire consumer credit card receivables portfolio to TD Bank Group
• Adjusted earnings per share were $1.05 in first quarter 2013, down five percent from $1.11 in 2012
“Target’s first quarter earnings were below expectations as a result of softer-than-expected sales, particularly in apparel and other seasonal and weather-sensitive categories,” said Gregg Steinhafel, chairman, president, and CEO of Target Corporation. “While we are disappointed in our first quarter performance, we remain confident in our strategy, and we continue to invest in initiatives, including Canada, our digital channels and CityTarget, that will drive Target’s long-term growth.”
U.S. Segment Results
In first quarter 2013, sales increased 0.5 percent to $16.6 billion from $16.5 billion last year, reflecting a 0.6 percent decline in comparable-store sales combined with the contribution from new stores. Segment earnings before interest expense and income taxes (EBIT) were $1.239 billion in the first quarter of 2013, a decrease of 7.5 percent from $1.340 billion in 2012.
First quarter EBITDA margin rate was 10.4 percent, compared with 11.2 percent in the revised U.S. segment and 10.3 percent in the historical U.S. retail segment in first quarter 2012. First quarter EBIT margin rate was 7.5 percent, compared with 8.1 percent in the revised U.S. segment and 7.3 percent in the historical U.S. retail segment in first quarter 2012.
First quarter gross margin rate increased to 30.7 percent in 2013 from 30.2 percent in 2012, reflecting category rate improvements combined with a 0.2 percentage-point benefit from changes to the company’s vendor agreements, partially offset by the impact of the company’s integrated growth strategies. First quarter SG&A expense rate was 20.3 percent in 2013, compared with 2012 rates of 19 percent in the revised U.S. segment and 19.9 percent in the historical U.S. retail segment. Compared with the U.S. segment in first quarter 2012, the SG&A expense rate increase was primarily driven by a smaller benefit from credit card income (including the impact of profit-sharing with TD Bank) and an increase in technology investments. In addition, the change in Target’s vendor agreements increased first quarter 2013 SG&A rate by approximately 0.2 percentage points, offsetting the equivalent benefit to the gross margin rate.
Canadian Segment Results
Target opened its first 24 Canadian stores in March 2013, which generated sales of $86 million in the first quarter with a gross margin rate of 38.4 percent. EBIT for the first quarter was $205 million, as gross margin of $33 million was offset by $238 million in start-up expenses, operating expenses, depreciation, and amortization related to the company’s market entry. Canadian operations reduced Target’s GAAP earnings per share by 24 cents in first quarter 2013.
Interest Expense and Taxes
Net interest expense increased to $629 million in first quarter 2013, compared with $184 million in first quarter 2012, due to a $445 million charge related to the early retirement of debt. The company’s effective income tax rate was 36 percent in the first quarter, compared with 36.7 percent in first quarter 2012.
Capital Returned to Shareholders
In first quarter 2013, the company repurchased approximately 8.5 million shares of its common stock at an average price of $64.04 for a total investment of $547 million. The Company also paid dividends of $232 million during the quarter.
Discovery Launches TestTube Online Network
Discovery Communications and Revision3 announced the launch of TestTube, a digital video network targeting men. TestTube debuts with a slate of 15 short-form series and many more in development. In addition, Discovery Channel’s MythBusters co-host Tory Belleci will headline Blow it Up, a short-form series to launch late summer. It is available at TestTube.com, and through Revision3’s mobile site and apps, YouTube, Xbox, and additional distribution partners. Revision3 was founded in 2005 and was acquired by Discovery Communications in May 2012.