Exhibit 99
FOR IMMEDIATE RELEASE
TARGET CORPORATION FIRST QUARTER EARNINGS PER SHARE $0.74
Company Announces Closing of Receivables Transaction with JPMorgan Chase
MINNEAPOLIS, May 20, 2008 - -- Target Corporation (NYSE:TGT) today reported net earnings of $602 million for the first quarter ended May 3, 2008, compared with $651 million in the first quarter ended May 5, 2007. Earnings per share in the first quarter decreased 1.4 percent to $0.74 from $0.75 in the same period a year ago. All earnings per share figures refer to diluted earnings per share.
The company also announced today that the transaction to sell an undivided interest in approximately 47 percent of its credit card receivables to JPMorgan Chase for cash proceeds of about $3.6 billion was completed on Monday, May 19, 2008. This transaction is expected to provide Target with sufficient liquidity to implement its business plans, including previously announced capital investment and share repurchase activity, without the need to access term debt capital markets again this year.
“Our first quarter earnings per share met our expectations despite softer-than-expected sales performance,” said Gregg Steinhafel, president and chief executive officer. “Though the current economic environment remains challenging, we will continue to generate long-term value for our shareholders by remaining focused on the disciplined execution of our strategy. In addition, we believe our shareholders will benefit over time from our significant share repurchase activity and the unique relationship that has been created through this innovative agreement with JPMorgan Chase.”
As previously disclosed, beginning this quarter, the company is reporting two business segments for all periods presented: retail and credit card.
Retail Segment Results
Sales grew 5.0 percent in the first quarter to $14.3 billion in 2008 from $13.6 billion in 2007, due to the contribution from new store expansion partially offset by a 0.7 percent decline in comparable store sales. Retail segment earnings before interest expense and income taxes (EBIT) was $959 million in the first quarter of 2008, down 2.2 percent from $980 million in 2007.
First quarter gross margin rate declined slightly from last year, driven by faster sales growth in lower margin rate categories, substantially offset by increased margin rates within categories. First quarter selling, general and administrative (SG&A) expense rate grew modestly from 2007, benefiting from well-controlled dollar growth offset by the de-leveraging effect of slower-than-expected sales growth. As a reminder, for all periods presented, reported gross margin and SG&A expense rates reflect the reclassification of distribution and other supply chain costs from SG&A expense into cost of sales.
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TARGET CORPORATION
Page 2
Credit Card Segment Results
Average credit card receivables in the quarter grew $1.9 billion, or 28.3 percent, from the first quarter of 2007, although quarter-end receivables declined $204 million, or 2.4 percent, from year-end 2007.
The dollar spread to one-month LIBOR earned on the portfolio during the quarter increased 3.9 percent to $138 million from $132 million in 2007. As expected, the benefit of sharply higher receivables balances was substantially offset by a decline in the annualized yield spread to LIBOR, which fell from 8.1 percentage points last year to 6.5 percentage points in 2008.
Also, as expected, net write-offs increased in the quarter to an annualized rate of 7.6 percent from 6.0 percent in the first quarter of 2007.
Interest Expense and Income Taxes
Net interest expense for the quarter increased $65 million from first quarter 2007, due to higher average debt balances supporting capital investment, share repurchase and receivables growth, slightly offset by lower average debt portfolio interest rates. Over the past four quarters, the company has invested $4.1 billion in capital expenditures, $3.7 billion in share repurchase and grown its investment in accounts receivable by $1.9 billion.
The company’s effective income tax rate for the first quarter was 37.1 percent in 2008, down from 38.8 percent in 2007, due in part to favorable resolution during the quarter of specific tax uncertainties. For the full year, the company now expects an effective income tax rate in the range of 37.5 to 38.5 percent.
Share Repurchase
In the first quarter, under the share repurchase program announced in November 2007, the company repurchased approximately 30.5 million shares of its common stock at an average price of $51.55, for a total investment of approximately $1.6 billion.
Program-to-date through the end of the first quarter, the company has acquired approximately 57.0 million shares of its common stock at an average price per share of $52.98, reflecting a total investment of approximately $3.0 billion. The company expects to complete the program by the end of 2010 or sooner, and under the right combination of business results, liquidity and share price would expect to complete half or more of the $10 billion authorization by the end of 2008.
Subsequent to the end of the first quarter, the company repurchased an additional 10 million shares related to a set of derivatives transactions executed in the fourth quarter of 2007, for a total investment of approximately $502 million. Including these repurchases, outstanding shares have been reduced approximately 8 percent since the announcement of this share repurchase program six months ago.
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TARGET CORPORATION
Page 3
Miscellaneous
Target Corporation will webcast its first quarter earnings conference call at 9:30am CDT today. Investors and the media are invited to listen to the call through the company’s website at www.target.com/investors (click on “webcasts”). A telephone replay of the call will be available beginning at approximately 11:30am CDT today through the end of business on May 22, 2008. The replay number is (800) 642-1687 (passcode: 4007363).
For additional details on Target’s credit card receivables transaction with JPMorgan Chase please refer to Target’s May 5, 2008 news release and May 6, 2008 conference call, which are available on the company’s website at www.target.com/investors.
Previously presented consolidated results have been reclassified to conform to the current year presentation with respect to the company’s retail and credit card segments, and the reclassification of distribution and other supply chain costs from SG&A expense into cost of sales within the retail segment. Reclassified results by quarter for 2005 through 2007 are available on the company’s website at www.target.com/investors.
Forward-looking statements in this release, including expectations for liquidity, effective income tax rate and timing to complete the current share repurchase program, should be read in conjunction with the cautionary statements in Exhibit (99)A to the company’s 2007 Form 10-K.
Target Corporation’s retail segment includes large, general merchandise and food discount stores, and a fully integrated on-line business called Target.com. In addition, the company operates a credit card segment that offers branded proprietary and Visa credit card products. At quarter-end, the company operated 1,613 Target stores in 47 states.
Target Corporation news releases are available at www.target.com.
###
(Tables Follow)
Contacts: John Hulbert (Investors) |
| Lena Michaud (Financial Media) |
|
| |
| (612) 761-6627 | (612) 761-6796 | |||
Consolidated Statements of Operations
|
| Three Months Ended |
|
|
| ||||
|
| May 3, |
| May 5, |
|
|
| ||
(millions, except per share data) (unaudited) |
| 2008 |
| 2007 |
| Change |
| ||
Sales |
| $ | 14,302 |
| $ | 13,623 |
| 5.0 | % |
Credit card revenues |
| 500 |
| 418 |
| 19.8 |
| ||
Total revenues |
| 14,802 |
| 14,041 |
| 5.4 |
| ||
Cost of sales |
| 9,898 |
| 9,416 |
| 5.1 |
| ||
Selling, general and administrative expenses |
| 3,037 |
| 2,863 |
| 6.2 |
| ||
Credit card expenses |
| 274 |
| 170 |
| 61.1 |
| ||
Depreciation and amortization |
| 435 |
| 392 |
| 11.1 |
| ||
Earnings before interest expense and income taxes |
| 1,158 |
| 1,200 |
| (3.5 | ) | ||
Interest expense, net |
|
|
|
|
|
|
| ||
Nonrecourse debt collateralized by credit card receivables |
| 18 |
| 26 |
| (29.9 | ) | ||
Other interest expense |
| 191 |
| 112 |
| 70.5 |
| ||
Interest income |
| (8 | ) | (2 | ) | 274.2 |
| ||
Net interest expense |
| 201 |
| 136 |
| 47.7 |
| ||
Earnings before income taxes |
| 957 |
| 1,064 |
| (10.1 | ) | ||
Provision for income taxes |
| 355 |
| 413 |
| (14.1 | ) | ||
Net earnings |
| $ | 602 |
| $ | 651 |
| (7.5 | )% |
Basic earnings per share |
| $ | 0.75 |
| $ | 0.76 |
| (1.7 | )% |
Diluted earnings per share |
| $ | 0.74 |
| $ | 0.75 |
| (1.4 | )% |
Weighted average common shares outstanding |
|
|
|
|
|
|
| ||
Basic |
| 805.5 |
| 855.9 |
|
|
| ||
Diluted |
| 809.6 |
| 862.8 |
|
|
| ||
|
|
|
|
|
|
|
| ||
Subject to reclassification |
|
|
|
|
|
|
| ||
PR-1
Consolidated Statements of Financial Position
|
| May 3, |
| Feb 2, |
| May 5, |
| |||
(millions) (unaudited) |
| 2008 |
| 2008 |
| 2007 |
| |||
Assets |
|
|
|
|
|
|
| |||
Cash and cash equivalents |
| $ | 620 |
| $ | 2,450 |
| $ | 969 |
|
Credit card receivables, net of allowance of $590, $570 and $504 |
| 7,830 |
| 8,054 |
| 6,006 |
| |||
Inventory |
| 6,836 |
| 6,780 |
| 6,387 |
| |||
Other current assets |
| 1,473 |
| 1,622 |
| 1,347 |
| |||
Total current assets |
| 16,759 |
| 18,906 |
| 14,709 |
| |||
Property and equipment |
|
|
|
|
|
|
| |||
Land |
| 5,618 |
| 5,522 |
| 5,061 |
| |||
Buildings and improvements |
| 18,817 |
| 18,329 |
| 16,168 |
| |||
Fixtures and equipment |
| 3,959 |
| 3,858 |
| 3,476 |
| |||
Computer hardware and software |
| 2,337 |
| 2,421 |
| 2,078 |
| |||
Construction-in-progress |
| 2,012 |
| 1,852 |
| 2,450 |
| |||
Accumulated depreciation |
| (8,077 | ) | (7,887 | ) | (6,973 | ) | |||
Property and equipment, net |
| 24,666 |
| 24,095 |
| 22,260 |
| |||
Other noncurrent assets |
| 1,405 |
| 1,559 |
| 1,315 |
| |||
Total assets |
| $ | 42,830 |
| $ | 44,560 |
| $ | 38,284 |
|
Liabilities and shareholders’ investment |
|
|
|
|
|
|
| |||
Accounts payable |
| $ | 5,959 |
| $ | 6,721 |
| $ | 5,877 |
|
Accrued and other current liabilities |
| 3,137 |
| 3,097 |
| 2,898 |
| |||
Unsecured debt and other borrowings |
| 1,863 |
| 1,464 |
| 572 |
| |||
Nonrecourse debt collateralized by credit card receivables |
| - |
| 500 |
| 750 |
| |||
Total current liabilities |
| 10,959 |
| 11,782 |
| 10,097 |
| |||
Unsecured debt and other borrowings |
| 13,230 |
| 13,226 |
| 8,251 |
| |||
Nonrecourse debt collateralized by credit card receivables |
| 1,900 |
| 1,900 |
| 1,900 |
| |||
Deferred income taxes |
| 493 |
| 470 |
| 430 |
| |||
Other noncurrent liabilities |
| 1,891 |
| 1,875 |
| 1,895 |
| |||
Shareholders’ investment |
|
|
|
|
|
|
| |||
Common stock |
| 66 |
| 68 |
| 71 |
| |||
Additional paid-in capital |
| 2,678 |
| 2,656 |
| 2,437 |
| |||
Retained earnings |
| 11,789 |
| 12,761 |
| 13,386 |
| |||
Accumulated other comprehensive loss |
| (176 | ) | (178 | ) | (183 | ) | |||
Total shareholders’ investment |
| 14,357 |
| 15,307 |
| 15,711 |
| |||
Total liabilities and shareholders’ investment |
| $ | 42,830 |
| $ | 44,560 |
| $ | 38,284 |
|
Common shares outstanding |
| 788.6 |
| 818.7 |
| 851.4 |
| |||
|
|
|
|
|
|
|
| |||
Subject to reclassification |
|
|
|
|
|
|
| |||
PR-2
Consolidated Statements of Cash Flows
|
| Three Months Ended |
| ||||
|
| May 3, |
| May 5, |
| ||
(millions) (unaudited) |
| 2008 |
| 2007 |
| ||
Operating activities |
|
|
|
|
| ||
Net earnings |
| $ | 602 |
| $ | 651 |
|
Reconciliation to cash flow |
|
|
|
|
| ||
Depreciation and amortization |
| 435 |
| 392 |
| ||
Share-based compensation expense |
| 16 |
| 18 |
| ||
Deferred income taxes |
| 20 |
| (27 | ) | ||
Bad debt provision |
| 181 |
| 86 |
| ||
Loss on disposal of property and equipment, net |
| 7 |
| 14 |
| ||
Other non-cash items affecting earnings |
| 23 |
| 19 |
| ||
Changes in operating accounts providing / (requiring) cash |
|
|
|
|
| ||
Accounts receivable originated at Target |
| 21 |
| 48 |
| ||
Inventory |
| (56 | ) | (133 | ) | ||
Other current assets |
| 79 |
| 110 |
| ||
Other noncurrent assets |
| 8 |
| (4 | ) | ||
Accounts payable |
| (762 | ) | (698 | ) | ||
Accrued and other current liabilities |
| 12 |
| (32 | ) | ||
Other noncurrent liabilities |
| (6 | ) | 18 |
| ||
Other |
| 160 |
| - |
| ||
Cash flow provided by operations |
| 740 |
| 462 |
| ||
Investing activities |
|
|
|
|
| ||
Expenditures for property and equipment |
| (950 | ) | (1,183 | ) | ||
Proceeds from disposal of property and equipment |
| 2 |
| 4 |
| ||
Change in accounts receivable originated at third parties |
| 23 |
| 53 |
| ||
Other investments |
| (41 | ) | (5 | ) | ||
Cash flow required for investing activities |
| (966 | ) | (1,131 | ) | ||
Financing activities |
|
|
|
|
| ||
Change in commercial paper, net |
| 902 |
| - |
| ||
Reductions of short-term notes payable |
| (500 | ) | - |
| ||
Additions to long-term debt |
| - |
| 1,900 |
| ||
Reductions of long-term debt |
| (501 | ) | (501 | ) | ||
Dividends paid |
| (115 | ) | (103 | ) | ||
Repurchase of stock |
| (1,403 | ) | (500 | ) | ||
Stock option exercises and related tax benefit |
| 13 |
| 36 |
| ||
Other |
| - |
| (7 | ) | ||
Cash flow (required for) / provided by financing activities |
| (1,604 | ) | 825 |
| ||
Net (decrease) / increase in cash and cash equivalents |
| (1,830 | ) | 156 |
| ||
Cash and cash equivalents at beginning of period |
| 2,450 |
| 813 |
| ||
Cash and cash equivalents at end of period |
| $ | 620 |
| $ | 969 |
|
|
|
|
|
|
| ||
Subject to reclassification |
|
|
|
|
| ||
PR-3
Retail Segment
Retail Segment Results |
| Three Months Ended |
|
|
| ||||
|
| May 3, |
| May 5, |
|
|
| ||
(millions) (unaudited) |
| 2008 |
| 2007 |
| Change |
| ||
Sales |
| $ | 14,302 |
| $ | 13,623 |
| 5.0 | % |
Cost of sales |
| 9,898 |
| 9,416 |
| 5.1 |
| ||
Gross margin |
| 4,404 |
| 4,207 |
| 4.7 |
| ||
SG&A expenses (a) |
| 3,014 |
| 2,839 |
| 6.2 |
| ||
EBITDA |
| 1,390 |
| 1,368 |
| 1.6 |
| ||
Depreciation and amortization |
| 431 |
| 388 |
| 11.1 |
| ||
EBIT |
| $ | 959 |
| $ | 980 |
| (2.2 | )% |
EBITDA is earnings before interest expense, income taxes, depreciation and amortization.
EBIT is earnings before interest expense and income taxes.
(a) New account and loyalty rewards redeemed by our guests reduce reported sales. Our Retail segment charges the cost of these discounts to our Credit Card segment, and the reimbursements of $23 million in the first quarter of 2008 and $24 million in the first quarter of 2007 are recorded as a reduction to SG&A expenses within the Retail segment.
Retail Segment Rate Analysis |
| Three Months Ended |
| ||
|
| May 3, |
| May 5, |
|
(unaudited) |
| 2008 |
| 2007 |
|
Gross margin rate |
| 30.8% |
| 30.9% |
|
SG&A expense rate |
| 21.1% |
| 20.8% |
|
EBITDA margin rate |
| 9.7% |
| 10.0% |
|
EBIT margin rate |
| 6.7% |
| 7.2% |
|
Comparable-Store Sales |
| Three Months Ended |
| ||
|
| May 3, |
| May 5, |
|
(unaudited) |
| 2008 |
| 2007 |
|
Comparable-store sales |
| (0.7)% |
| 4.3% |
|
Comparable-store sales growth is calculated by comparing sales in current year periods with comparable, prior fiscal-year periods of equivalent length.
Number of Stores and Retail Square Feet |
| Number of Stores |
| Retail Square Feet (a) |
| ||||||
|
| May 3, |
| May 5, |
| May 3, |
| May 5, |
|
|
|
(unaudited) |
| 2008 |
| 2007 |
| 2008 |
| 2007 |
| Change |
|
Target general merchandise stores |
| 1,395 |
| 1,318 |
| 173,015 |
| 161,860 |
| 6.9% |
|
SuperTarget stores |
| 218 |
| 182 |
| 38,514 |
| 32,129 |
| 19.9% |
|
Total |
| 1,613 |
| 1,500 |
| 211,529 |
| 193,989 |
| 9.0% |
|
(a) In thousands; reflects total square feet, less office, distribution center and vacant space.
Subject to reclassification
PR-4
Credit Card Segment
Credit Card Segment Results |
| Three Months Ended |
|
|
| ||||
|
| May 3, |
| May 5, |
|
|
| ||
(millions) (unaudited) |
| 2008 |
| 2007 |
| Change |
| ||
Finance charge revenue |
| $ | 354 |
| $ | 296 |
| 19.8 | % |
Late fee and other revenue |
| 108 |
| 88 |
| 22.4 |
| ||
Third party merchant fees |
| 38 |
| 34 |
| 13.4 |
| ||
Total revenues |
| 500 |
| 418 |
| 19.8 |
| ||
Bad debt expense |
| 181 |
| 86 |
| 108.8 |
| ||
Operations and marketing expenses (a) |
| 116 |
| 108 |
| 8.8 |
| ||
Depreciation and amortization |
| 4 |
| 4 |
| 14.1 |
| ||
Total expenses |
| 301 |
| 198 |
| 52.7 |
| ||
EBIT |
| $ | 199 |
| $ | 220 |
| (9.6 | )% |
(a) New account and loyalty rewards redeemed by our guests reduce reported sales. Our Retail segment charges the cost of these discounts to our Credit Card segment, and the reimbursements of $23 million in the first quarter of 2008 and $24 million in the first quarter of 2007 are recorded as an increase to Operations and Marketing expenses within the Credit Card segment.
EBIT Analysis |
| Three Months Ended |
| Three Months Ended |
| ||||||
|
| May 3, 2008 |
| May 5, 2007 |
| ||||||
|
| Yield |
| Yield |
| ||||||
|
| Amount |
| Annualized |
| Amount |
| Annualized |
| ||
(unaudited) |
| (in millions) |
| Rate |
| (in millions) |
| Rate |
| ||
EBIT |
| $ | 199 |
| 9.4% | (b) | $ | 220 |
| 13.4% | (b) |
LIBOR (a) |
|
|
| 2.9% |
|
|
| 5.3% |
| ||
Spread to LIBOR |
| $ | 138 |
| 6.5% | (b) | $ | 132 |
| 8.1% | (b) |
(a) Balance-weighted average 1-month LIBOR rate
(b) As a percentage of average receivables
Return Analysis |
| Three Months Ended May 3, 2008 |
| Three Months Ended May 5, 2007 |
| ||||||||||||
|
| Average |
| Yield |
| Average |
| Yield |
| ||||||||
|
| Amount |
| Amount |
| Annualized |
| Amount |
| Amount |
| Annualized |
| ||||
|
| (in millions) |
| (in millions | ) | Rate |
| (in millions | ) | (in millions | ) | Rate |
| ||||
(unaudited) |
| (a) |
| (b) |
| (c) |
| (a) |
| (b) |
| (c) |
| ||||
Gross credit card receivables |
| $ | 8,443 |
| $ | 199 |
| 9.4 | % | $ | 6,582 |
| $ | 220 |
| 13.4 | % |
Portion funded by third parties (d) |
| 2,180 |
| 18 |
| 3.4 | % | 1,859 |
| 26 |
| 5.6 | % | ||||
Portion funded by Target |
| $ | 6,263 |
| $ | 181 |
| 11.5 | % | $ | 4,723 |
| $ | 194 |
| 16.4 | % |
(a) Amounts represent the aggregate of principal and accrued revenues receivable before the allowance for doubtful accounts, the amount funded by nonrecourse debt collateralized by
credit card receivables and the residual portion funded by Target, respectively.
(b) Amounts represent total portfolio EBIT, interest paid to holders of nonrecourse debt collateralized by credit card receivables and the pretax profit attributable to the residual
portion funded by Target, respectively.
(c) Rates represent amounts shown in column (b) divided by amounts shown in column (a), expressed as an annualized rate.
(d) Amounts relate to nonrecourse debt collateralized by credit card receivables.
Receivables Rollforward Analysis |
| Three Months Ended |
|
|
| ||||
|
| May 3, |
| May 5, |
|
|
| ||
(millions) (unaudited) |
| 2008 |
| 2007 |
| Change |
| ||
Beginning receivables |
| $ | 8,624 |
| $ | 6,711 |
| 28.5 | % |
Charges at Target |
| 946 |
| 942 |
| 0.4 |
| ||
Charges at third parties |
| 2,148 |
| 1,889 |
| 13.7 |
| ||
Payments |
| (3,629 | ) | (3,344 | ) | 8.5 |
| ||
Other |
| 331 |
| 312 |
| 6.3 |
| ||
Period-end receivables |
| $ | 8,420 |
| $ | 6,510 |
| 29.3 | % |
Average receivables |
| $ | 8,443 |
| $ | 6,582 |
| 28.3 | % |
Accounts with three or more payments (60+ days) past due as a percentage of period-end receivables |
| 4.2 | % | 3.2 | % |
|
| ||
Accounts with four or more payments (90+ days) past due as a percentage of period-end receivables |
| 2.9 | % | 2.1 | % |
|
| ||
Allowance for Doubtful Accounts |
| Three Months Ended |
|
|
| ||||
|
| May 3, |
| May 5, |
|
|
| ||
(millions) (unaudited) |
| 2008 |
| 2007 |
| Change |
| ||
Allowance at beginning of period |
| $ | 570 |
| $ | 517 |
| 10.4 | % |
Bad debt provision |
| 181 |
| 86 |
| 108.8 |
| ||
Net write-offs |
| (161 | ) | (99 | ) | 61.5 |
| ||
Allowance at end of period |
| $ | 590 |
| $ | 504 |
| 17.2 | % |
As a percentage of period-end receivables |
| 7.0% |
| 7.7% |
|
|
| ||
Net write-offs as a percentage of average receivables (annualized) |
| 7.6% |
| 6.0% |
|
|
| ||
|
|
|
|
|
|
|
| ||
Subject to reclassification |
|
|
|
|
|
|
| ||
PR-5