Target Reports Fourth Quarter and Full-Year 2017 Earnings

MINNEAPOLIS, March 6, 2018 /PRNewswire/ -- Target Corporation (NYSE: TGT) today announced its fourth quarter and full-year 2017 results.  The Company reported GAAP earnings per share (EPS) from continuing operations of $2.02 in fourth quarter and $5.32 for full-year 2017, compared with $1.46 and $4.58 in 2016, respectively.  Fourth quarter Adjusted EPS were $1.37, compared with $1.45 in 2016. Full-year Adjusted EPS were $4.71, compared with $5.01 in 2016. The attached tables provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.

"Our fourth quarter results demonstrate the power of the significant investments we've made in our team and our business throughout 2017.  Our team's outstanding execution of Target's strategic initiatives during the year delivered strong fourth quarter traffic growth in our stores and digital channels, which drove healthy comparable sales in every one of our five core merchandise categories," said Brian Cornell, chairman and chief executive officer of Target Corporation. "At our Financial Community Meeting later this morning, we will outline our plans to continue investing in our team and make 2018 a year of acceleration in the areas that set Target apart- our stores, exclusive brands, and rapidly-growing suite of fulfillment options. While we have a lot left to accomplish, our progress in 2017 gives us confidence that we are making the right long-term investments to best position Target for profitable growth in a rapidly changing consumer and retail environment."

Fiscal 2018 Guidance

In first quarter 2018, Target expects a low-single digit increase in comparable sales, and both GAAP EPS from continuing operations and Adjusted EPS of $1.25 to $1.45.

For full-year 2018, Target expects a low-single digit increase in comparable sales, and both GAAP EPS from continuing operations and Adjusted EPS of $5.15 to $5.45.

First quarter and full-year 2018 GAAP EPS from continuing operations may include the impact of certain discrete items, which will be excluded in calculating Adjusted EPS.  The Company is not currently aware of any such discrete items.

Segment Results

Fourth quarter 2017 sales increased 10.0 percent to $22.8 billion from $20.7 billion last year, reflecting the impact of an additional week in this year's fourth quarter, a 3.6 percent increase in comparable sales, and sales in non-mature stores.  Comparable digital channel sales grew 29 percent and contributed 1.8 percentage points of comparable sales growth.  Segment earnings before interest expense and income taxes (EBIT), which is Target's measure of segment profit, were $1,152 million in fourth quarter 2017, a decrease of 14.3 percent from $1,344 million in 2016.

Fourth quarter EBIT margin rate was 5.1 percent, compared with 6.5 percent, in 2016. Fourth quarter gross margin³ rate was 26.2 percent, compared with 26.6 percent in 2016, reflecting pressure from digital fulfillments costs.  The net impact of the Company's pricing and promotion efforts was offset by cost savings.  Fourth quarter SG&A expense rate was 18.5 percent in 2017, compared with 17.5 percent in 2016, driven by higher compensation costs, including both an increase in team member incentives and the impact of investments in store team member hours and wage rates, partially offset by cost saving initiatives.

Interest Expense and Taxes from Continuing Operations

The Company's fourth quarter 2017 net interest expense was $134 million, compared with $140 million last year. Fourth quarter 2017 effective income tax rate from continuing operations was (8.3) percent, compared with 32.0 percent last year, primarily due to the impact of the recently-enacted Tax Act.  The Tax Act resulted in $36 million of benefit due to a lower structural tax rate in January and a discrete $352 million net benefit from the remeasurement of our net deferred tax liabilities.

Shareholder Returns

The Company returned $591 million to shareholders in fourth quarter 2017, including:

• Dividends of $337 million, compared with $337 million in fourth quarter 2016, reflecting a decline in share count offset by an increase in the dividend per share.
• Share repurchases totaling $254 million that retired 4.0 million shares of common stock at an average price of $63.31.

At the end of the fourth quarter, the Company had approximately $3.7 billion of remaining capacity under its current $5 billion share repurchase program.

For the trailing twelve months through fourth quarter 2017, after-tax return on invested capital (ROIC) was 15.9 percent, compared with 15.0 percent for the twelve months through fourth quarter 2016. The year-over-year increase in fourth quarter 2017 primarily reflected discrete impacts of the Tax Act combined with the benefit of a lower structural tax rate and lower working capital, partially offset by the impact of lower pretax earnings.  Excluding the discrete impacts of the Tax Act, ROIC was 14.0 percent for the trailing twelve months ended February 3, 2018.  See the "Reconciliation of Non-GAAP Financial Measures" section of this release for additional information about the Company's ROIC calculation.

Webcast Details

Target will webcast its financial community meeting, including a Q&A session, beginning at 10:30 a.m. CST today. Investors and the media are invited to listen to the meeting at Investors.Target.com (hover over "company" then click on "events & presentations" in the "investors" column). A replay of the webcast will be available within four hours of the meeting's conclusion.

Miscellaneous

Statements in this release regarding first quarter and full-year 2018 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. 28, 2017. 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, consolidated earnings from continuing operations before interest expense and income taxes (EBIT), and earnings from continuing operations before interest, taxes, depreciation and amortization (EBITDA) for the three and twelve-month periods ended Feb. 3, 2018, and Jan. 28, 2017. The Company also provides ROIC for the twelve-month periods ended Feb. 3, 2018, and Jan. 28, 2017, 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 across companies. 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 consolidated EBIT and EBITDA are useful in providing meaningful information about our operational efficiency compared to our competitors by excluding the impact of differences in tax jurisdictions and structures, debt levels and, for EBITDA, capital investment.  Management believes ROIC is useful in assessing the effectiveness of the Company's capital allocation over time. The most comparable GAAP measure for Adjusted EPS is diluted EPS from continuing operations. The most comparable GAAP measure for consolidated EBIT and EBITDA is net earnings 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, limiting the usefulness of the measure for comparisons with other companies.

About Target

Minneapolis-based Target Corporation (NYSE: TGT) serves guests at 1,822 stores and at Target.com. Since 1946, Target has given 5 percent of its profit to communities, which today equals millions of dollars 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.

¹On Jan. 9, 2018, Target updated fourth quarter guidance for comparable sales, GAAP EPS from continuing operations, and Adjusted EPS.
²Adjusted EPS, a non-GAAP financial measure, excludes the impact of certain discretely managed items.  See the "Miscellaneous" section of this release, as well as the tables of this release, for additional information about the items that have been excluded from Adjusted EPS.
³ Beginning in the second quarter of 2017, we reclassified supply chain-related depreciation expense into cost of sales and out of depreciation and amortization on our Consolidated Statements of Operations. Prior year amounts have been reclassified to reflect this change. Updated financials for the thirteen quarters prior to this change have been posted on our Investor Relations website at investors.target.com.

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 to, generally accepted accounting principles in the United States (GAAP). 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.

We have presented consolidated earnings from continuing operations before interest expense and income taxes (EBIT) and earnings before interest, taxes, depreciation and amortization (EBITDA), non-GAAP financial measures, because we believe they provide investors with meaningful information about our operational efficiency compared to 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 for, GAAP. The most comparable GAAP measure is net earnings from continuing operations. Consolidated EBIT and EBITDA should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP. Other companies may calculate consolidated EBIT and EBITDA differently, limiting the usefulness of the measure for comparisons with other companies.

We have also disclosed after-tax return on invested capital for 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 across companies.  This metric provides a measure of the effectiveness of our capital allocation over time. Other companies may calculate ROIC differently, limiting the usefulness of the measure.

Capitalized operating lease obligations and operating lease interest are not in accordance with, or an alternative for, GAAP. 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.

SOURCE Target Corporation