This summary is based on the second quarter fiscal 2007 earnings call conducted by Target Corporation (TGT) on August 21, 2007.
Management:
Chairman, CEO: Robert Ulrich
President: Gregg Steinhafel
CFO: Douglas Scovanner
Key Investors Issues
- Earnings per share rose to 8- cents from 70 cents in the prior year quarter.
- Revenues were up 9.5% over previous year to $14.6 billion.
- The share repurchase program authorisation was increased to $8 billion.
- An additional 42 new stores were opened, with another 43 general merchandise stores and 18 new SuperTarget locations anticipated before year end.
- Capital spending for the full year expected to be around $4.5 billion.
Second Quarter Highlights
Net earnings growth was solid at 13%.
EBIT rose 11.8% to $1.3 billion compared with $1.1 billion in 2006. Net earnings increased 12.7% to $686 million from $609 million last year resulting in a 14% growth in earnings per share to 80 cents from 70 cents a year-ago. Net interest expense increased $14 million from $140 million in 2006 to $154 million due to higher average funded balances including debt to fund receivables growth.
Revenues grew 9.5% to $14.6 billion, fueled by contribution from new stores, a 4.9% increase in comparable store sales, and growth in credit card operations.
The firm witnessed better-than-average performance in women’s apparel, electronics, and non-discretionary categories despite sluggish sales in footwear, music and movies, intimate apparel, and lawn and patio.
Gross margin rate improved 39 basis points in the core retail operations as a result of improvement in markdowns, while the expense rate increased 44 basis points.
The gross margin rate is currently benefiting from the effects of small financial reporting refinements that have a parallel inverse effect on the expense rate.
Credit card operations continued to deliver strong profit performance.
Average receivables grew 13% and credit card contribution to earnings before taxes were up 34% from the prior year. On an annualized basis, credit card contribution to EBT as a percent of average receivables was 9.7%, up from 8.2% in 2006. The yield increase was driven in part by the beneficial impact on late fee income of conforming the terms on all of portfolios to the typical industry practice of tiering the late fee amount based on balances and a 25-day grace period.
The share repurchase program authorization was hiked from $5 billion to $8 billion and hence management will continue to repurchase stock.
The company invested $476 million to buy back 7.5 million shares of common stock at a weighted average price of $63.23 per share. During the first half of the year, $1 billion worth of the common stock or 16.7 million shares were acquired at an average price of $61.34 per share.
To date, a total of 87.8 million shares have been repurchased, representing 10% of shares outstanding at an average price of $50.99 per share for a total investment of $4.5 billion. The total share repurchase authorization is expected to be concluded by the end of 2010 or sooner.
Net accounts receivables were $6.4 billion, 15.5% above the receivables levels in the prior year period. Allowance for doubtful accounts were also increased by $8 million to $509 million representing 7.4% of quarter-end gross receivables.
Property and equipment, net of accumulated depreciation, increased $2.8 billion from a year ago reflecting ongoing investment in new stores and the distribution and systems infrastructure to support continued growth and commitment to maintain brand integrity by reinvesting in existing stores.
The firm continued to expand the store base, opening 42 new stores, including 32 general merchandise stores, and 10 SuperTarget locations.
