This summary is based on the fourth quarter fiscal 2007 earnings call conducted by Target Corporation (TGT: chart) on February 26, 2008.
Managemnt:
President: Gregg Steinhafel
Chairman and Chief Executive Officer: Robert Ulrich
Executive Vice President and Chief Financial Officer: Douglas Scovanner
Key Investors Issues
- EPS fell to $1.23 per share compared to $1.29 per share last year.
- Net income was $1.028 billion compared to $1.119 billion a year earlier.
- Revenue edged up 0.8% to $19.87 billion.
Fourth Quarter Highlights
Total revenue growth was 0.8% due to the contribution from new stores, a 0.2% increase in same-store sales, growth in revenue from credit card operations and cycling the impact of an extra week in last year''s fourth quarter.
On an equal thirteen-week over thirteen-week basis, revenues increased 6.3%.
Gross margin rate declined 53 basis points from last year.
Approximately 60% of this decline was due to the impact of faster sales growth in lower margin consumable and commodity categories. The magnitude of this mix impact is about half of experience in the third quarter and more in line with experience in the first and second quarters of the year. The remaining gross margin rate on favorability in the fourth quarter was driven by clearance related markdown activity resulting from slower than expected sales.
Expense rate remained essentially flat to last year.
This is remarkable in light of soft same-store sales and the de-leveraging impact of a shorter fiscal period this year. The single biggest driver of this performance was effective control of hourly payroll expense in stores. Year-over-year improvement in this metric was the best achieved in the past five years.
Results in credit card operations remained strong with performance in line with the expectations outlined at the end of the third quarter.
Receivables at the end of the quarter were 29% higher than year-end 2007. This growth reflects many factors, including the impact of last summer''s actions in which the company offered higher limit Target Visa Cards to another group of better and best credit quality Target Card guests. Current receivables balance reflects the impact of an industry-wide decline in payment rates that began in the third quarter.
Write-off in delinquency metrics were somewhat higher than a year ago but were consistent with the expectations.
At the bottom line, the contribution to earnings before taxes from credit card operations grew 12% from $122 million in 2006 to $137 million this year. This profit growth is particularly satisfying in light of overall card industry dynamics and shorter fiscal period in 2007.
The company announced a new $10 billion share repurchase authorization which replaced prior program.
The company said that under the right combination of business results, liquidity and share price, that it would expect to complete half or more of this new program by the end of 2008. The company purchased 26.5 million shares in the open market, investing just under $1.5 billion. This equates to a weighted average price of $54.64 per share. The company executed a series of derivatives transactions which are likely to lead to share repurchase activity in 2008.
In December and early January, shares fell to about $50 which represented a compelling repurchase opportunity in eyes. Yet the company recognized that it would not be fiscally responsible to aggressively pursue share repurchase activity until it had the proceeds in hand from planned January bond offering. The solution the company devised was to enter into a series of derivative transactions, allowing controlling the repurchase of an incremental 30 million shares, representing just fewer than 4% of total shares outstanding, while investing a small fraction of the cash required for an open-market purchase of this size.
