Target Reports Fourth Quarter and Full-Year 2018 Earnings
Strong Q4 Caps Off Best Full-Year Comp Sales Growth in More than a Decade
MINNEAPOLIS, March 5, 2019 /PRNewswire/ --
- Fourth quarter comparable sales grew 5.3 percent on traffic growth of 4.5 percent.
- In the fourth quarter, comparable store sales grew 2.9 percent, and comparable digital sales grew 31 percent.
- Stores fulfilled nearly three quarters of Target's fourth-quarter digital sales.
- For both the fourth quarter and full year, the Company saw healthy comparable sales growth and market-share gains across all five of its core merchandise categories.
- Full-year comparable sales grew 5.0 percent — Target's strongest performance since 2005.
- In 2018, comparable store sales grew 3.2 percent, and comparable digital sales grew 36 percent.
- 2018 marks the fifth consecutive year in which Target's comparable digital sales have grown more than 25 percent.
- Full-year GAAP EPS from continuing operations of $5.50 and Adjusted EPS1 of $5.39 established new all-time highs for the Company.
- Target returned $951 million to shareholders in the fourth quarter through dividends and share repurchases, bringing the total to $3.4 billion for full-year 2018.
Target Corporation (NYSE: TGT) today announced its fourth-quarter and full-year 2018 results. The Company reported GAAP earnings per share (EPS) from continuing operations of $1.52 in fourth quarter and $5.50 for full-year 2018, compared with $1.99 and $5.29 in 2017, respectively. Fourth quarter Adjusted EPS were $1.53 and full-year Adjusted EPS were $5.39, compared with $1.36 and $4.69 in 2017, respectively.
1Adjusted EPS, a non-GAAP financial measure, excludes the impact of certain discretely managed items. See the tables of this release for additional information about the items that have been excluded from Adjusted EPS. |
The attached tables provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.
"We're very pleased with our fourth quarter performance, which capped off an outstanding year for Target. Thanks to the dedication of Target's team, we delivered our strongest traffic and comparable sales growth in well over a decade, and our 2018 Adjusted EPS set a new all-time record for the Company," said Brian Cornell, chairman and chief executive officer of Target Corporation. "We have been driving an ambitious agenda to transform our Company, evolve with our guests and drive strong growth. On every count we've been successful, and as we enter 2019, we will continue to lead the industry by adapting, innovating and delivering more for our guests and shareholders."
Fiscal 2019 Guidance
In first quarter 2019, Target expects a low- to mid-single digit increase in comparable sales, and both GAAP EPS from continuing operations and Adjusted EPS of $1.32 to $1.52.
For full-year 2019, Target expects a low- to mid-single digit increase in comparable sales and a mid-single digit increase in operating income. The Company expects both GAAP EPS from continuing operations and Adjusted EPS of $5.75 to $6.05.
First quarter and full-year 2019 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.
Operating Results
Comparable sales grew 5.3 percent in the fourth quarter. Stores comparable sales grew 2.9 percent in the fourth quarter, while comparable digital sales grew 31 percent, contributing 2.4 percentage points to comparable sales growth. Total revenue of $23.0 billion was essentially flat to last year. Operating income was $1,117 million in fourth quarter 2018, compared with $1,129 million in 2017. The year-over-year comparisons for both total revenue and operating income reflect the impact of an additional fiscal week in fourth quarter 2017.
Fourth quarter operating income margin rate was 4.9 percent in both 2018 and 2017. Fourth quarter gross margin rate was 25.7 percent, compared with 26.1 percent in 2017. This decline reflected higher digital fulfillment and supply chain costs, partially offset by the benefit of merchandising strategies. Fourth quarter SG&A expense rate was 19.0 percent in 2018, compared with 19.4 percent in 2017. Fourth quarter SG&A results reflected the benefit of cost efficiencies across a broad set of expense categories combined with the leverage benefit of strong comparable sales growth, partially offset by higher compensation expense.
Interest Expense and Taxes from Continuing Operations
The Company's fourth quarter 2018 net interest expense was $110 million, compared with $131 million last year, reflecting debt maturities that have resulted in lower average debt balances and a lower average coupon rate. Fourth quarter 2018 effective income tax rate from continuing operations was 21.4 percent, compared with (7.5) percent last year. Fourth quarter 2017 effective tax rate reflected a $343 million net benefit from the remeasurement of our net deferred tax liabilities following the enactment of the Tax Cuts and Jobs Act of 2017 (Tax Act).
Shareholder Returns
The Company returned $951 million to shareholders in fourth quarter 2018, including:
- Dividends of $334 million, compared with $337 million in fourth quarter 2017, reflecting a decline in share count partially offset by a 3.2 percent increase in the dividend per share.
- Share repurchases totaling $617 million that retired 8.3 million shares of common stock at an average price of $74.72.
At the end of the fourth quarter, the Company had approximately $1.6 billion of remaining capacity under its current $5 billion share repurchase program.
For the trailing twelve months through fourth quarter 2018, after-tax return on invested capital (ROIC) was 14.7 percent, compared with 15.4 percent for the twelve months through fourth quarter 2017. Excluding the discrete impacts of the Tax Act, ROIC was 14.6 percent for the trailing twelve months ended February 2, 2019, compared with 13.6 percent in 2017. See the tables 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 8:00 a.m. CST today. Investors and the media are invited to listen to the meeting at Investors.Target.com (hover over "investors" then click on "events & presentations"). 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 2019 earnings per share, comparable sales guidance and operating income 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 Feb. 3, 2018. 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.
About Target
Minneapolis-based Target Corporation (NYSE: TGT) serves guests at more than 1,800 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 the latest store count or for more information, visit Target.com/Pressroom. For a behind-the-scenes look at Target, visit Target.com/abullseyeview or follow @TargetNews on Twitter.
TARGET CORPORATION | ||||||||||||||||||||||
Consolidated Statements of Operations | ||||||||||||||||||||||
Three Months Ended | Twelve Months Ended | |||||||||||||||||||||
(millions, except per share data) (unaudited) | February 2, | February 3, 2018 As Adjusted (a)(b) | Change | February 2, | February 3, 2018 As Adjusted (a)(b) | Change | ||||||||||||||||
Sales | $ | 22,734 | $ | 22,734 | — | % | $ | 74,433 | $ | 71,786 | 3.7 | % | ||||||||||
Other revenue | 243 | 249 | (2.5) | 923 | 928 | (0.5) | ||||||||||||||||
Total revenue | 22,977 | 22,983 | (0.0) | 75,356 | 72,714 | 3.6 | ||||||||||||||||
Cost of sales | 16,900 | 16,795 | 0.6 | 53,299 | 51,125 | 4.3 | ||||||||||||||||
Selling, general and administrative expenses | 4,376 | 4,454 | (1.8) | 15,723 | 15,140 | 3.9 | ||||||||||||||||
Depreciation and amortization (exclusive of depreciation included in cost of sales) | 584 | 605 | (3.5) | 2,224 | 2,225 | (0.1) | ||||||||||||||||
Operating income | 1,117 | 1,129 | (1.0) | 4,110 | 4,224 | (2.7) | ||||||||||||||||
Net interest expense | 110 | 131 | (16.2) | 461 | 653 | (29.3) | ||||||||||||||||
Net other (income) / expense | (7) | (14) | (50.1) | (27) | (59) | (52.7) | ||||||||||||||||
Earnings from continuing operations before income taxes | 1,014 | 1,012 | 0.2 | 3,676 | 3,630 | 1.3 | ||||||||||||||||
Provision for income taxes | 216 | (76) | 384.5 | 746 | 722 | 3.5 | ||||||||||||||||
Net earnings from continuing operations | 798 | 1,088 | (26.7) | 2,930 | 2,908 | 0.7 | ||||||||||||||||
Discontinued operations, net of tax | 1 | (1) | 7 | 6 | ||||||||||||||||||
Net earnings | $ | 799 | $ | 1,087 | (26.5) | % | $ | 2,937 | $ | 2,914 | 0.8 | % | ||||||||||
Basic earnings per share | ||||||||||||||||||||||
Continuing operations | $ | 1.53 | $ | 2.01 | (23.7) | % | $ | 5.54 | $ | 5.32 | 4.2 | % | ||||||||||
Discontinued operations | — | — | 0.01 | 0.01 | ||||||||||||||||||
Net earnings per share | $ | 1.54 | $ | 2.01 | (23.5) | % | $ | 5.55 | $ | 5.32 | 4.3 | % | ||||||||||
Diluted earnings per share | ||||||||||||||||||||||
Continuing operations | $ | 1.52 | $ | 1.99 | (23.7) | % | $ | 5.50 | $ | 5.29 | 4.0 | % | ||||||||||
Discontinued operations | — | — | 0.01 | 0.01 | ||||||||||||||||||
Net earnings per share | $ | 1.52 | $ | 1.99 | (23.5) | % | $ | 5.51 | $ | 5.29 | 4.0 | % | ||||||||||
Weighted average common shares outstanding | ||||||||||||||||||||||
Basic | 519.9 | 541.5 | (4.0) | % | 528.6 | 546.8 | (3.3) | % | ||||||||||||||
Diluted | 524.3 | 545.9 | (4.0) | % | 533.2 | 550.3 | (3.1) | % | ||||||||||||||
Antidilutive shares | 0.2 | 2.2 | — | 4.1 | ||||||||||||||||||
Dividends declared per share | $ | 0.64 | $ | 0.62 | 3.2 | % | $ | 2.54 | $ | 2.46 | 3.3 | % | ||||||||||
Note: Per share amounts may not foot due to rounding. | |
(a) | Beginning with the first quarter 2018, we adopted the new accounting standards for revenue recognition, leases, and pensions. We are presenting prior period results on a basis consistent with the new standards and conformed to the current period presentation. We provided additional information about the impact of the new accounting standards on previously reported financial information in a Form 8-K filed on May 11, 2018. |
(b) | The fourth quarter and full-year 2017 consisted of 14 weeks and 53 weeks, respectively, compared with 13 weeks and 52 weeks in the comparable current-year periods. The extra week contributed $1,167 million of sales, or 5.1 percent and 1.6 percent of fourth quarter and full-year 2017 sales, respectively. |
TARGET CORPORATION | ||||||||
Consolidated Statements of Financial Position | ||||||||
(millions) (unaudited) | February 2, 2019 | February 3, 2018 As Adjusted (a) | ||||||
Assets | ||||||||
Cash and cash equivalents | $ | 1,556 | $ | 2,643 | ||||
Inventory | 9,497 | 8,597 | ||||||
Other current assets | 1,466 | 1,300 | ||||||
Total current assets | 12,519 | 12,540 | ||||||
Property and equipment | ||||||||
Land | 6,064 | 6,095 | ||||||
Buildings and improvements | 29,240 | 28,131 | ||||||
Fixtures and equipment | 5,912 | 5,623 | ||||||
Computer hardware and software | 2,544 | 2,645 | ||||||
Construction-in-progress | 460 | 440 | ||||||
Accumulated depreciation | (18,687) | (18,398) | ||||||
Property and equipment, net | 25,533 | 24,536 | ||||||
Operating lease assets | 1,965 | 1,884 | ||||||
Other noncurrent assets | 1,273 | 1,343 | ||||||
Total assets | $ | 41,290 | $ | 40,303 | ||||
Liabilities and shareholders' investment | ||||||||
Accounts payable | $ | 9,761 | $ | 8,677 | ||||
Accrued and other current liabilities | 4,201 | 4,094 | ||||||
Current portion of long-term debt and other borrowings | 1,052 | 281 | ||||||
Total current liabilities | 15,014 | 13,052 | ||||||
Long-term debt and other borrowings | 10,223 | 11,117 | ||||||
Noncurrent operating lease liabilities | 2,004 | 1,924 | ||||||
Deferred income taxes | 972 | 693 | ||||||
Other noncurrent liabilities | 1,780 | 1,866 | ||||||
Total noncurrent liabilities | 14,979 | 15,600 | ||||||
Shareholders' investment | ||||||||
Common stock | 43 | 45 | ||||||
Additional paid-in capital | 6,042 | 5,858 | ||||||
Retained earnings | 6,017 | 6,495 | ||||||
Accumulated other comprehensive loss | (805) | (747) | ||||||
Total shareholders' investment | 11,297 | 11,651 | ||||||
Total liabilities and shareholders' investment | $ | 41,290 | $ | 40,303 | ||||
Common Stock Authorized 6,000,000,000 shares, $.0833 par value; 517,761,600 and 541,681,670 shares issued and outstanding at February 2, 2019 and February 3, 2018, respectively. | |
Preferred Stock Authorized 5,000,000 shares, $.01 par value; no shares were issued or outstanding at February 2, 2019 or February 3, 2018. |
(a) | Additional information is provided on page 5. |
TARGET CORPORATION | ||||||||
Consolidated Statements of Cash Flows | ||||||||
Twelve Months Ended | ||||||||
(millions) (unaudited) | February 2, 2019 | February 3, 2018 As Adjusted (a)(b) | ||||||
Operating activities | ||||||||
Net earnings | $ | 2,937 | $ | 2,914 | ||||
Earnings from discontinued operations, net of tax | 7 | 6 | ||||||
Net earnings from continuing operations | 2,930 | 2,908 | ||||||
Adjustments to reconcile net earnings to cash provided by operations: | ||||||||
Depreciation and amortization | 2,474 | 2,476 | ||||||
Share-based compensation expense | 132 | 112 | ||||||
Deferred income taxes | 322 | (188) | ||||||
Loss on debt extinguishment | — | 123 | ||||||
Noncash losses / (gains) and other, net | 95 | 208 | ||||||
Changes in operating accounts: | ||||||||
Inventory | (900) | (348) | ||||||
Other assets | (299) | (156) | ||||||
Accounts payable | 1,127 | 1,307 | ||||||
Accrued and other liabilities | 89 | 419 | ||||||
Cash provided by operating activities—continuing operations | 5,970 | 6,861 | ||||||
Cash provided by operating activities—discontinued operations | 3 | 74 | ||||||
Cash provided by operations | 5,973 | 6,935 | ||||||
Investing activities | ||||||||
Expenditures for property and equipment | (3,516) | (2,533) | ||||||
Proceeds from disposal of property and equipment | 85 | 31 | ||||||
Cash paid for acquisitions, net of cash assumed | — | (518) | ||||||
Other investments | 15 | (55) | ||||||
Cash required for investing activities | (3,416) | (3,075) | ||||||
Financing activities | ||||||||
Additions to long-term debt | — | 739 | ||||||
Reductions of long-term debt | (281) | (2,192) | ||||||
Dividends paid | (1,335) | (1,338) | ||||||
Repurchase of stock | (2,124) | (1,046) | ||||||
Stock option exercises | 96 | 108 | ||||||
Cash required for financing activities | (3,644) | (3,729) | ||||||
Net (decrease) / increase in cash and cash equivalents | (1,087) | 131 | ||||||
Cash and cash equivalents at beginning of period | 2,643 | 2,512 | ||||||
Cash and cash equivalents at end of period | $ | 1,556 | $ | 2,643 | ||||
(a) | Additional information is provided on page 5. |
(b) | Consisted of 53 weeks. |
TARGET CORPORATION | ||||||||||||
Operating Results | ||||||||||||
Three Months Ended | Twelve Months Ended | |||||||||||
Rate Analysis (unaudited) | February 2, | February 3, 2018 As Adjusted (a)(b) | February 2, | February 3, 2018 As Adjusted (a)(b) | ||||||||
Gross margin rate | 25.7 | % | 26.1 | % | 28.4 | % | 28.8 | % | ||||
SG&A expense rate | 19.0 | 19.4 | 20.9 | 20.8 | ||||||||
Depreciation and amortization (exclusive of depreciation included in cost of sales) expense rate | 2.5 | 2.6 | 3.0 | 3.1 | ||||||||
Operating income margin rate | 4.9 | 4.9 | 5.5 | 5.8 | ||||||||
Note: Gross margin rate is calculated as gross margin (sales less cost of sales) divided by sales. All other rates are calculated by dividing the applicable amount by total revenue. Other revenue includes $170 million and $673 million of profit-sharing income under our credit card program agreement for the three and twelve months ended February 2, 2019, respectively, and $182 million and $694 million for the three and twelve months ended February 3, 2018, respectively. | |
(a) | Additional information is provided on page 5. |
(b) | The fourth quarter and full-year 2017 consisted of 14 weeks and 53 weeks, respectively, compared with 13 weeks and 52 weeks in the comparable current-year periods. |
Three Months Ended | Twelve Months Ended | ||||||||||||
Comparable Sales (unaudited) | February 2, 2019 | February 3, 2018 | February 2, 2019 | February 3, 2018 | |||||||||
Comparable sales change | 5.3 | % | 3.6 | % | 5.0 | % | 1.3 | % | |||||
Drivers of change in comparable sales: | |||||||||||||
Number of transactions | 4.5 | 3.2 | 5.0 | 1.6 | |||||||||
Average transaction amount | 0.8 | 0.4 | 0.1 | (0.3) | |||||||||
Note: Amounts may not foot due to rounding. | |||||||||||||
Three Months Ended | Twelve Months Ended | ||||||||||||
Contribution to Comparable Sales Change (unaudited) | February 2, 2019 | February 3, 2018 | February 2, 2019 | February 3, 2018 | |||||||||
Stores channel comparable sales change | 2.9 | % | 1.8 | % | 3.2 | % | 0.1 | % | |||||
Digital channel percentage points contribution to comparable sales change | 2.4 | 1.8 | 1.8 | 1.2 | |||||||||
Total comparable sales change | 5.3 | % | 3.6 | % | 5.0 | % | 1.3 | % | |||||
Note: Amounts may not foot due to rounding. | |||||||||||||
Three Months Ended | Twelve Months Ended | ||||||||||||
Sales by Channel (unaudited) | February 2, 2019 | February 3, 2018 As Adjusted (a) | February 2, 2019 | February 3, 2018 As Adjusted (a) | |||||||||
Stores originated | 89.6 | % | 91.9 | % | 92.9 | % | 94.5 | % | |||||
Digitally originated | 10.4 | 8.1 | 7.1 | 5.5 | |||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | |||||
(a) Additional information is provided on page 5. | |||||||||||||
Three Months Ended | Twelve Months Ended | ||||||||||||
REDcard Penetration (unaudited) | February 2, 2019 | February 3, 2018 | February 2, 2019 | February 3, 2018 | |||||||||
Target Debit Card | 12.6 | % | 12.9 | % | 13.0 | % | 13.1 | % | |||||
Target Credit Cards | 11.0 | 11.3 | 10.9 | 11.3 | |||||||||
Total REDcard Penetration | 23.6 | % | 24.2 | % | 23.8 | % | 24.5 | % | |||||
Note: Amounts may not foot due to rounding. In Q1 2018, we refined our calculation of REDcard penetration. The prior period amounts have been updated to conform to the current period methodology, resulting in an increase of 0.2 percentage points to the Total REDcard Penetration for both the three and twelve months ended February 3, 2018. | |||||||||||||
Number of Stores | Retail Square Feet (a) | ||||||||||||
Number of Stores and Retail Square Feet (unaudited) | February 2, 2019 | February 3, 2018 | February 2, 2019 | February 3, 2018 | |||||||||
170,000 or more sq. ft. | 272 | 274 | 48,604 | 48,966 | |||||||||
50,000 to 169,999 sq. ft. | 1,501 | 1,500 | 188,900 | 189,030 | |||||||||
49,999 or less sq. ft. | 71 | 48 | 2,077 | 1,359 | |||||||||
Total | 1,844 | 1,822 | 239,581 | 239,355 | |||||||||
(a) In thousands, reflects total square feet, less office, distribution center, and vacant space. | |||||||||||||
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.
Three Months Ended | |||||||||||||||||||||||||||
February 2, 2019 | February 3, 2018 As Adjusted (a)(b) | ||||||||||||||||||||||||||
(millions, except per share data) (unaudited) | Pretax | Net of Tax | Per Share | Pretax | Net of Tax | Per Share | Change | ||||||||||||||||||||
GAAP diluted earnings per share from continuing operations | $ | 1.52 | $ | 1.99 | (23.7) | % | |||||||||||||||||||||
Adjustments | |||||||||||||||||||||||||||
Tax Act (c) | $ | — | $ | 3 | $ | 0.01 | $ | — | $ | (343) | $ | (0.63) | |||||||||||||||
Other (d) | — | — | — | (5) | (3) | (0.01) | |||||||||||||||||||||
Other income tax matters (e) | — | — | — | — | (1) | — | |||||||||||||||||||||
Adjusted diluted earnings per share from continuing operations | $ | 1.53 | $ | 1.36 | 12.5 | % | |||||||||||||||||||||
Twelve Months Ended | |||||||||||||||||||||||||||
February 2, 2019 | February 3, 2018 As Adjusted (a)(b) | ||||||||||||||||||||||||||
(millions, except per share data) (unaudited) | Pretax | Net of Tax | Per Share | Pretax | Net of Tax | Per Share | Change | ||||||||||||||||||||
GAAP diluted earnings per share from continuing operations | $ | 5.50 | $ | 5.29 | 4.0 | % | |||||||||||||||||||||
Adjustments | |||||||||||||||||||||||||||
Tax Act (c) | $ | — | $ | (36) | $ | (0.07) | $ | — | $ | (343) | $ | (0.62) | |||||||||||||||
Loss on early retirement of debt | — | — | — | 123 | 75 | 0.14 | |||||||||||||||||||||
Other (d) | — | — | — | (5) | (3) | (0.01) | |||||||||||||||||||||
Other income tax matters (e) | — | (18) | (0.03) | — | (57) | (0.10) | |||||||||||||||||||||
Adjusted diluted earnings per share from continuing operations | $ | 5.39 | $ | 4.69 | 15.1 | % | |||||||||||||||||||||
Note: Amounts may not foot due to rounding. | |
(a) | Additional information is provided on page 5. Lease standard adoption resulted in a $0.03 and $0.01 reduction in GAAP and Adjusted EPS, respectively, for the three months ended February 3, 2018, and a $0.03 and $0.02 reduction in GAAP and Adjusted EPS, respectively, for the twelve months ended February 3, 2018. |
(b) | The fourth quarter and full-year 2017 consisted of 14 weeks and 53 weeks, respectively, compared with 13 weeks and 52 weeks in the comparable current-year periods. |
(c) | For the three and twelve months ended February 2, 2019, represents measurement period adjustments to previously-recorded provisional amounts related to the Tax Cuts and Jobs Act (the Tax Act). For the three and twelve months ended February 3, 2018, represents discrete benefits of the Tax Act. |
(d) | Represents an insurance recovery related to the 2013 data breach. |
(e) | Represents income from certain income tax matters not related to current period operations. |
Earnings from continuing operations before interest expense and income taxes (EBIT) and earnings before interest expense, income taxes, depreciation and amortization (EBITDA) are non-GAAP financial measures which we believe provide meaningful information about our operational efficiency compared with 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. 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 EBIT and EBITDA differently, limiting the usefulness of the measure for comparisons with other companies.
Three Months Ended | Twelve Months Ended | |||||||||||||||||||||
EBIT and EBITDA (dollars in millions) (unaudited) | February 2, | February 3, 2018 As Adjusted (a)(b) | Change | February 2, | February 3, 2018 As Adjusted (a)(b) | Change | ||||||||||||||||
Net earnings from continuing operations | $ | 798 | $ | 1,088 | (26.7) | % | $ | 2,930 | $ | 2,908 | 0.7 | % | ||||||||||
+ Provision for income taxes | 216 | (76) | 384.5 | 746 | 722 | 3.5 | ||||||||||||||||
+ Net interest expense | 110 | 131 | (16.2) | 461 | 653 | (29.3) | ||||||||||||||||
EBIT (a) | $ | 1,124 | $ | 1,143 | (1.7) | % | $ | 4,137 | $ | 4,283 | (3.4) | % | ||||||||||
+ Total depreciation and amortization (c) | 647 | 668 | (3.1) | 2,474 | 2,476 | (0.1) | ||||||||||||||||
EBITDA (a) | $ | 1,771 | $ | 1,811 | (2.2) | % | $ | 6,611 | $ | 6,759 | (2.2) | % | ||||||||||
(a) | Additional information is provided on page 5. Adoption of the new accounting standards resulted in a $9 million and $29 million decrease in EBIT and a $1 million decrease and $2 million increase in EBITDA for the three and twelve months ended February 3, 2018, respectively. |
(b) | The fourth quarter and full-year 2017 consisted of 14 weeks and 53 weeks, respectively, compared with 13 weeks and 52 weeks in the comparable current-year periods. |
(c) | Represents total depreciation and amortization, including amounts classified within Depreciation and Amortization and within Cost of Sales on our Consolidated Statements of Operations. |
We have also disclosed after-tax return on invested capital from continuing operations (ROIC), which is a ratio based on GAAP information. We believe this metric is useful in assessing the effectiveness of our capital allocation over time. Other companies may calculate ROIC differently, limiting the usefulness of the measure for comparisons with other companies.
After-Tax Return on Invested Capital | |||||||||||||||
Trailing Twelve Months | |||||||||||||||
Numerator (dollars in millions) (unaudited) | February 2, | February 3, 2018 As Adjusted (a)(b) | |||||||||||||
Operating income | $ | 4,110 | $ | 4,224 | |||||||||||
+ Net other income / (expense) | 27 | 59 | |||||||||||||
EBIT | 4,137 | 4,283 | |||||||||||||
+ Operating lease interest (c) | 83 | 79 | |||||||||||||
- Income taxes (d)(e) | 856 | 867 | |||||||||||||
Net operating profit after taxes | $ | 3,364 | $ | 3,495 | |||||||||||
Denominator (dollars in millions) (unaudited) | February 2, 2019 | February 3, 2018 As Adjusted (a) | January 28, 2017 As Adjusted (a) | ||||||||||||
Current portion of long-term debt and other borrowings | $ | 1,052 | $ | 281 | $ | 1,729 | |||||||||
+ Noncurrent portion of long-term debt | 10,223 | 11,117 | 10,862 | ||||||||||||
+ Shareholders' equity | 11,297 | 11,651 | 10,915 | ||||||||||||
+ Operating lease liabilities (f) | 2,170 | 2,072 | 1,970 | ||||||||||||
- Cash and cash equivalents | 1,556 | 2,643 | 2,512 | ||||||||||||
- Net assets of discontinued operations (g) | — | 2 | 62 | ||||||||||||
Invested capital | $ | 23,186 | $ | 22,476 | $ | 22,902 | |||||||||
Average invested capital (h) | $ | 22,831 | $ | 22,689 | |||||||||||
After-tax return on invested capital (e)(i) | 14.7 | % | 15.4 | % | |||||||||||
After-tax return on invested capital excluding discrete impacts of Tax Act (e) | 14.6 | % | 13.6 | % | |||||||||||
(a) | Additional information is provided on page 5. |
(b) | Consisted of 53 weeks. |
(c) | Represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases. Calculated using the discount rate for each lease and recorded as a component of rent expense within SG&A. Operating lease interest is added back to Operating Income in the ROIC calculation to control for differences in capital structure between us and our competitors. |
(d) | Calculated using the effective tax rates for continuing operations, which were 20.3 percent and 19.9 percent for the trailing twelve months ended February 2, 2019, and February 3, 2018, respectively. For the twelve months ended February 2, 2019, and February 3, 2018, includes tax effect of $839 million and $851 million, respectively, related to EBIT and $17 million and $16 million, respectively, related to operating lease interest. |
(e) | The effective tax rate for the trailing twelve months ended February 2, 2019, and February 3, 2018, includes discrete tax benefits of $36 million and $343 million, respectively, related to the Tax Act. |
(f) | Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities on the Consolidated Statements of Financial Position. |
(g) | Included in Other Assets and Liabilities on the Consolidated Statements of Financial Position. |
(h) | Average based on the invested capital at the end of the current period and the invested capital at the end of the comparable prior period. |
(i) | Adoption of the new lease standard reduced ROIC by approximately 0.5 percentage points for all periods presented. |
SOURCE Target Corporation
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