Target 1st Qtr 2008 Earnings

MINNEAPOLIS--(BUSINESS WIRE)--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) were $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.
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.
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.