Target Corp. hits 4Q mark

Don Hogsett, March 4, 2002

With consumers still flocking to its core Target discount stores, fourth-quarter profits at Target Corp. jumped up by 19.3 percent, to $658.0 million from $552.0 million last year.

Fueled, as usual, by a double-digit gain at Target stores, retail sales advanced by 6.7 percent, to $13.0 billion from $12.2 billion during the all-important Christmas quarter.

Coming in at $0.73 per share, earnings before extraordinary items easily beat the Street and a consensus forecast of $0.72 per share. But when Target officials said on a conference call that earnings targets for all of this year could be difficult to meet unless the U.S. economy improves, investors turned tail and ran, knocking the retailer's stock down by $2.12 per share, or 4.8 percent.

Helping to fuel the strong earnings growth, in addition to the sales gains at Target stores, the retailer widened its margins while pruning down its overhead. Average gross margin strengthened by 50 basis points, to 29.6 percent from 29.1 percent the prior year, driven by what the company called "exceptional strength at Target stores."

Reining in its spending, Target pared back its operating costs by 40 basis points, to 18.8 percent of sales from 19.2 percent a year ago.

"In 2002, we will continue to manage our business with a disciplined approach, and over the long term we remain confident in our ability to achieve an average annual earnings per share growth of 15 percent," said Bob Ulrich, chairman and ceo.

Even though sales declined by 3.5 percent at the retailer's Mervyn's unit, the Mervyn's business still managed to improve its pre-tax operating profit by 20.8 percent, to $131 million from $108 million last year. But the department store business remained a drag, with fourth-quarter sales at Marshall Field's falling off by 6.1 percent, to $2.8 billion from $3.0 billion; and profits dropping by 20.2 percent, to $63 million from $79 million.

Segment Results

Sales 4Q 12 mos.
Target 11.3% 13.1%
Mervyn's -2.7 -1.7
Marshall Field's -6.1 -4.8
Total 7.4 12.5
Same-Store Sales 4Q 12 mos.
Target 6.2% 4.1%
Mervyn's 0.1 -1.5
Marshall Field's -5.6 -5.7
Total 4.6 2.7
Pre-Tax Profits 4Q 12 mos.
Target 20.9% 14.5%
Mervyn's 20.8 6.1
Marshall Field's -20.2 -29.8
Total 17.9 10.6

Target Corp.

Qtr. 2/2/02 (x000) 2002 2001 % CHG
Average gross margin and selling, general and administrative expenses are calculated as a percentage of net retail sales.
a-Net retail sales. Total company sales, including credit revenues, totaled $13.2 billion, up 7.34 percent from $13.3 billion a year ago. For the 12 months, total company sales including credit revenues, sales grew by 8.1 percent, to $40.0 billion from $36.9 billion.
b-Fourth-quarter results include a $5 million after-tax charge stemming from debt retirement. 12-month results include a similar $6 million charge.
Sales $13,002,000a $12,182,000a 6.7
Oper. income (EBIT) 1,642,000 1,346,000 22.0
Net income 658,000b 552,000 19.3
Per share (diluted) 0.72 0.61 18.5
Average gross margin 29.6% 29.1%
SG&A expenses 18.8% 19.2%
12 months
Sales 39,176,000a 36,362,000a 7.7
Oper. income (EBIT) 4,222,000 3,708,000 13.9
Net income 1,368,000b 1,264,000 8.3
Per share (diluted) 1.50 1.38 8.7
Average gross margin 30.5% 30.4%
SG&A expenses 21.5% 21.7%

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