Target Reports Fourth Quarter and Fiscal 2012 Earnings

TARGET CORPORATION
U.S. Credit Card Segment
U.S. Credit Card Segment Results
Annualized Annualized Annualized Annualized
(millions) (unaudited) Amount Rate (d)
Amount Rate (d)
Amount Rate (d)
Amount Rate (d)
Finance charge revenue $ 287
17.5 % $ 282
17.6 % $ 1,089
17.8 % $ 1,131
17.9 %
Late fees and other revenue 48
2.9 46
2.9 173
2.8 179
2.8
Third party merchant fees 21
1.3 23
1.4 79
1.3 89
1.4
Total revenues 356
21.7 351
21.9 1,341
22.0 1,399
22.1
Bad debt expense (a) 55
3.4 87
5.4 196
3.2 154
2.4
Operations and marketing expenses (a)
154
9.4 145
9.0 562
9.2 550
8.7
Depreciation and amortization 3
0.2 4
0.2 13
0.2 17
0.3
Total expenses 212
12.9 236
14.7 771
12.6 721
11.4
EBIT
Interest expense on nonrecourse debt
144
8.8 115
7.2 570
9.3 678
10.7
collateralized by credit card receivables 3
17
13
72
Segment profit $ 141
$ 98
$ 557
$ 606
Average receivables funded by Target (b) $ 4,602
$ 2,725
$ 4,569
$ 2,514
Segment pretax ROIC (c)
Three Months Ended Three Months Ended
Twelve Months Ended
Twelve Months Ended
February 2, 2013 January 28, 2012
February 2, 2013
January 28, 2012
11.3 % 14.3 % 12.0 % 24.1 %
Note: The three and twelve months ended February 2, 2013 consisted of 14 weeks and 53 weeks, respectively, compared with 13 weeks and 52 weeks in the comparable prior-year periods.
(a)
The combination of bad debt expense and operations and marketing expenses, less amounts the U.S. Retail Segment charges the U.S. Credit Card Segment for loyalty programs, within the U.S. Credit Card Segment
represent credit card expenses on the Consolidated Statements of Operations. For the three and twelve months ended February 2, 2013, fourth quarter bad debt expense was replaced by net write-offs in this
calculation. See footnote (a) to our U.S. Retail Segment Results table for an explanation of our loyalty program charges.
(b)
Amounts represent the portion of average credit card receivables, at par, funded by Target. These amounts exclude $1,500 million and $1,423 million for the three and twelve months ended February 2, 2013,
respectively, and $3,673 million and $3,801 million for the three and twelve months ended January 28, 2012, respectively, of receivables funded by nonrecourse debt collateralized by credit card receivables.
(c)
ROIC is return on invested capital. This rate equals our segment profit divided by average credit card receivables, at par, funded by Target, expressed as an annualized rate. For the three and twelve months ended
February 2, 2013, the additional week in each period has been adjusted to provide comparable results to the prior period.
(d)
As an annualized percentage of average credit card receivables, at par. For the three and twelve months ended February 2, 2013, the additional week in each period has been adjusted to provide comparable results to
the prior period.
Spread Analysis - Total Portfolio
Three Months Ended Three Months Ended
Twelve Months Ended Twelve Months Ended
February 2, 2013 January 28, 2012
February 2, 2013
January 28, 2012
Yield
Yield
Yield Yield
Amount Annualized Amount Annualized Amount Annualized Amount Annualized
(unaudited) (in millions) Rate (in millions) Rate (in millions) Rate (in millions) Rate
EBIT $ 144
8.8% (c)
LIBOR (a)
Spread to LIBOR (b)
$ 141
8.5% (c)
Note: Numbers are individually rounded.
$ 115
7.2% (c)
$ 570
9.3% (c)
$ 678
10.7% (c)
0.2% 0.3% 0.2% 0.2%
$ 111
6.9% (c)
$ 555
9.1% (c)
$ 663
10.5% (c)
Note: The three and twelve months ended February 2, 2013 consisted of 14 weeks and 53 weeks, respectively, compared with 13 weeks and 52 weeks in the comparable prior-year periods.
(a)
Balance-weighted one-month LIBOR.
(b)
Spread to LIBOR is a metric used to analyze the performance of our total credit card portfolio because the majority of our portfolio earns finance charge revenue at rates tied to the Prime Rate, and the interest rate
on all nonrecourse debt collateralized by credit card receivables is tied to LIBOR.
(c)
As an annualized percentage of average credit card receivables, at par. For the three and twelve months ended February 2, 2013, the additional week in each period has been adjusted to provide comparable results to
the prior period.
Receivables Rollforward Analysis
Three Months Ended
Twelve Months Ended
February 2, January 28, February 2, January 28,
(millions) (unaudited) 2013 2012 Change 2013 2012 Change
Beginning credit card receivables, at par $ 5,836 $ 6,144
(5.0) % $ 6,357 $ 6,843
(7.1) %
Charges at Target 2,152
1,750
23.0
6,294
5,098
23.5
Charges at third parties 1,221
1,306
(6.5) 4,709
5,192
(9.3)
Payments (3,449) (3,077)
12.1 (12,286) (11,653)
5.4
Other 264
234
13.5
950
877
8.3
Period-end credit card receivables, at par $ 6,024
(a)
$ 6,357
(5.2) % $ 6,024
(a)
$ 6,357
(5.2) %
Average credit card receivables, at par $ 6,102 $ 6,398
(4.6) % $ 5,992 $ 6,314
(5.1) %
Accounts with three or more payments (60+ days) past due as a percentage
of period-end credit card receivables, at par 2.7% 3.3% 2.7% 3.3%
Accounts with four or more payments (90+ days) past due as a percentage
of period-end credit card receivables, at par 1.9% 2.3% 1.9% 2.3%
Allowance for Doubtful Accounts
February 2, January 28, February 2, January 28,
(millions) (unaudited) 2013 2012 Change 2013 2012 Change
Allowance at beginning of period $ 345 $ 431
(20.1) % $ 430 $ 690
(37.7) %
Bad debt expense 55
87 (36.6)
196
154 27.3
Write-offs (b)
(98)
(124) (21.2)
(424)
(572) (25.8)
Recoveries (b)
Three Months Ended
Twelve Months Ended
33
36 (7.0)
133
158 (15.2)
Segment allowance at end of period
As a percentage of period-end credit
$ 335
(a)
$ 430
(22.0) % $ 335
(a)
$ 430
(22.0) %
card receivables, at par
Net write-offs as an annualized percentage of
5.6% 6.8% 5.6% 6.8%
average credit card receivables, at par 4.2% 5.5% 4.9% 6.6%
(a)
We continue to recognize an allowance for doubtful accounts and bad debt expense within our U.S. Credit Card Segment, which allows us to evaluate the performance of the
portfolio. The allowance for doubtful accounts is eliminated in consolidation to present the receivables at the lower of cost (par) or fair value. Period-end credit card receivables,
at par, less the segment allowance at the beginning of the three months ended February 2, 2013, when the receivables were first classified as held for sale, plus the gain on
receivables held for sale of $161 million for the twelve months ended February 2, 2013 represents credit card receivables, held for sale as reported on the Consolidated
Statements of Financial Position.
(b)
Write-offs include the principal amount of losses (excluding accrued and unpaid finance charges), and recoveries include current period collections on previously written-off
balances. These amounts combined represent net write-offs.
Subject to reclassification
CONFIDENTIAL
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2/21/13 8:07 AM