Target Reports Second Quarter 2016 Earnings

*Second quarter GAAP EPS from continuing operations of $1.07 and Adjusted EPS of $1.23 were above the high end of guidance1.
*The Company is on pace to exceed its goal to save $2 billion in costs over the 2-year period ending in 2016.
*Second quarter comparable sales decreased 1.1 percent, in line with guidance of flat to down 2 percent.
*Comparable sales growth in Signature Categories outpaced total comparable sales by approximately 3 percentage points; digital channel sales increased 16 percent.
*Target returned $1.7 billion to shareholders in the second quarter through dividends and share repurchases.

Target Corporation (NYSE: TGT) today reported a second quarter 2016 comparable sales decrease of 1.1 percent and GAAP earnings per share (EPS) from continuing operations of $1.07, a decrease of 11.6 percent from second quarter 2015. Second quarter adjusted earnings per share from continuing operations2 (Adjusted EPS), which excludes $161 million of pre-tax early debt retirement losses, were $1.23, an increase of 0.5 percent from second quarter 2015. The attached tables provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.

“While we recognize there are opportunities in the business, and are addressing the challenges we are facing in a difficult retail environment, we are pleased that our team delivered second quarter profitability above our expectations,” said Brian Cornell, chairman and CEO of Target. “Looking ahead, we remain focused on our enterprise priorities as we continue to see the benefits of investing in Signature Categories, store experience, new flex-format stores and digital capabilities. Although we are planning for a challenging environment in the back half of the year, we believe we have the right strategy to restore traffic and sales growth over time.”

Second quarter 2016 sales decreased 7.2 percent to $16.2 billion from $17.4 billion last year, reflecting a 1.1 percent decrease in comparable sales combined with the removal of pharmacy and clinic revenues from this year’s results. Comparable digital channel sales grew 16 percent and contributed 0.5 percentage points to comparable sales growth. Segment earnings before interest expense and income taxes (EBIT), which is Target’s measure of segment profit, were $1,241 million in second quarter 2016, a decrease of 8.1 percent from $1,350 million in 2015.

Second quarter EBITDA and EBIT margin rates were 11.2 percent and 7.7 percent, respectively, compared with 10.9 percent and 7.7 percent, respectively, in 2015. Second quarter gross margin rate was 31.3 percent, compared with 30.9 percent in 2015, reflecting the benefit of the sale of the Company’s pharmacy and clinic businesses and ongoing cost savings initiatives, partially offset by investments in promotions and increased digital shipping costs. Second quarter SG&A expense rate was 20.1 percent in 2016, compared with 19.9 percent in 2015, as the deleveraging impact of lower sales and investments in team offset benefits from the sale of the Company’s pharmacy and clinic businesses and continued expense discipline across the organization.
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