The corporation I chose to look at is Target Corporation. The company was founded in 1902 and is headquartered in Minneapolis, Minnesota. This company is better known for its Target and Super Target retail stores across the U.S. which you can see from a good distance due to their very impressionable logo- a large red bull’s eye symbol.
Target Corporation operates general merchandise and food discount stores in the United States. The company offers household essentials, including electronics, music, computer software, and toys; apparel and accessories, jewelry, and shoes; home furnishings and decor consisting of furniture, lighting, and kitchenware, as well as seasonal merchandise; and food and pet supplies primarily under Target and Super Target trademarks. It also sells its merchandise under private-label brands, including Archer Farms, Archer Farms Simply Balanced, Boots & Barkley, Choxie, Circo, Durabuilt, Embark, Gilligan & O’Malley, Kaori, Market Pantry, Play Wonder, Room Essentials, Smith & Hawken, Sutton and Dodge, Target Home, Xhilaration as well as many other well known brands.
Target Corporation also operates in-store amenities, such as Target Cafe, Target Clinic, Target Pharmacy, and Target Photo, as well as leased or licensed departments, including Optical, Pizza Hut, Portrait Studio, and Starbucks. The company markets its products through its network of distribution centers as well as through its online shopping site, Target.com. As of June 2, 2010, it operated 1,740 stores in 49 states and the District of Columbia. Target Corporation also offers credit cards such as a Target Visa and the Target Card to qualified guests.
Over the years Target has become the second largest retailer in the United States coming in just behind Wal-Mart. The company is rated number 28 on the Fortune 500 as of 2009. After reviewing the financial data for Target Corp., it is obvious as to why.
Since Target and Super Target stores offer such a wide variety of merchandise it gives the company the upper leg so to speak when it comes to profits compared to a specialty store. Target stores offer not only the necessities such as food, toiletries and clothing at a discounted price but also non necessity “comfort items” such as household merchandise and jewelry so even when the economy takes a hit and customers aren’t spending as much, they will still come to the store for their necessities which will mean the company is still bringing in profit.
The 2009 financial results in both of the business segments were affected by the challenging economy in which the company operated. In light of that environment, performance in the Retail Segment was remarkable, as the segment generated the highest EBIT in the Corporation’s history, in a year when comparable-store sales declined 2.5 percent. In the Credit Card Segment, disciplined management led to a 29.4 percent increase in segment profit in a year when Target’s average investment in the portfolio declined about 32 percent, representing a near-doubling of segment pretax return on invested capital.
The financial results for the second quarter of 2010 reflect better than expected earnings from both the Retail and Credit Card Segments. Performance in the Retail Segment reflects increased sales of 3.8 percent over the comparable prior year period due
to the contribution from new stores and a 1.7 percent comparable-store increase. The company essentially maintained EBIT margin rates in the second quarter of 2010 compared to the prior year. In the Credit Card Segment, the company seems to have achieved a significant increase in profit primarily due to reduction in bad debt expense. This is extremely important for a company to do in any economy but considering they were able to do this in the current declining economy is a very good sign that they will surpass previous year’s numbers in the future. This shows that not only did Target Corp. do remarkably better than some of their competition but also beat their record breaking numbers of the previous year. In a declining market this is exceptional.
Cash flow provided by operations was $1,828 million and $2,051 million for the six months ended July 31, 2010 and August 1, 2009, respectively. Target Corp. opened 3 new stores in the first half of 2010, all in the second quarter. In the first half of 2009, Target Corp. opened 50 new stores (37 stores net of 8 relocations and 5 closing), including 23 new stores in the second quarter of 2009. During the first half of 2010, they remodeled 211 stores under the current store remodel program, significantly more than the 15 stores they remodeled in the first half of 2009.
The current outlook for Target Corp. is promising, following a recessionary year in 2009. After looking at the assessment it is evident that the inventories have increased relative to cash and marketable securities in the current asset section, and there has been a decrease in the company’s liabilities and debt. These developments were traced primarily to policies and financing needs related to new store openings. This is very promising news for the company because it means that they are selling the same if not more of their inventory, their costs are coming down and they are able to pay back their debt even with the economy the way it is and the opening of many new stores. (I have included Target Corp.’s financial statements at end of report)
According to Target Corp. SEC report 10-K sales percentages, sales in household essentials has gone up from 22% to 23% from the previous year, sales in apparel and accessories has remained the same at 20%, sales in home furnishings and décor has gone down from 21% to 19% and sales in food and pet supplies has gone up from 15% to 16% from the previous year. This for the most part is very good news since the economy has been declining and reports show that Target Corp.’s sales have not been affected that much with many departments’ sales increasing.
As with any company there is rivalry and competition. With Target Corp. being rated number 2 in the country in discount retail stores they have overcome a big feat already but there is a lot they need to do to stay at the top. In the case of Target Corp. competition is intense. A number of factors support this such as the presence of several businesses that operate in the retailing industry and targeting similar audiences. The main rivals of Target Corp. are Wal-Mart Stores, Inc., Kmart Corp., Kroger, and Costco Wholesale Corp. All of these competitors produce similar products as well as offer some of the same services to consumers. In comparison to Target Corp.’s main competition, it shows that Target Corp is rated number 2 in Dividend Yield at 1.90% while Wal-Mart is rated number 1 at 2.20%. Statements also show that Target Corp. is also rated number 2 in Market Capitalization with $38.6 B with Wal-Mart ahead at number 1 with $194.6B and ahead of Costco Wholesale Corp. who is at number 3 with $28.6B. This is a good sign because even though they are number 2 in rankings, Wal-mart is a much bigger company and yet Target Corp. has managed to come in number 2 in rankings with a $10 B lead in Market Capitalization on Costco Wholesale Corp. It seems that Target Corp. is doing well in comparison to its competitors with an upward trend in revenue, sales, earnings per share, net earnings as well as EBIT. Reports also show that Target has surpassed Wal-Mart in many areas. Target Corp.’s gross profit margin was 29.49% which exceeded Wal-Mart’s 24.78% in 2010. Target also maintained the same Earnings per share as their main rival Wal-Mart which was 8.95%. Every year regardless of the economy, Target Corp. continues to upward.
To combat competition, Target Corp. has ventured in online-based actions using there own website, internet advertising, partnership and even merger and acquisition. From www.target.com as corporate domain in e-commerce, the corporation maintains a team called Target direct who owns and oversees the e-commerce initiatives. Using this as their official corporate website, the corporation’s current position to the online marketplace is comparatively competitive. Its performance specifically to the online marketing is high. As a result of the stiff competition among the retailers in the U.S., Target Corp. implemented several expansions of its store outlets and distribution centers to extend the corporation’s marketing.
Partnership, merging and acquisition are among the strategic actions that the management is taking into practice to fight competition. This is a way to expand their market and distribution coverage. Among the partnership and cooperation engagements that they had are American Online on strategic alliance and Amazon.com in customer service. In June of 2000, AOL and Target Corp. rollout a marketing campaign and established the multi-year strategic alliance and joint marketing and promotion initiatives. This campaign featured a “special edition CD-ROM of the AOL service with co-branded features and packaging” being offered in more than 900 Target Corp. outlets nationwide. These CD-ROM’s are offered in Target stores still to this day. In addition, AOL members who use the service in any Target Corp. outlet is entitled to a 10% discount on products bought via target.com. Further more, target.com was made available in the shop@AOL online shopping destinations and other areas across AOL.
Today, Target Corp. is highly competitive and striving to go along with its competitors regardless of external conditions like the world economy. The management of Target Corp. is continuously creating innovative marketing solutions that may be perfect in its online shopping operation. These innovations are always directed to satisfactory, convenient, and customer-oriented service.
It is very important to constantly compare Target Corp. with its competitors as well as look at trend analysis to help determine how the company is doing now against competitors, how it has done in the past and to determine how the company may do in the future. The analysis of a variable’s past value changes to determine if a trend exists and, if so, what the trend indicates. A technical analyst may graph a stock’s price throughout a period of time to determine whether a trend has been established. Analysts often attempt to determine if trends exist for a firm’s earnings per share. A steady increase in earning’s profit share could indicate that investors and consumers alike are still interested in the company whereas a decrease in the company’s earnings per share could mean a decrease
in interested parties and a hint that they are interested somewhere else which could mean the company would have to change a few things to regain their interest.
Summary of Target Corp. Current financial performance:
Target Corp. makes great strides in remaining one of the top two discount retail stores in the country. Reports show Target Corp.’s revenue to continue in an upward trend regardless of the world’s economy. Reports also show sales increasing in an upward trend from year to year. Reports also show Target Corp.’s cash ratio deteriorated from 2008 to 2009 but then improved from 2009 to 2010 not reaching 2008 level. This could be due to the deterioration in the economy and the surplus of new stores being opened around the country in 2009. There appears to be no major problem with the firm’s short-term liquidity position at the present time. Target Corp. has managed to reduce their long term debt since last year to even lower amounts than in 2008. Their Current Assets has increased since 2009 but has not quite reached the 2008 amount. There has also been a steady increase in Accounts payable over the past three years but they have managed to keep in a steady downward trend in total liabilities. This means even though they are paying more out, they have managed to lower their debt and increase their current assets which could be to the increase in stores and increase in sales. In general Target Corp. seems to be a sound credit risk with attractive investment potential. The management of inventories, a continuation of effective cost controls, a continuation of marketable advertising by management and careful timing of further expansion will be critically important to the company’s future success. All in all Target Corp. seems to be showing great growth despite the declining economy and is predicted to continue to do so in the future.
Below are financial highlights for Target Corp.
Profitability
Profit Margin: 4.09%
Operating Margin: 7.52%
Management Effectiveness
Return on Assets: 7.12%
Return on Equity: 18.23%
Income Statement
Revenue: 66.58B
Revenue Per Share: 89.53
Qtrly Revenue Growth: 3.10%
Gross Profit: 19.77B
EBITDA: 7.09B
Net Income Avl to Commom: 2.72B
Diluted EPS: 3.64
Qtrly Earnings Growth: 14.30%
Balance Sheet
Total Cash: 1.56B
Total Cash Per Share: 2.17
Total Debt: 16.62B
Total Debt/Equity: 108.84
Current Ratio: 1.71
Book Value Per Share: 21.13
Cash Flow Statement
Operating Cash Flow: 5.66B
Levered Free Cash Flow: 4.12B
Following is Target Corp. Balance Sheet for the years 2008, 2009 and 2010 (collected from Yahoo! Finance)
Period Ending Jan 30, 2010 Jan 31, 2009 Feb 2, 2008
Assets
Current Assets
Cash And Cash Equivalents 2,200,000 864,000 2,450,000
Short Term Investments – – –
Net Receivables 6,966,000 8,084,000 9,207,000
Inventory 7,179,000 6,705,000 6,780,000
Other Current Assets 2,079,000 1,835,000 469,000
Total Current Assets 18,424,000 17,488,000 18,906,000
Long Term Investments – 163,000 215,000
Property Plant and Equipment 25,280,000 25,756,000 24,095,000
Goodwill – 60,000 208,000
Intangible Assets – 171,000 –
Accumulated Amortization – – –
Other Assets 829,000 862,000 1,136,000
Deferred Long Term Asset Charges – – –
Total Assets 44,533,000 44,106,000 44,560,000
Liabilities
Current Liabilities
Accounts Payable 9,631,000 9,250,000 7,880,000
Short/Current Long Term Debt 796,000 1,262,000 1,964,000
Other Current Liabilities 900,000 – 1,938,000
Total Current Liabilities 11,327,000 10,512,000 11,782,000
Long Term Debt 15,118,000 17,490,000 15,126,000
Other Liabilities 1,906,000 1,937,000 1,389,000
Deferred Long Term Liability Charges 835,000 455,000 956,000
Minority Interest – – –
Negative Goodwill – – –
Total Liabilities 29,186,000 30,394,000 29,253,000
Stockholders’ Equity
Misc Stocks Options Warrants – – –
Redeemable Preferred Stock – – –
Preferred Stock – – –
Common Stock 62,000 63,000 68,000
Retained Earnings 12,947,000 11,443,000 12,761,000
Treasury Stock – – –
Capital Surplus 2,919,000 2,762,000 2,656,000
Other Stockholder Equity (581,000) (556,000) (178,000)
Total Stockholder Equity 15,347,000 13,712,000 15,307,000
Net Tangible Assets $15,347,000 $13,712,000 $15,099,000
Following is Target Corp. Income Statement for years 2008, 2009, 2010
View: Annual Data | Quarterly Data
All numbers in thousands
Period Ending Jan 30, 2010 Jan 31, 2009 Feb 2, 2008
Total Revenue 65,357,000 64,948,000 63,367,000
Cost of Revenue 45,583,000 45,766,000 41,895,000
Gross Profit 19,774,000 19,182,000 21,472,000
Operating Expenses
Research Development – – –
Selling General and Administrative 13,078,000 12,954,000 14,541,000
Non Recurring – – –
Others 2,023,000 1,826,000 1,659,000
Total Operating Expenses – – –
Operating Income or Loss 4,673,000 4,402,000 5,272,000
Income from Continuing Operations
Total Other Income/Expenses Net (94,000) (139,000) 22,000
Earnings Before Interest And Taxes 4,579,000 4,263,000 5,294,000
Interest Expense 707,000 727,000 669,000
Income Before Tax 3,872,000 3,536,000 4,625,000
Income Tax Expense 1,384,000 1,322,000 1,776,000
Minority Interest – – –
Net Income From Continuing Ops 2,488,000 2,214,000 2,849,000
Non-recurring Events
Discontinued Operations – – –
Extraordinary Items – – –
Effect Of Accounting Changes – – –
Other Items – – –
Net Income 2,488,000 2,214,000 2,849,000
Preferred Stock And Other Adjustments – – –
References
Target Corp. (2010). 2010 Summary Annual Report. Retrieved September 29, 2010,
From http://finance.yahoo.com/q?s=TGT
Target Corp. Company Overview and Investor outlook. Retrieved September 29, 2010,
From http://sites.target.com/site/en/company/page.jsp?contentId
Fraser, L. M., & Ormiston, A. (2007). Understanding financial statements (8th ed.). Upper Saddle River, NJ: Pearson/Prentice Hall.