target corporation ppp

Target CorporationDan Gilbreth

Edith Matthews

Elen Cuaca Wijaya

Kari Blevins

June, 18th 2010

Industry Overview: Industry Snapshot

• Target sales are generated from two major sources, the Retail Segment and the Credit Card Segment

• The Retail Segment is classified as general merchandise and discount food stores.

• Through its Credit Segment Target offers the Target Visa and the Target Card known collectively as the REDcards.

• The Encyclopedia of Business (2010) reported discount department stores generated $134.4 billion sales in 2001 and numbered 9,120 locations.

• This industry is dominated by the Wal-Mart, Kmart, and Target chains stores.

• Discounted sales have existed since the early 1900s and the discount variety store industry became popular after World War II (Encyclopedia, 2010).

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Industry Overview:Background/Current Conditions

• During the 1960s and early 1970s mergers occurred as chains expanded quickly through acquisitions (Encyclopedia, 2010).

• The discount industry surpassed $200 billion in sales in the early 1990s (Encyclopedia, 2010).

• The early 2000s were tough for the retail industry due to the events of September 11th, 2001 and a shaky economy (Encyclopedia, 2010).

• Arkansas based Wal-Mart has been the world’s largest retailer but in 2002 it surpassed General Motors and Exxon to become the world’s largest company as well (Encyclopedia, 2010) with more than 4,700 stores, $244 billion in sales and 1.4 million employees.

• Michigan based Kmart was the country’s third largest retailer in 2002 with 1,500 stores, $30 billion in sales.

• Minnesota based Target Corporation, posted 2003 sales of $43 billion, more than 1,100 stores and 306,000 employees.

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Industry Overview: Employment

• About one-third of employees in discount merchandise stores are employed part time (Career Guide, 2010).

• Most work during peak selling time including nights, weekends, and holidays.

• General merchandise stores had about 4.5 million in wage and salary jobs in 2008 (Career Guide, 2010).

• Many jobs in general merchandising do not require more than a high school diploma (Career Guide, 2010).

• Overall, the number of wage and salary jobs in general merchandising is expected to increase due to growth in the industry from customer demand.

• Hourly earnings of nonsupervisory workers were far below the average for all workers in private industry.

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Employee Benefits:

• Benefits For Your Health• Health Care, Dental Coverage, Pharmacy, Team Member LifeResources

• Benefits For Your Wealth• 401(k), Daycare Flexible Spending Account (FSA)

• Benefits For Your Protection• Life Insurance, Disability, Choice Auto and Home Insurance

• Benefits For Your Benefit• Team Member Discount, Tuition Reimbursement, Home Loans, Adoption

Assistance Reimbursement, Group Legal Plan, Childcare Discount, Credit Union

• Benefits For Your Time• Vacation, National Holidays, Personal Holidays

• Benefits For Your Wellness• Target Clubs, Flu Shots, NurseLine, Maternity Support Program, Fitness

Center Discount, Health Assessment, Wellness Coaching, Health & Wellness Online 5

Corporate Overview:

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The Beginning• Fourth largest retailer in the United States• American company founded in Minneapolis, MN in 1902,

originally named Dayton Company• First Target store opened in 1962

• Original Target logo used from 1962-1968• Target expanded into Texas and Oklahoma with 6 new units

and its first distribution center in Fridley, Minnesota• 1960’s ended with 11 stores and $130 Million in sales and a

name change to Dayton-Hudson Corporation

http://upload.wikimedia.org/wikipedia/en/7/79/Target_logo_(1968).png

Corporate Overview:

Rapid Expansion• Acquisition of 16 Arlan’s department stores in Colorado, Iowa

and Oklahoma in 1971. • Target experiences its first decrease in profits in 1972.• Target stores became Dayton Hudson’s top revenue producer

in 1975.• Target acquired Mervyn’s in 1978 and Target became the 7th

largest retailer in the United States.• By 1979, there were a total of 80 Target stores in 11 states,

with $1.2 billion in sales.

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Corporate Overview:

Expanding West• Target opens 17 additional stores and expands into Tennessee and

Kansas in 1980.• In 1981, Target acquired Ayr-Way discount retail chain of 40 stores and

one distribution center and reopened them as Target stores. • Also in 1981, Target opened 14 additional stores and a third distribution

center in Little Rock, AR, to total 151 stores and $2.05 billion in sales.

• In 1982, Target acquired 33 FedMart stores in Arizona, California and Texas to expand into the West Coast and opened its fourth distribution center in Los Angeles, CA.

• Target rounded out the 1980s with 399 units in 30 states with $7.51 billion in sales.

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http://upload.wikimedia.org/wikipedia/en/d/db/Target_old_logo.svg

Corporate Overview:Introducing Target Greatland:• Target opened its first Target Greatland in Apple Valley, Minnesota in

1990.• An additional 42 Target Greatland stores were opened in 1991 and

sales reached $9.01 billion.• Target opened its first SuperTarget hypermarket in Omaha, Nebraska in

1995, which increased the store count to 670 stores and $15.7 billion in sales.

• SuperTarget was expanded into Southern California in 1999, rounding the 1990s out with 912 units in 44 states with sales reaching $26.0 billion.

• The relaunch of Target.com took place in September 1999.9

http://en.wikipedia.org/wiki/File:SuperTarget2006PNG.PNG

Corporate Overview:

Target Corporation Enters into E-Commerce• Dayton-Hudson Corporation becomes Target Corporation.

Ticker symbol becomes TGT.• Target began operations in Bangalore, India in 2005 where

operations continue to support all Target business units.• Target expanded its retail stores outside the continental

United States in 2009 by adding 2 stores in Hawaii and 2 stores in Alaska.

• At the end of 2009, Target had 1,740 Target Stores.

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Organizational and general corporate issues:

• Target is an upscale discount merchandiser who focuses on maintaining clean, spacious and customer friendly shopping locations.

• Target’s customer base.• Gregg Steinhafel is the current CEO and Chairman of the

board of directors. • The Board of Directors. • Per the Articles of Inc. Target’s Board of Directors has the

following committee…

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• The annual meeting of the shareholders is held on or near June 9th of each year.

• Target Corporation’s common & preferred share information.

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Organizational and general corporate issued continued:

Organizational and general corporate issues continued:

• Ernst & Young LLP is Target’s Independent Public Accounting Firm.

• A copy Ernst & Young LLP’s Auditors letter to management is located on page 14 of our Due Diligence Group Project.

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Culture:

• Mission Statement: The ability of delivering an outstanding value, continuous innovation, and exceptional shopping experience with competitive discount prices.

• Target empowers the company’s culture by building a strong connection with the customers and employees. Customers=guests, Employees = team members.

• Target is embracing the culture practice by: (1) Providing great value (2) Supporting the community (3) Encouraging diversity (4) Protecting the environment

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Culture:

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Sales and Marketing

• Advertising cost: $1,167 million in 2009, $1,233 million in 2008, and $1,195 million in 2007. Advertising vendor income that offset advertising expenses was approx. $130 million in 2009, $143 million in 2008 and $123 million in 2007

• Newspaper circulars and media broadcast made up the majority of Target’s advertising costs in all three years.

• Total sales for Retail Segment were $63,435 in 2009, $62,884 million in 2008, and $61,471 million in 2007 (52 week in years)

• Growth in total sales between 2009 and 2008 as well 2008 and 2007 resulted from additional stores opened.

• In 2009, deflation affected sales growth by approx 4% points compared to 2% point in 2008 and 2007

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Sales and Marketing:

• House hold essentials: pharmacy, beauty, personal care, baby care, cleaning and paper products.

• Hardlines: electronics (video games hardware and software), music, movies, books, sporting goods, toys.

• Apparel accessories: apparel for women, men, baby, toddlers.• Home furnishing and décor: furniture, lighting, kitchenware, home décor.• Food and pet supplies: dry grocery, diary, frozen food, beverages,

candy, snacks.

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Sales by product category (% of sales):

2009: 2008: 2007:

Household essentials: 23% 22% 21%

Hardlines: 22% 22% 22%

Apparel & accessories: 20% 20% 22%

Home furnishings & décor: 19% 21% 22%

Food & pet supplies: 16% 15% 13%

Total: $100% 100% 100%

Performance Measurements:

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Performance Measurements:• Asset Utilization Measurements:

• Interest expense to debt ratio (in millions):

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Company: Year: Interest expense:

Short term Debt:

Long term Debt:

Interest expense/(ST+LT Debt)

Target 2009 $801 $1,696 $15,118 4.76%

2008 $866 $1,262 $17,490 4.62%

Costco 2009 $108 $2,006 $2,045 2.56%

2008 $103 $2,206 $2,205 2.42%

Wal-Mart 2009 $2,065 $5,011 $36,401 4.99%

2008 $2,184 $7,752 $34,549 5.16%

Performance Measurements:• Asset Utilization Measurements:

• Days of Working Capital (in millions):

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Company: Year: A/R: Inventory:

A/P: Sales: Days of Working Capital **

Target 2009 $6,966 $7,179 $9,631 $65,357 6.91%

2008 $8,084 $6,705 $9,250 $64,948 8.53%

Costco 2009 $1,084 $5,405 $7,275 $71,422 -1.10%

2008 $1,009 $5,039 $6,829 $72,483 -1.08%

Wal-Mart 2009 $4,144 $33,160 $50,550 $408,215 -3.24%

2008 $3,905 $34,511 $47,638 $404,374 -2.28%

** Calculated by: (A/R +Inventory- A/P)/ Sales

Performance Measurements:• Operating Performance Measurements:

• Net Income Percentage (in millions):

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Company: Year: Net Income: Sales: Net Income/Sales:

Target 2009 $2,448 $65,357 3.81%

2008 $2,214 $64,948 3.17%

Costco 2009 $1,086 $71,422 1.52%

2008 $1,283 $72,483 1.77%

Wal-Mart 2009 $14,335 $408,214 3.51%

2008 $13,400 $404,374 3.31%

Performance measurements:• Operating Performance Measurements:

• Sales to Operating Income (in millions):

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Company: Year: Operating Income:

Sales: Operating Income/Sales:

Target 2009 $4,673 $65,357 7.15%

2008 $4,402 $64,948 6.29%

Costco 2009 $1,777 $71,422 2.49%

2008 $1,969 $72,483 2.72%

Wal-Mart 2009 $29,950 $408,215 5.87%

2008 $22,798 $404,374 5.64%

Performance Measurements:Cash Flow from Operations:

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Target 2009Income from Operations (in millions): $2,488

Noncash Expenses: $3,407

Noncash Sales: ($1,922)Cash Flow from Operations 160%

Costco 2009Income from Operations (in millions): $1,086

Noncash Expenses: $736


Wal-Mart 2009Income from Operations (in millions): $13,254



Performance Measurements:Cash Flow Return on Sales:

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Noncash Sales: ($1,922)

Total Sales $63,435

Cash Flow Return on Sales 6.3%



Noncash Sales: ($1,533)Total Sales $71,422

Cash Flow Return on Sales 0.4%




Total Sales $405,607Cash Flow Return on Sales 4.4%

Performance Measurements:Cash Flow Return on Assets:

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Total Assets $44,533

Cash Flow Return on Sales 9%












Liquidity Ratios:

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Target 2009

Current Ratio 1.66

Acid-Test Ratio (Quick Ratio) 1.03

Operation Cash Flow Ratio 0.31

Costco 2009

Current Ratio 1.85



Wal-Mart 2009

Current Ratio 1.67



Performance Measurements:• Capital structure and solvency measurements:

• Debt to total assets (in millions):

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Company: Year: Current liabilities:

Long Term Liabilities:

Total assets:

Debt / assets:

Target 2009 $11,327 $17,859 $44,533 65.54%2008 $10,512 $19,882 $44,106 68.91%

Costco 2009 $9,281 $2,594 $21,979 54.03%2008 $8,874 $2,534 $20,682 55.16%

Wal-Mart 2009 $55,390 $34,549 $163,429 55.03%2008 $58,478 $33,402 $163,514 56.19%

Performance Measurements:• Capital structure and solvency measurements.

• Times interest earned (in millions):

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Company: Year: EBIT:Interest

expense: TIE:

Target 2009 $4,673 $801 5.84%

2008 $4,402 $866 5.08%

Costco 2009 $1,777 $108 16.45%

2008 $1969 $103 19.12%

Wal-Mart 2009 $20,898 $1,900 10.99%

2008 $20,158 $1,794 11.24%


• Return on investment measurements:• Earnings per share (in millions with exception of per share data):

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Target 2009 2008

NI (in million): $2,488 $2214

Preferred dividends: $0 $0

Weighted shares: 752 770

Earnings per share: $3.31 $2.87

Costco 2009 2008

NI (in million): $1,086 $1,283Preferred dividends: $0 $0

Weighted shares: 433 434


Wal-Mart 2009 2008

NI (in million): $13,400 $12,731

Preferred dividends: $0 $0

Weighted shares: 3,939 4,066


Market Performance Measurements:

Company: Year: Annual Net Sales:

Avg Common Stock Price:

Ratio:

Target 2009 $19,373 $50.74 3.82%

Costco 2009 $9,087 $40.17 3.26%

Wal-Mart 2009 $100,318 $49.11 20.42%

Company: Year: Avg Common Stock Price:

Net Income/ Shares Outstanding :

Ratio:

Target 2009 $50.74 $2,488,000/ $744,600,000

15,376:1

Costco 2009 $40.17 $1,086,000/ $432,513,000

16,068:1

Wal-Mart 2009 $49.11 $13,400,000/ $48,722,000

178:1

• Sales to Stock Price Ratio (in millions):

• Price/Earnings Ratio

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Assets:

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Cash and Cash Equivalents:• Target’s 2009 operations were entirely funded by internally

generated funds.• Cash flow provided by operations was $5,881 in 2009 compared

with $4,430 million in 2008.• Cash flow allowed Target to fund capital expenditures of $1,729

million and pay off $1.3 billion of maturing debt.• Jan 30, 2010 and Jan 31, 2009 there were no amounts

outstanding under Target’s commercial paper program.• An additional source of liquidity is available to Target through a

committed $2 billion unsecured revolving credit facility – 2009 bal $0

• Target’s strategy is to ensure liquidity and access to capital markets, to manage their net exposure to floating interest rate volatility, and to maintain a balanced spectrum of debt maturities

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Goodwill & Intangible Assets:• Goodwill is tested for impairment by comparing its carrying

value to a fair value estimated by discounting future cash flows.

• This test is performed at least annually or whenever an event or change in circumstances indicates the carrying value of the asset may not be recoverable.

• Brand image is a critical element of Target’s business strategy. Their principal trademarks are Target, SuperTarget and the “Bulls eye Design”. They also seek to obtain intellectual property protection for their private-label brands.

• An impairment loss on a long-lived and identifiable intangible asset would be recognized when estimated undiscounted future cash flows from the operation and disposition of the asset are less than the asset carrying amount.

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Receivables:

• Credit card receivables are recorded net of an allowance for doubtful accounts.

• Recognized in an amount equal to the anticipated future write-offs (estimated based on historical experience of delinquencies, risk scores, aging trends, and industry risk trends) of existing receivables, $1,016 million at January 30, 2010 and $1,010 million at January 31, 2009.

• Accounts are written off when they become 180 days past due.• As a method of providing funding for credit card receivables, Target

sells an ongoing basis all of their consumer credit card receivables to Target Receivables Corporation (TRC), a wholly owned, bankruptcy remote subsidiary. They are later transferred to Target Credit Card Master Trust (the Trust), which at times sells debt securities to third parties directly or through a related trust.

• Target consolidates the receivables within the Trust.34

Inventory:

• Effective Inventory Management: in-stock in core product offerings, maintaining positive vendor relationships, carefully planning for seasonal and apparel items to minimize markdowns.

• Retail Inventory Accounting Method (RIM) using Last-in, First-out (LIFO) method

• Special arrangements with vendor: Do not purchase or pay until the merchandise is sold. Sales under this arrangements totaled $1,820 million in 2009, $1,524 million in 2008, and $1,643 million in 2007

• Inventory purchase orders commitments – authorizations to purchase that are cancellable by specific terms

• 38 Distribution centers in 2010 including 4 food distributions centers

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Property plant and equipment:• Represents 56.77% of total assets.

• Includes property, equipment, fixtures, computers

construction in progress.

•Properties: 1,740 stores & 38 distribution centers• Recorded at cost – straight line depreciation.

• Estimated useful lives.• Depreciation expense.

• Annual review for impairment on long lived assets.• Impairment costs.• Write off capitalized construction costs due to project changes.

•Includes capital leases.• The lease term is used to determine if it is an operating or capital lease.

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Liabilities:

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Accounts Payable

• Book overdrafts: leaving credit balance in cash (overdrafts) and reclassify to accounts payable even though total cash is positive.

• Book overdrafts reclassify to accounts payable were $539 million at Jan 31, 2010 and $606 million at Jan 31, 2009 (booked at period end).

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Accrued and other Current Liabilities:

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(a) Taxes payable consist of real estate, team member withholdings and sales tax liabilities.

(b) Gift card liability represents the amount of gift cards that have been issued but have not been redeemed, net of estimated breakage.

Accrued & other CL (in millions): Jan. 30th, 2010: Jan. 31st, 2009:

Wages & benefits: $959 $727

Taxes payable (a): $490 $430

Gift card liability (b): $387 $381

Straight-line rent accrual: $185 $167

Workers comp & general liability: $163 $176

Dividends payable: $127 $120

Interest payable: $105 $130

Construction in progress: $72 $182

Other: $632 $600

Total: $3,120 $2,913

Treasury:• Derivatives Instruments:• Interest Rate Swaps :

• Derivative contracts: types, balance sheet classification & fair value. Assets Liability

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Outstanding int. rate swap summary: Pay floating: Pay fixed:

Weighted average rate:

Pay: one month Libor 2.6% fixed

Receive: 5% fixed one month Libor

Weighted average maturity: 4.4 years 4.4 years

Notional: $1,250 $1,250

(Millions): Fair Value at: FV at:

Type Classification 1/30/2010 1/31/09 Classification 1/30/2010 1/31/09

Not designated as hedging instruments

Interest rate swaps

Other noncurrent assets

$131 $163 Other noncurrent liabilities

$23 $30

Total $131 $163 $23 $30

Treasury:

• Derivatives Instruments:• Short-Cut Method

• Assessed at inception of the hedge for effectiveness in offsetting changes in fair value or cash flow of hedged items

• 100% hedge effective in 2009, 2008, 2007

• Pay fixed swaps to hedge pay floating swaps in 2008• Interest Rate lock agreement in 2007

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Notes payable and long term debt:• Commercial paper program.

• $2 billion unsecured revolving credit facility.• Contractual obligations:

• Carrying value of maturing debt including interest rate swaps & FV hedges.

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Commercial paper (millions): 2009: 2008:

Max amount outstanding during the year: $112 $1,385

Average amount outstanding during the year: $1 $274

Amount at year end: $0.00 $0.00

Weighted average interest rate: .2% 2.1%

Debt maturities as of 1/2010 (millions):

Due 2010 – 2014:

2015 – 2019:

2020 – 2024:

2025 – 2029:

2030 – 2034:

Rate: 3.2% 5.7% 9.2% 6.7% 6.6%

Balance: $8,271 $3,232 $213 $326 $905

Notes payable and long term debt:

•Moody’s debt ratings:

• Long term debt (A2), commercial paper (P-1) and securitized receivables (Aa2).

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Risk factors:

• Competitive nature of retail merchandising sector.• Consumer preferences.• Macroeconomic conditions and consumer confidence.• Effective management of workforce.• Supply chain disruptions.• Product safety concerns. • Natural disasters.• Access to capital markets, credit and liquidity. • Computer system failures.

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On behalf of myself, and my team members:

Edith MatthewsElen Cuaca Wijaya

Kari Blevins

Thank you most importantly & are there any further questions?

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target corporation ppp

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