Accounting Statements

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Target 10-K Analysis

The author of this report has been charged with the task of analyzing the most recent 10-K report for Target Corporation. As part of that analysis, the author will be assessing several data points in particular including the management discussion and analysis (MD&A) portion as well as the financial statements issued. The relevant period in question is the Target Corporation fiscal year that ended on January 31st, 2015. Target emanates from Minneapolis, Minnesota and the filing in question is the annual report, rather than the transition report, pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 (Target, 2015).

As it was specifically requested for this assignment, the author of this report shall start with the management discussion and analysis section of the report. It starts off by stating that generally accepted accounting practices (GAAP) standard earnings per share was a loss of $2.56 USD which included a dilution of a negative $6.38 which was related to discontinuation of operations in certain sectors. As for continuing operations, earnings per share was $4.27. It is noted that comparable sales (presumably same-store sales) rose 1.3%. Sales via digital/online mediums rather than in brick and mortar store form rose more than thirty percent and contributed to 0.7% of 2014 comparable sales growth. Target paid roughly $1.2 billion in dividends for 2014 which is a rise of nearly a fifth over the 2013 figures (Target, 2015).

The next major section of the management discussion and analysis section of the 10-K talks about the fact that Target made a calculated decision to exit the Canada market. As part of that move, they filed for protection and made the proper filings so as to comply with the Companies' Creditors Arrangement Act (CCAA) with the Ontario Superior Court. As a result of this move, Target asserts that they no longer have a "controlling interest" in their prior subsidiaries as they existed in Canada. Target concedes that this will lead to expenses and losses and that they will be reporting these accordingly as they happen and are accounted for (Target, 2015).

The next major topic in the management discussion and analysis speaks of the data breach that occurred in the fourth quarter of 2013. As a direct result of the breach and the resulting fallout, Target incurred $191 million in pretax expenses of which about $46 million was offset by insurance payouts. This led to a 2014 net expense of $145 million for Target. Target notes that its costs down the road from the breach will be based on settlements. Those settlements are based on what were perceived to be the potential costs were those cases and lawsuits to be litigated. As of the end of the fiscal year on January 31st, 2015, the total data breach expenses had upped to $252 million in total expenses offset by a total of $90 million in insurance recoveries thus leading to a net expense of $162 million (Target, 2015).

The management discussion and analysis then gets into the analysis of segments. It is noted in the first figure that 2014 revealed a total of $72.6 billion in sales. This is a slight rise from $71.2 billion in 2013 and $71.9 billion in 2012. Cost of sales rose slightly as well as it was $51.2 billion in 2014, $50.03 billion in 2013 and $50.5 billion in 2012. The data breach and Canada closures clearly had a downward effect, it would seem, as EBITDA and EBIT are both down in comparison to overall revenues and cost of goods sold. Indeed, the company had an earnings before interest and taxes (EBIT) of $5.58 billion in 2014 but it fell to $4.9 billion in 2013 and then again to $4.7 billion in 2014 (Target, 2015).

In looking at the rate analysis table on page 17 of the 10-K, the gross margin rate in 2014 was 29.4%. This is a fall from the prior two years as 2013 was 29.8% and 2012 was 29.7%. When it comes to the selling, general and administrative (SG&A) expenses, the rate has been somewhat flat over the last three fiscal years.

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However, it is slightly up since 2012. It was 19.1% in 2012, rose to 20% flat in 2013 and then fell in 2014, but only by one tenth of a percent to 19.9% (Target, 2015).

When it comes to overall sales, comparable sales was indeed decent in that it rose 1.3% for 2014. This compares to a loss of 0.4% in 2013 and a gain of 2.7% in 2012. However, the overall number of transactions has fallen for the last two years. It rose 0.5% in 2012 but fell 2.7% in 2013 and another 0.2% in 2014. Even so, this was offset by the fact that average transaction amount rose 2.3% in both 2012 and 2013 and then another 1.5% in 2014. Selling price per unit has risen all three of the last fiscal years as there was a 1.3% rise in 2012, a 2.3% rise in 2013 and a 1.5% rise in 2014. Units per transaction has jumped up and down the last few years as it rose one percent in 2012, another 0.7% in 2013 but those gains were nearly wiped out by a 1.6% drop in 2014 (Target, 2015).

Comparable store sales have offset the last two years as there was an 0.7% rise in 2014 but there was a loss of an offsetting amount in 2013. The figure was a 2.6% rise in 2012. Digital/online sales are on an upward arc as they rose 0.1% in 2012, 0.3% in 2013 and 0.7% in 2014. All told, comparable sales figures have risen two of the last three years with 2013 yielding a loss of only 0.4%. This is more than cancelled out by the 1.3% rise in 2014 and the 2.7% rise in 2012 (Target, 2015).

In terms of what makes up Target's sales, roughly a fourth of their sales are household goods and this has held very steady for the last three fiscal years. The same is true of hard-lines and apparel/accessories in that they been 18% and 19%, respectively, for the last three years. There was a bit of tradeoff between home furnishings/decor and food/pet supplies between 2012 and 2013 but their figures (about a fifth each) did not change for the newest fiscal (Target, 2015).

Target makes use of debit and credit cards for many of their transactions. To that end, Target is greatly increasing the penetration of those products. The two card types combined were about 13.6% in 2012. That number rose sharply to 19.3% in 2013. The number rose again in 2014 but only to 20.9%. The penetration figures are still growing but they are starting to plateau per the most recent data. In terms of total stores open, Target actually lost a total of three stores in that they opened 16 stores but closed 19. As compared to the prior year, this is a rather sharp drop as they ratio was 19 opened and 4 closed in 2013. They also remodeled about sixty percent less stores in 2014 than they did in 2013 as the numbers were 39 and 100, respectively (Target, 2015).

In terms of the financial statement data not already mentioned above that can be found in the MD&A as well as the statements section themselves, there are some key metrics to be found. Overall cash flow increased greatly from 2013 to 2014 as it rose from $670 million in 2013 to $2.2 billion in 2014. This is more than a three-fold increase…getting close to four-fold. This news is offset by the fact that continuing operations accounted for roughly $5.1 billion in 2014 as compared to $7.5 billion in 2013. That is a drop of nearly a third. Overall SG&A costs are completely flat over the last three years as it has wavered between $14.4 and $14.6 billion all three years. Depreciation of assets has been about $2 billion all three years…also flat (Target, 2015).

A big hit can be seen from the Canada shutdown already, it would seem. As noted on the consolidated statement of operations, total discontinued operations amounts were only $316 million in.....

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