EX-99 2 a2018q2ex-99.htm EXHIBIT 99 Exhibit


 releasebullseyea13.jpg

FOR IMMEDIATE RELEASE
Contacts:
John Hulbert, Investors, (612) 761-6627
 
Erin Conroy, Media, (612) 761-5928
 
Target Media Hotline, (612) 696-3400

Target Reports Second Quarter 2018 Earnings
Unprecedented 6.4 percent traffic growth drives comparable sales growth of 6.5 percent
The Company now expects higher full-year comparable sales and EPS

•
Traffic growth of 6.4 percent is by far the strongest since the Company began reporting traffic in 2008.
•
Comparable sales increased 6.5 percent, the best comp at Target in 13 years.
•
Comparable store sales grew 4.9 percent.
•
Comparable digital sales grew 41 percent, on top of 32 percent growth a year ago.
•
GAAP EPS from continuing operations were $1.49, up 22.7 percent from last year. Adjusted EPS1 were $1.47, up 19.8 percent from last year.
•
For the back half of 2018, the Company has raised its outlook for both comparable sales and EPS.
•
The midpoint of Target’s third quarter EPS guidance range of $1.00 to $1.20 represents growth of more than 20 percent compared with last year.
•
For additional media materials, please visit:
•
https://corporate.target.com/article/2018/08/q2-2018-earnings

MINNEAPOLIS (August 22, 2018) - Target Corporation (NYSE: TGT) today announced its second quarter 2018 financial performance, including comparable sales growth of 6.5 percent and traffic growth of 6.4 percent. The Company reported GAAP earnings per share (EPS) from continuing operations of $1.49 in second quarter 2018, up 22.7 percent from $1.21 in second quarter 2017. Second quarter Adjusted EPS were $1.47, up 19.8 percent from $1.22 in second quarter 2017. The attached tables provide a reconciliation of non-GAAP to GAAP measures. All earnings per share figures refer to diluted EPS.


– more –
 
1 Adjusted EPS, a non-GAAP financial measure, excludes the impact of certain discretely managed items. See the tables of this release for additional information about the items that have been excluded from Adjusted EPS.
 

Target Corporation Reports Second Quarter 2018 Earnings - Page 2 of 13
“We are extremely pleased with Target’s second quarter results, which demonstrate our guests’ excitement for the enhanced and differentiated shopping experience we’re building. For the second consecutive quarter, traffic growth is better than we’ve seen in well over 10 years, driving 6.5 percent comp growth - Target’s best in 13 years.” said Brian Cornell, chairman and chief executive officer of Target Corporation. “We laid out a clear strategy at the beginning of 2017, and throughout this year we’ve been accelerating the pace of execution. We’re on track to deliver a strong back half and we’ve updated our full year guidance to reflect the strength of our business and the consumer economy. As we look ahead to 2019, we expect to achieve scale across the full slate of our initiatives - creating efficiencies and cost-savings, further strengthening our guest experience and positioning Target to continue gaining market share.”  

Third Quarter and Full-Year 2018 Guidance
For both the third quarter and second half of 2018, Target expects comparable sales growth in line with the 4.8 percent comparable sales growth the company delivered in the first half of 2018. For the third quarter, the Company expects both GAAP EPS from continuing operations and Adjusted EPS of $1.00 to $1.20, compared with GAAP EPS from continuing operations of $0.87 and Adjusted EPS of $0.90 in third quarter 2017.
For full-year 2018, Target now expects GAAP EPS from continuing operations and Adjusted EPS of $5.30 to $5.50, compared with the prior range of $5.15 to $5.45. Full year GAAP EPS will reflect the discrete items already reported through second quarter 2018.

Operating Results
Total revenue of $17.8 billion increased 6.9 percent from $16.6 billion last year, reflecting sales growth of 7.0 percent and growth in other revenue of 0.2 percent. Second quarter sales growth reflected comparable sales growth of 6.5 percent combined with the contribution from non-mature stores. Comparable digital channel sales grew 41 percent and contributed 1.5 percentage points of comparable sales growth. Operating income was $1,133 million in second quarter 2018, up 3.6 percent from $1,093 million in 2017.


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Target Corporation Reports Second Quarter 2018 Earnings - Page 3 of 13
Second quarter operating income margin rate was 6.4 percent, compared with 6.6 percent in 2017. Second quarter gross margin rate was 30.3 percent, compared with 30.4 percent in 2017, reflecting pressure from digital fulfillment costs, partially offset by the benefit of merchandising strategies including cost savings initiatives and efforts to improve pricing and promotions. Second quarter SG&A expense rate was 21.7 percent in 2018, compared with 21.6 percent in 2017, reflecting small year-over-year changes in broad expense categories. Within compensation expense, the impact of higher wages was offset by lower bonus expense compared with second quarter 2017.

Interest Expense and Taxes from Continuing Operations
The Company’s second quarter 2018 net interest expense was $115 million, down 12.2 percent from $131 million last year, reflecting debt retirement and refinancing activity conducted in 2017. Second quarter 2018 effective income tax rate from continuing operations was 21.8 percent, compared with 31.4 percent last year, primarily due to the impact of recently-enacted federal tax reform legislation (the Tax Act).

Capital Deployment
In second quarter 2018 the Company made capital investments of $1,029 million in property and equipment, and returned $761 million to shareholders, including:
•
Dividends of $330 million, compared with $331 million in second quarter 2017, reflecting a decline in share count offset by an increase in the dividend per share.
•
Share repurchases totaling $431 million that retired 5.8 million shares of common stock at an average price of $74.31.
As of the end of the second quarter, the Company had approximately $2.3 billion of remaining capacity under its current $5 billion share repurchase program, reflecting second quarter purchases and an accelerated share repurchase transaction which will settle in the third quarter.

– more –


Target Corporation Reports Second Quarter 2018 Earnings - Page 4 of 13
For the trailing twelve months through second quarter 2018, after-tax return on invested capital (ROIC) was 16.0 percent, compared with 13.5 percent for the twelve months through second quarter 2017. Excluding the discrete impacts of the Tax Act, ROIC was 14.2 percent for the trailing twelve months ended August 4, 2018. See the tables of this release for additional information about the Company’s ROIC calculation.

Conference Call Details
Target will webcast its second quarter earnings conference call at 7:00 a.m. CDT today. Investors and the media are invited to listen to the call at investors.target.com (hover over “company” then click on “events & presentations” in the “investors” column). A telephone replay of the call will be available beginning at approximately 10:30 a.m. CDT today through the end of business on August 24, 2018. The replay number is 800-216-6079.

Miscellaneous
Statements in this release regarding third quarter, second half and full-year 2018 earnings per share and comparable sales guidance and the expected 2019 impact of our initiatives are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties which could cause the Company’s actual results to differ materially. The most important risks and uncertainties are described in Item 1A of the Company’s Form 10-K for the fiscal year ended Feb. 3, 2018. Forward-looking statements speak only as of the date they are made, and the Company does not undertake any obligation to update any forward-looking statement.



– more –


Target Corporation Reports Second Quarter 2018 Earnings - Page 5 of 13

About Target
Minneapolis-based Target Corporation (NYSE: TGT) serves guests at more than 1,800 stores and at Target.com. Since 1946, Target has given 5 percent of its profit to communities, which today equals millions of dollars a week. For the latest store count or for more information, visit Target.com/Pressroom. For a behind-the-scenes look at Target, visit Target.com/abullseyeview or follow @TargetNews on Twitter.

# # #

Target Corporation Reports Second Quarter 2018 Earnings - Page 6 of 13

TARGET CORPORATION
 
Consolidated Statements of Operations
 
 
Three Months Ended
 
 

 
Six Months Ended
 
 

(millions, except per share data) (unaudited)
 
August 4,
2018
 
July 29,
2017
As Adjusted (a)
 
Change
 
August 4,
2018
 
July 29,
2017
As Adjusted (a)
 
Change
Sales
 
$
17,552

 
$
16,410

 
7.0
 %
 
$
34,108

 
$
32,405

 
5.3
 %
Other revenue
 
224

 
224

 
0.2

 
450

 
452

 
(0.5
)
Total revenue
 
17,776

 
16,634

 
6.9

 
34,558

 
32,857

 
5.2

Cost of sales
 
12,239

 
11,419

 
7.2

 
23,865

 
22,618

 
5.5

Selling, general and administrative expenses
 
3,865

 
3,601

 
7.4

 
7,410

 
6,953

 
6.6

Depreciation and amortization (exclusive of depreciation included in cost of sales)
 
539

 
521

 
3.3

 
1,109

 
1,038

 
6.9

Operating income
 
1,133

 
1,093

 
3.6

 
2,174

 
2,248

 
(3.3
)
Net interest expense
 
115

 
131

 
(12.2
)
 
237

 
272

 
(12.8
)
Net other (income) / expense
 
(4
)
 
(15
)
 
(69.4
)
 
(12
)
 
(30
)
 
(60.4
)
Earnings from continuing operations before income taxes
 
1,022

 
977

 
4.6

 
1,949

 
2,006

 
(2.9
)
Provision for income taxes
 
223

 
307

 
(27.2
)
 
433

 
661

 
(34.6
)
Net earnings from continuing operations
 
799

 
670

 
19.2

 
1,516

 
1,345

 
12.8

Discontinued operations, net of tax
 
—

 
1

 
 
 
1

 
4

 
 
Net earnings
 
$
799

 
$
671

 
19.1
 %
 
$
1,517

 
$
1,349

 
12.5
 %
Basic earnings per share
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
1.50

 
$
1.22

 
23.2
 %
 
$
2.84

 
$
2.44

 
16.2
 %
Discontinued operations
 
—

 
—

 
 
 
—

 
0.01

 
 
Net earnings per share
 
$
1.50

 
$
1.22

 
23.0
 %
 
$
2.84

 
$
2.45

 
15.9
 %
Diluted earnings per share
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
1.49

 
$
1.21

 
22.7
 %
 
$
2.81

 
$
2.43

 
15.9
 %
Discontinued operations
 
—

 
—

 
 
 
—

 
0.01

 
 
Net earnings per share
 
$
1.49

 
$
1.22

 
22.6
 %
 
$
2.82

 
$
2.44

 
15.6
 %
Weighted average common shares outstanding
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
531.7

 
549.3

 
(3.2
)%
 
534.3

 
550.8

 
(3.0
)%
Dilutive impact of share-based awards
 
4.6

 
2.6

 
 
 
4.3

 
2.8

 
 
Diluted
 
536.3

 
551.9

 
(2.8
)%
 
538.6

 
553.6

 
(2.7
)%
Antidilutive shares
 
—

 
5.2

 
 
 
—

 
3.6

 
 
Dividends declared per share
 
$
0.64

 
$
0.62

 
3.2
 %
 
$
1.26

 
$
1.22

 
3.3
 %
Note: Per share amounts may not foot due to rounding.

(a) 
Beginning with the first quarter 2018, we adopted the new accounting standards for revenue recognition, leases, and pensions. We are presenting prior period results on a basis consistent with the new standards and conformed to the current period presentation. We provided additional information about the impact of the new accounting standards on previously reported financial information in a Form 8-K filed on May 11, 2018.




Target Corporation Reports Second Quarter 2018 Earnings - Page 7 of 13

TARGET CORPORATION
 
Consolidated Statements of Financial Position
(millions) (unaudited)
 
August 4,
2018
 
February 3,
2018
As Adjusted (a)
 
July 29,
2017
As Adjusted (a)
Assets
 
 
 
 
 
 
Cash and cash equivalents
 
$
1,180

 
$
2,643

 
$
2,291

Inventory
 
9,112

 
8,597

 
8,192

Other current assets
 
1,211

 
1,300

 
1,114

Total current assets
 
11,503

 
12,540

 
11,597

Property and equipment
 
 

 
 

 
 

Land
 
6,074

 
6,095

 
6,089

Buildings and improvements
 
28,629

 
28,131

 
27,616

Fixtures and equipment
 
5,356

 
5,623

 
5,361

Computer hardware and software
 
2,575

 
2,645

 
2,518

Construction-in-progress
 
685

 
440

 
423

Accumulated depreciation
 
(18,147
)
 
(18,398
)
 
(17,603
)
Property and equipment, net
 
25,172

 
24,536

 
24,404

Operating lease assets
 
1,976

 
1,884

 
1,857

Other noncurrent assets
 
1,345

 
1,343

 
809

Total assets
 
$
39,996

 
$
40,303

 
$
38,667

Liabilities and shareholders’ investment
 
 

 
 

 
 

Accounts payable
 
$
9,116

 
$
8,677

 
$
7,584

Accrued and other current liabilities
 
3,878

 
4,094

 
3,627

Current portion of long-term debt and other borrowings
 
1,044

 
281

 
1,365

Total current liabilities
 
14,038

 
13,052

 
12,576

Long-term debt and other borrowings
 
10,108

 
11,117

 
10,706

Noncurrent operating lease liabilities
 
2,028

 
1,924

 
1,897

Deferred income taxes
 
828

 
693

 
757

Other noncurrent liabilities
 
1,827

 
1,866

 
1,676

Total noncurrent liabilities
 
14,791

 
15,600

 
15,036

Shareholders’ investment
 
 

 
 

 
 

Common stock
 
44

 
45

 
46

Additional paid-in capital
 
5,788

 
5,858

 
5,707

Retained earnings
 
6,058

 
6,495

 
5,918

Accumulated other comprehensive loss
 
(723
)
 
(747
)
 
(616
)
Total shareholders’ investment
 
11,167

 
11,651

 
11,055

Total liabilities and shareholders’ investment
 
$
39,996

 
$
40,303

 
$
38,667

Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 526,112,846, 541,681,670 and 546,183,291 shares issued and outstanding at August 4, 2018, February 3, 2018 and July 29, 2017, respectively.
 
Preferred Stock Authorized 5,000,000 shares, $0.01 par value; no shares were issued or outstanding during any period presented.

(a) 
Additional information is provided on page 6.

Target Corporation Reports Second Quarter 2018 Earnings - Page 8 of 13

TARGET CORPORATION
 
Consolidated Statements of Cash Flows
 
 
Six Months Ended
(millions) (unaudited)
 
August 4,
2018
 
July 29,
2017
As Adjusted (a)
Operating activities
 
 

 
 

Net earnings
 
$
1,517

 
$
1,349

Earnings from discontinued operations, net of tax
 
1

 
4

Net earnings from continuing operations
 
1,516

 
1,345

Adjustments to reconcile net earnings to cash provided by operations
 
 

 
 

Depreciation and amortization
 
1,234

 
1,166

Share-based compensation expense
 
71

 
43

Deferred income taxes
 
129

 
(90
)
Noncash losses / (gains) and other, net
 
99

 
94

Changes in operating accounts
 
 

 
 

Inventory
 
(515
)
 
52

Other assets
 
1

 
71

Accounts payable
 
342

 
332

Accrued and other liabilities
 
(154
)
 
(144
)
Cash provided by operating activities—continuing operations
 
2,723

 
2,869

Cash provided by operating activities—discontinued operations
 
1

 
57

Cash provided by operations
 
2,724

 
2,926

Investing activities
 
 

 
 

Expenditures for property and equipment
 
(1,856
)
 
(1,203
)
Proceeds from disposal of property and equipment
 
15

 
22

Other investments
 
3

 
(80
)
Cash required for investing activities
 
(1,838
)
 
(1,261
)
Financing activities
 
 

 
 

Reductions of long-term debt
 
(255
)
 
(617
)
Dividends paid
 
(665
)
 
(663
)
Repurchase of stock
 
(954
)
 
(615
)
Accelerated share repurchase pending final settlement
 
(525
)
 
—

Stock option exercises
 
50

 
9

Cash required for financing activities
 
(2,349
)
 
(1,886
)
Net decrease in cash and cash equivalents
 
(1,463
)
 
(221
)
Cash and cash equivalents at beginning of period
 
2,643

 
2,512

Cash and cash equivalents at end of period
 
$
1,180

 
$
2,291

 
(a) 
Additional information is provided on page 6.



Target Corporation Reports Second Quarter 2018 Earnings - Page 9 of 13

TARGET CORPORATION
 
Operating Results

 
Three Months Ended
 
Six Months Ended
Rate Analysis
(unaudited)
August 4,
2018
 
July 29,
2017
As Adjusted (a)
 
August 4,
2018
 
July 29,
2017
As Adjusted (a)
Gross margin rate (b)
30.3
%
 
30.4
%
 
30.0
%
 
30.2
%
SG&A expense rate (c)
21.7

 
21.6

 
21.4

 
21.2

Depreciation and amortization (exclusive of depreciation included in cost of sales) expense rate (c)
3.0

 
3.1

 
3.2

 
3.2

Operating income margin rate (c)
6.4

 
6.6

 
6.3

 
6.8

(a) 
Additional information is provided on page 6.
(b) 
Calculated as gross margin (sales less cost of sales) divided by sales.
(c) 
Calculated as the applicable amount divided by total revenue. Other revenue includes $167 million and $333 million of profit-sharing income under our credit card program agreement for the three and six months ended August 4, 2018, respectively, and $172 million and $342 million for the three and six months ended July 29, 2017, respectively.

 
Three Months Ended
 
Six Months Ended
Comparable Sales
(unaudited)
August 4,
2018
 
July 29,
2017
 
August 4,
2018
 
July 29,
2017
Comparable sales change
6.5
%
 
1.3
 %
 
4.8
 %
 
—
 %
Drivers of change in comparable sales
 

 
 

 
 

 
 

Number of transactions
6.4

 
2.1

 
5.0

 
0.6

Average transaction amount
0.1

 
(0.7
)
 
(0.3
)
 
(0.7
)
Note: Amounts may not foot due to rounding.

Contribution to Comparable Sales Change
(unaudited)
Three Months Ended
 
Six Months Ended
August 4,
2018
 
July 29,
2017
 
August 4,
2018
 
July 29,
2017
Stores channel comparable sales change
4.9
%
 
0.2
%
 
3.4
%
 
(1.0
)%
Digital channel contribution to comparable sales change
1.5

 
1.1

 
1.3

 
0.9

Total comparable sales change
6.5
%
 
1.3
%
 
4.8
%
 
—
 %
Note: Amounts may not foot due to rounding.
 
 
Three Months Ended
 
Six Months Ended
Sales by Channel
(unaudited)
August 4,
2018
 
July 29,
2017
As Adjusted (a)
 
August 4,
2018
 
July 29,
2017
As Adjusted (a)
Stores
94.4
%
 
95.8
%
 
94.6
%
 
95.8
%
Digital
5.6

 
4.2

 
5.4

 
4.2

Total
100
%
 
100
%
 
100
%
 
100
%



Target Corporation Reports Second Quarter 2018 Earnings - Page 10 of 13

 
Three Months Ended
 
Six Months Ended
REDcard Penetration
(unaudited)
August 4,
2018
 
July 29,
2017
 
August 4,
2018
 
July 29,
2017
Target Debit Card
13.0
%
 
13.2
%
 
13.2
%
 
13.4
%
Target Credit Cards
10.9

 
11.6

 
10.8

 
11.3

Total REDcard Penetration
23.9
%
 
24.8
%
 
24.0
%
 
24.7
%
Note: Amounts may not foot due to rounding. In Q1 2018, we refined our calculation of REDcard penetration. The prior period amount has been updated to conform with the current period methodology, resulting in an increase of 0.2 percentage points to the Total REDcard Penetration for both the three and six months ended July 29, 2017.
 
Number of Stores and Retail Square Feet
(unaudited)
Number of Stores
 
Retail Square Feet (a)
August 4,
2018
February 3,
2018
July 29,
2017
 
August 4,
2018
February 3,
2018
July 29,
2017
170,000 or more sq. ft.
274

274

276

 
48,952

48,966

49,328

50,000 to 169,999 sq. ft.
1,502

1,500

1,506

 
189,258

189,030

189,796

49,999 or less sq. ft.
59

48

34

 
1,644

1,359

958

Total
1,835

1,822

1,816

 
239,854

239,355

240,082

(a) 
In thousands, reflects total square feet less office, distribution center, and vacant space.



Target Corporation Reports Second Quarter 2018 Earnings - Page 11 of 13

TARGET CORPORATION
 
Reconciliation of Non-GAAP Financial Measures

To provide additional transparency, we have disclosed non-GAAP adjusted diluted earnings per share from continuing operations (Adjusted EPS). This metric excludes certain items presented below. We believe this information is useful in providing period-to-period comparisons of the results of our continuing operations. This measure is not in accordance with, or an alternative for, generally accepted accounting principles in the United States (GAAP). The most comparable GAAP measure is diluted earnings per share from continuing operations. Adjusted EPS should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP. Other companies may calculate Adjusted EPS differently, limiting the usefulness of the measure for comparisons with other companies.
 
 
Three Months Ended
 
 
 
 
August 4, 2018
 
July 29, 2017
As Adjusted (a)
 
 
(millions, except per share data) (unaudited)
 
Pretax

 
Net of Tax

 
Per Share Amounts

 
Pretax

 
Net of Tax

 
Per Share Amounts

 
Change

GAAP diluted earnings per share from continuing operations
 
 
 
 
 
$
1.49

 
 
 
 
 
$
1.21

 
22.7
%
Adjustments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax matters (b)
 
$
—

 
$
(12
)
 
$
(0.02
)
 
$
—

 
$
5

 
$
0.01

 
 
Adjusted diluted earnings per share from continuing operations
 
 
 
 
 
$
1.47

 
 
 
 
 
$
1.22

 
19.8
%

 
 
Six Months Ended
 
 
 
 
August 4, 2018
 
July 29, 2017
As Adjusted (a)
 
 
(millions, except per share data) (unaudited)
 
Pretax

 
Net of Tax

 
Per Share Amounts

 
Pretax

 
Net of Tax

 
Per Share Amounts

 
Change

GAAP diluted earnings per share from continuing operations
 
 
 
 
 
$
2.81

 
 
 
 
 
$
2.43

 
15.9
%
Adjustments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax matters (b)
 
$
—

 
$
(18
)
 
$
(0.03
)
 
$
—

 
$
(2
)
 
$
—

 
 
Adjusted diluted earnings per share from continuing operations
 
 
 
 
 
$
2.78

 
 
 
 
 
$
2.43

 
14.7
%
Note: Amounts may not foot due to rounding.
(a) 
Additional information is provided on page 6. Lease standard adoption resulted in a $0.01 reduction in GAAP diluted earnings per share from continuing operations for both the three and six months ended July 29, 2017, and Adjusted diluted earnings per share for the three months ended July 29, 2017, and less than $0.01 in Adjusted EPS for the six months ended July 29, 2017.
(b) 
Represents income from income tax matters not related to current period operations.


Target Corporation Reports Second Quarter 2018 Earnings - Page 12 of 13

Earnings from continuing operations before interest expense and income taxes (EBIT) and earnings before interest, taxes, depreciation and amortization (EBITDA) are non-GAAP financial measures which we believe provide meaningful information about our operational efficiency compared to our competitors by excluding the impact of differences in tax jurisdictions and structures, debt levels, and for EBITDA, capital investment. These measures are not in accordance with, or an alternative for, GAAP. The most comparable GAAP measure is net earnings from continuing operations. EBIT and EBITDA should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP. Other companies may calculate EBIT and EBITDA differently, limiting the usefulness of the measure for comparisons with other companies.
EBIT and EBITDA
 
Three Months Ended
 
 
 
Six Months Ended
 
 

(millions) (unaudited)
 
August 4,
2018
 
July 29,
2017
As Adjusted (a)
 
Change
 
August 4,
2018
 
July 29,
2017
As Adjusted (a)
 
Change
Net earnings from continuing operations
 
$
799

 
$
670

 
19.2
 %
 
$
1,516

 
$
1,345

 
12.8
 %
+ Provision for income taxes
 
223

 
307

 
(27.2
)
 
433

 
661

 
(34.6
)
+ Net interest expense
 
115

 
131

 
(12.2
)
 
237

 
272

 
(12.8
)
EBIT (a)
 
$
1,137

 
$
1,108

 
2.7
 %
 
$
2,186

 
$
2,278

 
(4.1
)%
+ Total depreciation and amortization (b)
 
603

 
585

 
3.0

 
1,234

 
1,166

 
5.8

EBITDA (a)
 
$
1,740

 
$
1,693

 
2.8
 %
 
$
3,420

 
$
3,444

 
(0.7
)%
(a) 
Additional information is provided on page 6. Adoption of the new accounting standards resulted in a $6 million and $14 million decrease in EBIT for the three and six months ended July 29, 2017, respectively, with no impact on EBITDA.
(b) 
Represents total depreciation and amortization, including amounts classified within Depreciation and Amortization and within Cost of Sales on our Consolidated Statements of Operations.


Target Corporation Reports Second Quarter 2018 Earnings - Page 13 of 13

We have also disclosed after-tax return on invested capital from continuing operations (ROIC), which is a ratio based on GAAP information. We believe this metric is useful in assessing the effectiveness of our capital allocation over time. Other companies may calculate ROIC differently, limiting the usefulness of the measure for comparisons with other companies.
After-Tax Return on Invested Capital
 
 
 
 
 
 
 
Numerator
 
Trailing Twelve Months
 
 
(dollars in millions) (unaudited)
 
August 4,
2018 (a)
 
July 29,
2017
As Adjusted (b)
 
 
Operating income
 
$
4,150

 
$
4,601

 
 
+ Net other income / (expense)
 
41

 
80

 
 
EBIT
 
4,191

 
4,681

 
 
+ Operating lease interest (c)
 
81

 
76

 
 
- Income taxes (d)
 
589

(e) 
1,564

 
 
Net operating profit after taxes
 
$
3,683

 
$
3,193

 
 

Denominator
(dollars in millions) (unaudited)
 
August 4,
2018
 
July 29,
2017
As Adjusted (b)
 
July 30,
2016
As Adjusted (b)
Current portion of long-term debt and other borrowings
 
$
1,044

 
$
1,365

 
$
653

+ Noncurrent portion of long-term debt
 
10,108

 
10,706

 
11,894

+ Shareholders' equity
 
11,167

 
11,055

 
11,538

+ Operating lease liabilities (f)
 
2,183

 
2,032

 
1,894

- Cash and cash equivalents
 
1,180

 
2,291

 
1,480

- Net assets of discontinued operations (g)
 
—

 
10

 
80

Invested capital
 
$
23,322

 
$
22,857

 
$
24,419

Average invested capital (h)
 
$
23,090

 
$
23,639

 
 
After-tax return on invested capital (i)
 
16.0
%
(e) 
13.5
%
 
 
After-tax return on invested capital excluding discrete impacts of Tax Act
 
14.2
%
(e) 
 
 
 
(a) 
Consisted of 53 weeks.
(b) 
Additional information is provided on page 6.
(c) 
Represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases. Calculated using the discount rate for each lease and recorded as a component of rent expense within SG&A. Operating lease interest is added back to Operating Income in the ROIC calculation to control for differences in capital structure between us and our competitors.
(d) 
Calculated using the effective tax rates for continuing operations, which were 13.8 percent and 32.9 percent for the trailing twelve months ended August 4, 2018, and July 29, 2017, respectively. For the twelve months ended August 4, 2018, and July 29, 2017, includes tax effect of $578 million and $1,539 million, respectively, related to EBIT, and $11 million and $25 million, respectively, related to operating lease interest.
(e) 
The effective tax rate for the trailing twelve months ended August 4, 2018, includes discrete tax benefits of $343 million related to the Tax Cuts and Jobs Act (Tax Act), and the impact of the new lower U.S. corporate income tax rate.
(f) 
Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities on the Consolidated Statements of Financial Position.
(g) 
Included in Other Assets and Liabilities on the Consolidated Statements of Financial Position.
(h) 
Average based on the invested capital at the end of the current period and the invested capital at the end of the comparable prior period.
(i) 
Adoption of the new lease standard reduced ROIC by approximately 0.5 percentage points for all periods presented.