Target Corporation reported net earnings for the second quarter ended August 4, 2007 of $686 million, or 80 cents per share, compared with $609 million, or 70 cents per share in the second quarter ended July 29, 2006, representing a 14.0 percent increase in earnings per share. All earnings per share figures refer to diluted earnings per share.
"We are pleased with our second quarter and year-to-date results," said Bob Ulrich, chairman and chief executive officer of Target Corporation. "We continue to believe Target will deliver strong sales and profit performance in 2007 and generate another year of profitable market share growth. We also continue to believe that $3.60 remains within the range of likely outcomes for our full-year 2007 earnings per share."
Total revenues in the second quarter increased 9.5 percent to $14.620 billion from $13.347 billion in 2006, reflecting a 4.9 percent increase in comparable-store sales combined with the contribution from new store expansion and from our credit card operations. (Total revenues include retail sales and net credit card revenues. Comparable-store sales are sales from stores open longer than one year.)
Earnings before interest and income taxes (EBIT) in the second quarter of 2007 increased 11.8 percent to $1.267 billion, compared with $1.134 billion in the second quarter a year ago. Key contributors to this EBIT growth included gross margin rate improvement offset by unfavorable expense rate performance, combined with strong profit growth in our credit card operations. (Gross margin rate represents sales less cost of sales expressed as a percentage of sales. Expense rate represents selling, general and administrative expenses expressed as a percentage of sales).
Net interest expense for the quarter increased $14 million compared with second quarter 2006 primarily due to higher average debt balances, including the debt to fund the growth in our accounts receivable.
The contribution from the company's credit card operations to second quarter earnings before taxes (EBT), net of the allocated interest expense, was $163 million, an increase of $41 million, or 34.0 percent, from the same period in 2006. This favorability is attributable to growth in net interest income as well as other finance charges.
Other Factors
The company's effective income tax rate for the second quarter was 38.4 percent in 2007 compared with 38.8 percent in 2006. For the full year, the effective income tax rate is still expected to increase modestly from last year's 38.0 percent rate.
Under a share repurchase program that began in 2004 and was increased by the Board to an $8 billion authorization in June 2007, the company repurchased $476 million of its common stock during the second quarter of 2007, acquiring 7.5 million shares at an average price of $63.23 per share. During the first half of 2007, the company repurchased $1,025 million of its common stock, acquiring 16.7 million shares at an average price of $61.34 per share. Program-to-date, the company has acquired 87.8 million shares of its common stock at an average price per share of $50.99, reflecting a total investment of approximately $4.5 billion. The company expects to continue to execute this program primarily in open market transactions, subject to market conditions, and expects to complete the total program by year-end 2010, or sooner.
