Target's Miss: Credit Cards and Buyback Take Stage

Target (TGT) announced earnings this morning and while the EPS numbers were not good, (below estimates), revenues were good (up 9.3%). This is good news for folks like Wal-Mart (WMT) because it means people are still shopping at discount retailers. since nobody controls costs like Wal-Mart does, investor ought to be comforted that folks are still spending.

Here is more bad news. If we back out the credit card operations that Bill Ackman has them selling, EBIT in 2007 was $801 million vs $823 million in 2006. That equates to a 3% drop this year. Now, one must also understand earnings without the credit card results would be 17% lower and that this segment is growing at 17%. Retail results without the credit operation will be far worse than they are now.

Regarding the credit card sale? Maybe it is not a sure thing. “At this point in the review, it is clear that if a transaction occurs, it would involve sharing a meaningful portion of our future pre-tax credit card contribution with a new partner,” said Doug Scovanner, chief financial officer. “As a result, we are continuing to evaluate whether the benefits of a potential transaction outweigh its expected dilutive impact on earnings per share. Regardless of the outcome, we remain committed to maintaining our core financial services operation and growing and developing our best-in-class Target Financial Services team.”

Keep it....

Good News?
"Target also announced today that its board has authorized a new $10 billion share repurchase program that replaces the prior authorization. At recent share price levels, this authorization represents more than 20 percent of outstanding shares. The program is expected to be completed within three years, with the pace of repurchase activity being dependent on many factors, including: the strength of our business operations, the maintenance of an appropriate credit profile, capital reinvestment opportunities, access to adequate liquidity and debt and equity capital market conditions. Based on current conditions and outlook, a significant portion of the program is expected to be completed by the end of 2008. This new authorization is not contingent on any specific outcome from the review of the ownership of Target’s credit card receivables."

Now that is how you announce a buyback. Target produces about 10% of its market cap a year in cash flow from operations so it can easily finish the repurchase plan without mortgaging the future of the company like Home Depot (HD) is trying to do.

Target is being very conservative with both it cash and the credit card sale possibility and both are good form investors.

I have no position in Target.

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