Financial Analysis

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Sasibeh Beyene Janet Joines
Mary Le Vanisha Mistry Ngoc-Linh
Nguyen Hang Nguyen-Xuan

• Financial Analysis
• Spring 2005
• Peter Hwang
• Group 4

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Background Analysis
What is Target? Target is Americas second
largest general merchandise retailer.
Expect More. Pay Less.
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• Where we came from
• 1900s - 1950s
• Founder George Dayton opens the first store named
  Goodfellows in downtown Minneapolis, Minnesota.
• In 1946, the Dayton Company begins the tradition
  that keeps us strong today 5 of federally
  taxable profits go back to the communities we
  serve.
• In 1956, The Dayton Company opens Southdale, the
  world's first fully-enclosed two-level shopping
  center.
• 1960s
• In 1962, the Dayton Company enters discount
  merchandising with the opening of its first
  Target stores.
• In 1967, Dayton Corporation goes public with its
  first offering of common stock.
• In 1969, the company merges with J. L. Hudson
  Company and adopts the name Dayton Hudson
  Corporation (DHC)
• 1970s
• For the first time, the corporation's revenues
  top 1 billion.
• Dayton Hudson Corporation acquires Mervyn's to
  become the 7th largest U.S. retailer.
• Target Stores becomes the corporation's largest
  revenue-producer by the end of the decade
• 1980s

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• 1990s
• Dayton Hudson acquires Marshall Field's in 1990.
• In 1994, Bob Ulrich becomes Chairman and CEO of
  the corporation.
• A year later, Target launches the first-ever
  discount store credit card
• (Target Guest Card), and opens its first
  SuperTarget stores.
• In 1997, Target introduces Take Charge of
  Education.
• In 1998, the company acquires Rivertown Trading
  and launches its direct mail and e-commerce
  efforts.
• The same year, Target acquires Associated
  Merchandising Corporation (AMC), a global
  sourcing organization.
• By the end of the decade, revenues exceed 30
  billion.
• 2000 - 2003
• Dayton Hudson Corporation begins a new era with a
  new name Target Corporation.
• The next year, Dayton Hudson Department Store
  Company changes its name and all of its stores
  names to Marshall Field's.
• Also in 2001, Target rolls out its Target Visa
  card nationwide.
• In 2002, the company celebrates the 40th
  anniversary of Target Stores and the 150th
  anniversary of Marshall Field's, and marks the
  35th year of being a publicly-traded company.

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3 Operating Segments

• Target an upscale discount chain located in 47
  states and has about 1,225 stores.
• Mervyns California a middle-market promotional
  department store located 14 states in the West,
  South and Midwest and has about 266 stores.
• Marshall Fields a traditional department stored
  located in 8 states in the upper Midwest which
  has only 62 stores.

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Revenues from Operating Segments
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• 2004
• Introduced the Target Business Card to enhanced
  reporting features and flexible payment terms for
  smaller business guests.
• Target to a T was lunched on Target.com, the
  apparel program allowed guests to customized the
  color, pocket-style and fit Mossiomo jeans for
  women and Merona shirts and Cherokee chinos for
  men.
• Target Corporation sold Marshall Field's and
  Mervyn's businesses to focus on its primary brand
  and growth vehicle Target Stores

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• How quickly had Target grown?
• In 1962, first Target store opened
• By 1969, 17 stores in 4 States
• 20 years later, 399 stores in 31 states
• Today, 1,250 stores in 47 states

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• How many employees?
• Over 270,000 team members, all with diverse
  backgrounds and talent
• Who are our typical guests?
• Young, well-educated, moderate-to-better income
  families with active lifestyles
• The average age of our guests is 45, the
  youngest of all major discount retailers
• 80 are female and 40 have children at home
• How many stores?
• More than 1,250 stores in 47 states
• More than 100 SuperTarget stores
• 1,000 photo labs
• 880 pharmacies
• 250 optical centers
• 150 portrait studios

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Fun Facts

• IT does not play music in its stores, commonly
  known as elevator music and often distributed by
  Muzak
• Target calls its customer guest and its
  employees team members
• There is also a Target operating as a department
  sore under the same logo and similar style in
  Australia with over 150 stores. Coles Myer owns
  this brand in Australia.
• Target Stores made a corporate decision for not
  allowing the Salvation Army to station the red
  kettles and bell ringers at store entrances.

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• Board of Directors

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Financial Ratios
Overall Targets Growth Rate is FAIR
Overall Targets Price Ratio is SATISFACTORY
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Financial Ratios cont.
Overall Profit Margin is SATISFACTORY
Overall Targets Financial Condition is FAIR
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Financial Ratios cont.
Overall Targets Investment return is Excellent
Overall Management Efficiency is Poor
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Holding Period Return
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Free Cash Flow
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Discounted Cash Flow Model
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Risk Analysis
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Cost of Capital
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Cost of Capital and Optimal Capital
Structure Target Corp issued no
preferred stock.
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Capital Structure
Targets capital structure remains consistent
between years 2002-2004.
The company appears to be composed of 65 debt
and the remaining 35 equity, bad when compared
to the industry.
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MM Proposition
A model cannot be determined based on three years
worth of data.
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Market Efficiency

• Company Specific News
• Target Corporation Reports February Sales From
  Continuing Operations Up 16.1 PercentMarch 03,
  2005
• Good News
• No Form
• Two members of the Board of Directors Retired
• March 09, 2005
• Bad News
• Weak Form

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Market efficiency cont.

• Non-company News
• Fed Funds Rates Increased
• March 23, 2005 1035 AM
• Bad News
• Weak form

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5 Year Stock Price Evaluation
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Strengths and Weaknesses

• Strengths
• 5 Ownership Does not Exist
• High Gross Margin Ratios
• High Return on Equity Return on Assets
• Increasing Net Income
• Low Beta
• Stable WACC
• Weaknesses
• High Debt to Total Asset Ratio
• Fluctuating FCFE

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Buy, Hold or Sell?
Mean Recommendation Conversion Table  1.0
 Strong Buy 1.1 thru 2.0  Moderate Buy 2.1
thru 3.0  Hold 3.1 thru 4.0  Moderate
Sell 4.1 thru 5.0  Strong Sell
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As a group, we also say
HOLD!