What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-28 compared with 2020-05-29 · 145 added, 97 removed, 230 unchanged (51% of the section changed)

1 unchanged sentence

Financial Summary

First quarter 2020 includes the following notable items:

• GAAP earnings per share from continuing operations were $0.56.

• Adjusted earnings per share from continuing operations were $0.59.

Adjusted earnings per share reflects the impact of COVID-19 on our business.

• Total revenue increased 11.3 percent, driven by a comparable sales increase and sales from new stores.

• Comparable sales increased 10.8 percent, driven by a 12.5 percent increase in average transaction amount.

Second quarter 2020 includes the following notable items:

• GAAP diluted earnings per share were $3.35.

• Adjusted diluted earnings per share were $3.38.

• Total revenue increased 24.7 percent, driven by an increase in comparable sales.

• Comparable sales increased 24.3 percent, driven by an 18.8 percent increase in average transaction amount.

◦ Comparable store sales grew 10.9 percent.

◦ Digital channel sales increased 195 percent, contributing 13.4 percentage points to comparable sales growth.

• Operating income of $468 million was 58.7 percent lower than the comparable prior-year period.

Sales were $19.4 billion for the three months ended May 2, 2020, an increase of $2.0 billion, or 11.3 percent, from the same period in the prior year.

Operating cash flow provided by continuing operations was $1.3 billion for the three months ended May 2, 2020, an increase of $961 million, or 297.5 percent, from $323 million for the three months ended May 4, 2019.

Earnings Per Share from Continuing Operations Three Months Ended

• Operating income of $2.3 billion was 73.8 percent higher than the comparable prior-year period.

Sales were $22.7 billion for the three months ended August 1, 2020, an increase of $4.5 billion, or 24.8 percent, from the same period in the prior year.

Operating cash flow provided by continuing operations was $5.1 billion for the six months ended August 1, 2020, an increase of $2.3 billion, or 82.1 percent, from $2.8 billion for the six months ended August 3, 2019.

Earnings Per Share from Continuing Operations Three Months Ended Six Months Ended

2020 August 3,

2019 Change August 1,

2020 August 3,

GAAP diluted earnings per share $ 3.35 $ 1.82 84.4 % $ 3.91 $ 3.34 17.0 %

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We report after-tax return on invested capital (ROIC) from continuing operations because we believe ROIC provides a meaningful measure of our capital-allocation effectiveness over time.

For the trailing twelve months ended May 2, 2020, after-tax ROIC was 13.4 percent, compared with 14.3 percent for the trailing twelve months ended May 4, 2019.

For the trailing twelve months ended August 1, 2020, after-tax ROIC was 17.2 percent, compared with 15.2 percent for the trailing twelve months ended August 3, 2019.

The calculation of ROIC is provided on page 21.

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States and cities have taken various measures in response to COVID-19, including mandating the closure of certain businesses and encouraging or requiring citizens to avoid large gatherings.

We have implemented numerous safety measures to protect our guests and team members — such as more rigorous cleaning processes, providing disposable face masks, gloves and thermometers for team members, installing distancing markers, limiting guest levels within our stores, and installing partitions at all stores .

We have implemented numerous safety measures to protect our guests and team members — such as mandating face masks for all team members and guests in our stores, more rigorous cleaning processes, providing disposable face masks, gloves and thermometers for team members, installing distancing markers, limiting guest levels within our stores, and installing partitions at all stores.

We have also reduced store hours to support increased cleaning and replenishment efforts and implemented quantity limits on certain high-demand merchandise.

In ad dition, we have reserved certain store hours for guests with increased vulnerability to COVID-19.

In addition, we have reserved certain store hours for guests with increased vulnerability to COVID-19.

To date all of our stores, digital channels, and distribution centers remain open.

As the crisis has evolved, we have experienced unusually strong sales, as guests rely on Target for essential items like food, medicine, cleaning products, and household stock-up items.

Underlying this trend, we saw significant volatility in our sales mix, including both category sales mix and the mix of sales in our stores and digital channels, including same-day fulfillment options, and these trends changed within the quarter.

• February 2020 comparable sales increased 3.8 percent with strength across our entire multi-category portfolio, largely reflecting a continuation of 2019 sales trends.

Late in the month, we saw an increase in traffic and comparable sales in both our stores and digital channels as well as increased sales in our Food and Beverage and Beauty and Household Essential categories as consumers began stock-up shopping.

• During the first quarter, comparable sales increased 10.8 percent, reflecting a 0.9 percent increase in store originated comparable sales and a 141 percent increase in digitally originated comparable sales.

The quarter began with strength across our multi-category portfolio, followed by a shift to strong comparable sales growth in our Food and Beverage and Beauty and Household Essentials core merchandising categories and significant comparable sales declines in Apparel and Accessories.

Comparable sales in Apparel and Accessories recovered notably beginning mid-April.

TARGET CORPORATION

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FINANCIAL SUMMARY Index to Notes

• March 2020 comparable sales increased 11.7 percent, including an increase of 4.9 percent in stores originated comparable sales and approximately 100 percent in digitally originated comparable sales.

Across our core merchandise categories, March comparable sales increased significantly in Beauty and Household Essentials, Food and Beverage, and Hardlines.

The increases were partially offset by a significant comparable sales declines in Apparel and Accessories and, to a lesser ext ent, Home Furnishings and Décor.

• April 2020 comparable sales increased 16.5 percent.

A 4.8 percent decline in stores originated sales was more than offset by a 282 percent increase in digitally originated sales, including those fulfilled by our stores.

Comparable sales increased significantly in Beauty and Household Essentials, Food and Beverage, Hardlines, as well as Home Furnishings and Décor.

Comparable sales in Apparel and Accessories continued to decline, although at a lower rate than in March.

Store originated and Apparel and Accessories sales trends increased notably beginning mid-April.

From March 26, 2020 to April 26, 2020, we did not accept in-store merchandise returns and exchanges.

We lengthened the return period for merchandise affected by this change.

As a result of this temporary suspension, the accrual for estimated returns was $398 million as of May 2, 2020, compared with $117 million and $124 million as of February 1, 2020, and May 4, 2019, respectively.

Our returns estimate for sales during the suspension period includes significant assumptions that, if actual results are substantially different, could result in material adjustments in future periods.

Gross margin has been negatively impacted by changes in both our category and channel sales mix, as well as actions that we have taken to allow us to better fulfill guest demand for essentials.

• During the second quarter, comparable sales increased 24.3 percent, reflecting a 10.9 percent increase in store originated comparable sales and a 195 percent increase in digitally originated comparable sales.

Comparable sales growth was strong across our multi-category portfolio, with slightly higher growth in lower-margin categories.

Monthly variability in comparable sales continued, with comparable sales increases of 32.9 percent in May, 21.4 percent in June, and 19.7 percent in July.

For the six months ended August 1, 2020, gross margin has been negatively impacted by changes in both our category and channel sales mix, as well as actions that we have taken to allow us to better fulfill guest demand for essentials.

Additionally, gross margin reflects COVID-19-related investments in pay and benefits for our supply chain team members.

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To support our team and minimize potential disruptions in their work to serve our guests, we have modified our plans for some of our strategic initiatives, including our previously announced remodel program.

We now anticipate approximately 130 remodels in 2020, down from the previous expectation of approximately 300.

Similarly, we now expect to open 15 to 20 new small format stores in 2020, rather than the 36 previously announced.

During the first quarter of 2020, we issued $2.5 billion of 5-year and 10-year notes in an effort to increase our cash on hand.

We have completed approximately 130 remodels in 2020, down from the previous expectation of approximately 300.

Similarly, we now expect to open up to 30 new small format stores in 2020, rather than the 36 previously announced.

During the six months ended August 1, 2020, we issued $2.5 billion of 5-year and 10-year notes in an effort to increase our cash on hand.

Additionally, we entered into a $900 million 364-day credit facility, increasing our total undrawn committed credit facilities to $3.4 billion.

Our dividend policy remains unchanged;

however, we have temporarily suspended share repurchase activity in the current environment.

The Liquidity and Cap ital Resources section provides additional information.

TARGET CORPORATION

Q1 2020 Form 10-Q 14

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF OPERATIONS Index to Notes

however, we have temporarily suspended share repurchase activity due to continued uncertainty in the current environment.

The Liquidity and Capital Resources section provides additional information.

Analysis of Results of Operations

Summary of Operating Income Three Months Ended

(dollars in millions) May 2,

Summary of Operating Income Three Months Ended Six Months Ended

(dollars in millions) August 1,

2020 August 3,

2019 Change August 1,

2020 August 3,

Sales $ 22,696 $ 18,183 24.8 % $ 42,067 $ 35,584 18.2 %

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Operating income $ 2,300 $ 1,324 73.8 % $ 2,768 $ 2,458 12.6 %

Rate Analysis Three Months Ended

Rate Analysis Three Months Ended Six Months Ended

2020 August 3,

2019 August 1,

2020 August 3,

Gross margin rate 30.9 % 30.6 % 28.3 % 30.1 %

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

2.4 3.0 2.6 3.2

Operating income margin rate 10.0 7.2 6.5 6.8

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All other rates are calculated by dividing the applicable amount by total revenue.

TARGET CORPORATION

Q2 2020 Form 10-Q 14

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF OPERATIONS Index to Notes

Sales include all merchandise sales, net of expected returns, and our estimate of gift card breakage.

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We believe that our ability to successfully differentiate our guests’ shopping experience through a careful combination of merchandise assortment, price, convenience, guest experience, and other factors will over the long-term drive both increasing shopping frequency (traffic) and the amount spent each visit (average transaction amount).

The increase in sales during the three months ended May 2, 2020, is due to a comparable sales increase of 10.8 percent and the contribution from new stores.

Comparable Sales Three Months Ended

The increase in sales during the three and six months ended August 1, 2020, is due to a comparable sales increase of 24.3 percent and 17.7 percent, respectively, and the contribution from new stores.

Comparable Sales Three Months Ended Six Months Ended

2020 August 3,

2019 August 1,

2020 August 3,

Comparable sales change 24.3 % 3.4 % 17.7 % 4.1 %

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Average transaction amount 18.8 0.9 15.8 0.7

Amounts may not foot due to rounding.

TARGET CORPORATION

Q1 2020 Form 10-Q 15

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF OPERATIONS Index to Notes

Contribution to Comparable Sales Change Three Months Ended

Contribution to Comparable Sales Change Three Months Ended Six Months Ended

2020 August 3,

2019 August 1,

2020 August 3,

Stores originated channel comparable sales change

Contribution from digitally originated sales to comparable sales change 9.9 2.1

10.9 % 1.5 % 6.0 % 2.1 %

Contribution from digitally originated sales 13.4 1.8 11.7 1.9

Total comparable sales change 24.3 % 3.4 % 17.7 % 4.1 %

Amounts may not foot due to rounding.

Sales by Channel Three Months Ended

Sales by Channel Three Months Ended Six Months Ended

2020 August 3,

2019 August 1,

2020 August 3,

Stores originated 82.8 % 92.7 % 83.7 % 92.8 %

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Total 100 % 100 % 100 % 100 %

Sales by Product Category Three Months Ended

TARGET CORPORATION

Q2 2020 Form 10-Q 15

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF OPERATIONS Index to Notes

Sales by Product Category Three Months Ended Six Months Ended

2020 August 3,

2019 August 1,

2020 August 3,

Apparel and accessories 18 % 20 % 16 % 20 %

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Guests receive a 5 percent discount on virtually all purchases when they use a RedCard at Target.

RedCard Penetration Three Months Ended

RedCard Penetration Three Months Ended Six Months Ended

2020 August 3,

2019 August 1,

2020 August 3,

Target Debit Card 11.8 % 12.5 % 12.2 % 12.8 %

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Gross Margin Rate

For the three months ended May 2, 2020, our gross margin rate was 25.1 percent compared with 29.6 percent in the comparable period last year.

This decrease reflected:

• The net impact of merchandising actions, including purchase order cancellation fees and inventory impairments related to a rapid slowdown in Apparel and Accessories sales, partially offset by favorability in clearance and promotional markdowns;

• Unfavorable category sales mix, as sales growth was strongest in lower-margin categories;

• Digital fulfillment and supply chain costs, driven by unusually strong growth in digital volume combined with the impact of higher pay and benefit costs classified within Cost of Sales, including incremental team member pay and benefits investments due to COVID-19.

For the three months ended August 1, 2020, our gross margin rate was 30.9 percent compared with 30.6 percent in the comparable period last year.

This increase reflected the net impact of merchandising strategies, primarily favorability in clearance and promotional markdowns, and the favorable impact of a change in our returns estimate for sales during the temporary returns suspension period in the first quarter of 2020.

The increase was partially offset by increased digital fulfillment and supply chain costs (driven by unusually strong growth in digital volume and higher pay and benefit costs classified within Cost of Sales, including incremental pay and benefits due to COVID-19) and unfavorable category sales mix, as sales growth was strongest in lower-margin categories.

For the six months ended August 1, 2020, our gross margin rate was 28.3 percent compared with 30.1 percent in the comparable period last year.

This decrease reflected increased digital fulfillment and supply chain costs (driven by unusually strong growth in digital volume and the impact of higher pay and benefit costs classified within Cost of Sales, including incremental pay and benefits due to COVID-19) and unfavorable category sales mix, as sales growth was strongest in lower-margin categories.

The decrease was partially offset by the net impact of merchandising strategies, primarily favorability in clearance and promotional markdowns.

Sales returns relating to the temporary returns suspension period during the first quarter of 2020 did not notably affect our year-to-date gross margin rate.

Selling, General, and Administrative Expense Rate

For the three months ended May 2, 2020, our SG&A expense rate was 20.7 percent compared with 20.8 percent in the comparable period last year.

For the current quarter, SG&A expenses increased $397 million, including approximately $200 million of incremental team member pay and benefits classified within SG&A Expenses, and investments to protect the health and safety of guests.

For the three and six months ended August 1, 2020, our SG&A expense rate was 19.4 percent and 20.0 percent, respectively, compared with 21.2 percent and 21.0 percent, respectively, in the comparable periods las t year.

Incremental team member pay and benefits and investments to protect the health and safety of guests represented approximately $400 million of the $548 million increase in SG&A expenses for the three months ended August 1, 2020, and approximately $600 million of the $945 million increase for the six months ended August 1, 2020, compared with the prior year periods.

From a rate perspective, these increased costs were more than offset by leverage resulting from strong revenue growth.

Change in Number of Stores Three Months Ended

TARGET CORPORATION

Q2 2020 Form 10-Q 17

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF OPERATIONS Index to Notes

Change in Number of Stores Three Months Ended Six Months Ended

2020 August 3,

2019 August 1,

2020 August 3,

Beginning store count 1,871 1,851 1,868 1,844

Opened — 4 3 11

Closed — (2) — (2)

Ending store count 1,871 1,853 1,871 1,853

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2020 February 1,

2020 August 3,

2019 August 1,

2020 February 1,

2020 August 3,

170,000 or more sq.

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

TARGET CORPORATION

Q1 2020 Form 10-Q 17

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

OTHER PERFORMANCE FACTORS Index to Notes

Other Performance Factors

Net Interest Expense

Net interest expense was $117 million and $126 million for the three months ended May 2, 2020 and May 4, 2019, respectively.

The decrease is primarily due to the lower floating benchmark interest rate associated with our interest rate swaps during the three months ended May 2, 2020.

Provision for Income Taxes

Our effective income tax rate from continuing operations for the three months ended May 2, 2020, was 13.9 percent compared with 22.4 percent for the comparable periods last year.

For the three months ended May 2, 2020, lower pretax earnings resulted in a larger rate benefit from discrete items, primarily related to share-based payments, compared with the prior year.

Our effective tax rate is generally more volatile at lower amounts of pretax income because the impact of discrete and nondeductible items is greater.

Our effective income tax rate from continuing operations for the three and six months ended August 1, 2020, was 22.8 percent and 21.6 percent, respectively, compared with 23.0 percent and 22.7 percent, respectively, for the comparable periods last year.

The effective tax rate for the six months ended August 1, 2020, reflects a larger rate benefit from discrete items, primarily related to share-based payments, compared with the prior year .

TARGET CORPORATION

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Three Months Ended

May 2, 2020 May 4, 2019

August 1, 2020 August 3, 2019

(millions, except per share data)

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$ 3.35 $ 1.82

Gain on investment (a)

$ (9) $ (6) $ (0.01) $ — $ — $ —

25 18 0.04 — — —

Adjusted diluted earnings per share from continuing operations

$ 3.38 $ 1.82

Reconciliation of Non-GAAP Adjusted EPS

Six Months Ended

August 1, 2020 August 3, 2019

(millions, except per share data)

Pretax Net of Tax Per Share Amounts Pretax Net of Tax Per Share Amounts

GAAP diluted earnings per share from continuing operations

$ 3.91 $ 3.34

Loss on investment (a)

$ 12 $ 9 $ 0.02 $ — $ — $ —

25 18 0.04 — — —

Adjusted diluted earnings per share from continuing operations

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Amounts may not foot due to rounding.

(a) Includes an unrealized loss on our investment in Casper Sleep Inc., which is not core to our continuing operations.

(a) Includes an unrealized (gain) / loss on our investment in Casper Sleep Inc., which is not core to our continuing operations.

(b) Includes store damage and inventory losses related to civil unrest.

TARGET CORPORATION

Q2 2020 Form 10-Q 19

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Index to Notes

Earnings from continuing operations before interest expense and income taxes (EBIT) and earnings from continuing operations before interest expense, income taxes, depreciation, and amortization (EBITDA) are non-GAAP financial measures.

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Other companies may calculate EBIT and EBITDA differently, limiting the usefulness of the measures for comparisons with other companies.

EBIT and EBITDA Three Months Ended

(dollars in millions) (unaudited) May 2,

EBIT and EBITDA Three Months Ended Six Months Ended

(dollars in millions) (unaudited) August 1,

2020 August 3,

2019 Change August 1,

2020 August 3,

Net earnings from continuing operations $ 1,690 $ 938 80.3 % $ 1,974 $ 1,730 14.1 %

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Trailing Twelve Months

Numerator May 2,

Numerator August 1,

2020 August 3,

Operating income $ 4,968 $ 4,395

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Net operating profit after taxes $ 3,951 $ 3,585

Denominator May 2,

Denominator August 1,

2020 August 3,

2019 August 4,

Current portion of long-term debt and other borrowings $ 109 $ 1,153 $ 1,044

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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.

(b) Calculated using the effective tax rates for continuing operations, which were 21.1 percent and 20.3 percent for the trailing twelve months ended May 2, 2020, and May 4, 2019, respectively.

For the trailing twelve months ended May 2, 2020, and May 4, 2019, includes tax effect of $837 million and $861 million, respectively, related to EBIT, and $18 million and $17 million, respectively, related to operating lease interest.

(b) Calculated using the effective tax rates for continuing operations, which were 21.4 percent and 20.7 percent for the trailing twelve months ended August 1, 2020, and August 3, 2019, respectively.

For the trailing twelve months ended August 1, 2020, and August 3, 2019, includes tax effect of $1.1 billion and $919 million, respectively, related to EBIT, and $19 million and $18 million, respectively, related to operating lease interest.

(c) Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities.

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We continue to anticipate ample access to commercial paper and long-term financing.

Our cash and cash equivalents balance was $4.6 billion, $2.6 billion, and $1.2 billion at May 2, 2020, February 1, 2020, and May 4, 2019, respectively.

Our cash and cash equivalents balance includes short-term investments of $3.6 billion, $1.8 billion, and $419 million as of May 2, 2020, February 1, 2020, and May 4, 2019, respectively.

Our cash and cash equivalents balance was $7.3 billion, $2.6 billion, and $1.7 billion at August 1, 2020, February 1, 2020, and August 3, 2019, respectively.

Our cash and cash equivalents balance includes short-term investments of $6.4 billion, $1.8 billion, and $796 million as of August 1, 2020, February 1, 2020, and August 3, 2019, respectively.

Our investment policy is designed to preserve principal and liquidity of our short-term investments.

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Operating Cash Flows

Operating cash flow provided by continuing operations was $1.3 billion for the three months ended May 2, 2020, compared with $323 million for the three months ended May 4, 2019.

The increase reflects higher payables leverage during the three months ended May 2, 2020, due to increased inventory turnover in high-demand categories, compared with higher net settlement of accounts payable during the three months ended May 4, 2019, driven by elevated inventory and accounts payable levels as of February 2, 2019.

The operating cash flow increase is also partially due to the year-over-year increase in the returns reserve resulting from the temporary suspension of in-store merchandise returns during the three months ended May 2, 2020.

Inventory was $8.6 billion as of May 2, 2020, compared with $9.0 billion and $9.1 billion at February 1, 2020, and May 4, 2019, respectively.

The decrease reflects elevated sell-through rates in high-demand merchandise categories and efforts to reduce inventory levels in certain discretionary categories to align with sales trends.

Operating cash flow provided by continuing operations was $5.1 billion for the six months ended August 1, 2020, compared with $2.8 billion for the six months ended August 3, 2019.

The increase reflects stronger operating performance combined with higher payables leverage during the six months ended August 1, 2020 , due to increased inventory turnover driven by strong sales , compared with higher net settlement of accounts payable during the six months ended August 3, 2019 , resulting from elevated inventory and accounts payable levels as of February 2, 2019.

Additionally, operating cash flows for the six months ended August 1, 2020, reflect increased payroll-related liabilities, including the deferral of employer social security tax payments.

Also, lower first quarter 2020 pretax earnings resulted in a decrease in year-to-date income tax payments.

Inventory was $8.9 billion as of August 1, 2020, compared with $9.0 billion and $9.1 billion at February 1, 2020, and August 3, 2019, respectively.

The decrease reflects elevated sell-through rates in longer-lead time merchandise categories , partially offset by increases in Food and Beverage and Beauty and Household Essentials inventory to align with sales trends.

Investing Cash Flows

Cash flow for investing activities included capital expenditures of $751 million for the three months ended May 2, 2020, compared with $655 million for the three months ended May 4, 2019 .

Capital expenditures increased for the three months ended May 2, 2020, compared with the three months ended May 4, 2019 , as we completed new store and remodel projects that were in process as the COVID-19 crisis developed.

Cash flow for investing activities included capital expenditures of $1.4 billion for the six months ended August 1, 2020, and August 3, 2019.

During the six months ended August 1, 2020, we completed new store and remodel projects that were in process as the COVID-19 crisis developed.

However, in response to COVID-19, we have modified plans for some of our strategic initiatives including store remodels and new store openings.

We expect full year 2020 capital expenditures to be at a lower level than in 2019 .

We paid dividends totaling $332 million ($0.66 per share) and $330 million ($0.64 per share) for the three months ended May 2, 2020, and May 4, 2019, respectively, a per share increase of 3.1 percent.

We declared dividends totaling $333 million ($0.66 per share) during the first quarter of 2020, a per share increase of 3.1 percent over the $330 million ($0.64 per share) of declared dividends during the first quarter of 2019.

We paid dividends totaling $330 million ($0.66 per share) and $662 million ($1.32 per share) for the three and six months ended August 1, 2020, respectively, and $328 million ($0.64 per share) and $658 million ($1.28 per share) for the three and six months ended August 3, 2019, respectively, a per share increase of 3.1 percent.

We declared dividends totaling $344 million ($0.68 per share) during the second quarter of 2020, a per share increase of 3.0 percent over the $341 million ($0.66 per share) of declared dividends during the second quarter of 2019.

We have paid dividends every quarter since our 1967 initial public offering, and it is our intent to continue to do so in the future.

Share Repurchase

We returned $609 million to shareholders through share repurchase during the three months ended May 2, 2020.

See Part II , Item 2 , Unregistered Sales of Equity Securities and Use of Proceeds of this Quarterly Report on Form 10-Q and Note 9 to the Consolidated Financial Statements for more information.

TARGET CORPORATION

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ANALYSIS OF FINANCIAL CONDITION Index to Notes

Share Repurchase

We returned $609 million to shareholders through share repurchase during the six months ended August 1, 2020.

We did not repurchase any shares during the three months ended August 1, 2020.

See Part II , Item 2 , Unregistered Sales of Equity Securities and Use of Proceeds of this Quarterly Report on Form 10-Q and Note 8 to the Consolidated Financial Statements for more information.

Our financing strategy is to ensure liquidity and access to capital markets, to maintain a balanced spectrum of debt maturities, and to manage our net exposure to floating interest rate volatility.

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Our continued access to these markets depends on multiple factors, including the condition of debt capital markets, our operating performance, and maintaining strong credit ratings.

As of May 2, 2020, our credit ratings were as follows:

As of August 1, 2020, our credit ratings were as follows:

Credit Ratings Moody’s Standard and Poor’s Fitch

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We are, and expect to remain, in compliance with these covenants.

Additionally, as of May 2, 2020, no notes or debentures contained provisions requiring acceleration of payment upon a credit rating downgrade, except that certain outstanding notes allow the note holders to put the notes to us if within a matter of months of each other we experience both (i) a change in control and (ii) our long-term credit ratings are either reduced and the resulting rating is non-investment grade, or our long-term credit ratings are placed on watch for possible reduction and those ratings are subsequently reduced and the resulting rating is non-investment grade.

Additionally, as of August 1, 2020, no notes or debentures contained provisions requiring acceleration of payment upon a credit rating downgrade, except that certain outstanding notes allow the note holders to put the notes to us if within a matter of months of each other we experience both (i) a change in control and (ii) our long-term credit ratings are either reduced and the resulting rating is non-investment grade, or our long-term credit ratings are placed on watch for possible reduction and those ratings are subsequently reduced and the resulting rating is non-investment grade.

Contractual Obligations and Commitments

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Although we believe there is a reasonable basis for the forward-looking statements, our actual results could be materially different.

The most important factors which could cause our actual results to differ from our forward-looking statements are set forth on our description of risk factors included in Part I, Item 1A, Risk Factors of our Form 10-K for the fiscal year ended February 1, 2020, as updated in Part II , Item 1A , Risk Factors , in this report, which should be read in conjunction with the forward-looking statements in this report.

The most important factors which could cause our actual results to differ from our forward-looking statements are set forth in our description of risk factors included in Part I , Item 1A , Risk Factors of our Form 10-K for the fiscal year ended February 1, 2020 and Part II , Item 1A , Risk Factors of our Form 10-Q for the quarter ended May 2, 2020, which should be read in conjunction with the forward-looking statements in this report.

Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement.

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our primary risk exposures or management of market risks from those disclosed in Part II , Item 7A , Quantitative and Qualitative Disclosures About Marke t Risk of our Form 10-K for the fiscal year ended February 1, 2020.

There have been no material changes in our primary risk exposures or management of market risks from those disclosed in Part II , Item 7A , Quantitative and Qualitative Disclosures About Market Risk of our Form 10-K for the fiscal year ended February 1, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis