Item 1. Financial Statements
Item 1. Financial Statements
Consolidated Statements of Operations
Three Months Ended Six Months Ended
(millions, except per share data) (unaudited) August 1,
2020 August 3,
2019 August 1,
2020 August 3,
2019
Sales $ 22,696 $ 18,183 $ 42,067 $ 35,584
Other revenue 279 239 523 465
Total revenue 22,975 18,422 42,590 36,049
Cost of sales 15,673 12,625 30,183 24,874
Selling, general and administrative expenses 4,460 3,912 8,520 7,575
Depreciation and amortization (exclusive of depreciation included in cost of sales)
542 561 1,119 1,142
Operating income
2,300 1,324 2,768 2,458
Net interest expense 122 120 239 246
Net other (income) / expense ( 11 ) ( 13 ) 11 ( 27 )
Earnings from continuing operations before income taxes 2,189 1,217 2,518 2,239
Provision for income taxes 499 279 544 509
Net earnings from continuing operations 1,690 938 1,974 1,730
Discontinued operations, net of tax — — — 3
Net earnings $ 1,690 $ 938 $ 1,974 $ 1,733
Basic earnings per share
Continuing operations $ 3.38 $ 1.83 $ 3.94 $ 3.37
Discontinued operations — — — 0.01
Net earnings per share $ 3.38 $ 1.83 $ 3.94 $ 3.37
Diluted earnings per share
Continuing operations $ 3.35 $ 1.82 $ 3.91 $ 3.34
Discontinued operations — — — 0.01
Net earnings per share $ 3.35 $ 1.82 $ 3.91 $ 3.35
Weighted average common shares outstanding
Basic 500.1 512.1 500.6 513.9
Diluted 504.4 516.1 505.1 517.8
Antidilutive shares — — — —
Note: Per share amounts may not foot due to rounding.
See accompanying Notes to Consolidated Financial Statements .
TARGET CORPORATION
Q2 2020 Form 10-Q 1
FINANCIAL STATEMENTS Table of Contents
Index to Notes
Consolidated Statements of Comprehensive Income
Three Months Ended Six Months Ended
(millions) (unaudited) August 1,
2020 August 3,
2019 August 1,
2020 August 3,
2019
Net earnings $ 1,690 $ 938 $ 1,974 $ 1,733
Other comprehensive income
Pension, net of tax 22 10 44 20
Currency translation adjustment and cash flow hedges, net of tax ( 1 ) — ( 9 ) 3
Other comprehensive income 21 10 35 23
Comprehensive income $ 1,711 $ 948 $ 2,009 $ 1,756
See accompanying Notes to Consolidated Financial Statements .
TARGET CORPORATION
Q2 2020 Form 10-Q 2
FINANCIAL STATEMENTS Table of Contents
Index to Notes
Consolidated Statements of Financial Position
(millions, except footnotes) (unaudited) August 1,
2020 February 1,
2020 August 3,
2019
Assets
Cash and cash equivalents $ 7,284 $ 2,577 $ 1,656
Inventory 8,876 8,992 9,122
Other current assets 1,463 1,333 1,341
Total current assets 17,623 12,902 12,119
Property and equipment
Land 6,027 6,036 6,054
Buildings and improvements 30,946 30,603 29,908
Fixtures and equipment 5,665 6,083 5,622
Computer hardware and software 2,631 2,692 2,627
Construction-in-progress 811 533 667
Accumulated depreciation ( 19,341 ) ( 19,664 ) ( 18,866 )
Property and equipment, net 26,739 26,283 26,012
Operating lease assets 2,233 2,236 2,062
Other noncurrent assets 1,405 1,358 1,373
Total assets $ 48,000 $ 42,779 $ 41,566
Liabilities and shareholders’ investment
Accounts payable $ 10,726 $ 9,920 $ 9,152
Accrued and other current liabilities 5,057 4,406 4,059
Current portion of long-term debt and other borrowings 109 161 1,153
Total current liabilities 15,892 14,487 14,364
Long-term debt and other borrowings 14,188 11,338 10,365
Noncurrent operating lease liabilities 2,241 2,275 2,111
Deferred income taxes 1,121 1,122 1,082
Other noncurrent liabilities 1,980 1,724 1,808
Total noncurrent liabilities 19,530 16,459 15,366
Shareholders’ investment
Common stock 42 42 43
Additional paid-in capital 6,248 6,226 6,114
Retained earnings 7,121 6,433 6,461
Accumulated other comprehensive loss ( 833 ) ( 868 ) ( 782 )
Total shareholders’ investment 12,578 11,833 11,836
Total liabilities and shareholders’ investment $ 48,000 $ 42,779 $ 41,566
Common Stock Authorized 6,000,000,000 shares, $ 0.0833 par value; 500,252,831 , 504,198,962 and 511,335,375 shares issued and outstanding at August 1, 2020, February 1, 2020, and August 3, 2019, respectively.
Preferred Stock Authorized 5,000,000 shares, $ 0.01 par value; no shares were issued or outstanding during any period presented.
See accompanying Notes to Consolidated Financial Statements .
TARGET CORPORATION
Q2 2020 Form 10-Q 3
FINANCIAL STATEMENTS Table of Contents
Index to Notes
Consolidated Statements of Cash Flows
Six Months Ended
(millions) (unaudited) August 1,
2020 August 3,
2019
Operating activities
Net earnings $ 1,974 $ 1,733
Earnings from discontinued operations, net of tax — 3
Net earnings from continuing operations 1,974 1,730
Adjustments to reconcile net earnings to cash provided by operations
Depreciation and amortization 1,245 1,267
Share-based compensation expense 104 86
Deferred income taxes ( 12 ) 104
Noncash losses / (gains) and other, net
86 42
Changes in operating accounts
Inventory 116 375
Other assets ( 14 ) 64
Accounts payable 795 ( 731 )
Accrued and other liabilities 822 ( 127 )
Cash provided by operating activities—continuing operations 5,116 2,810
Cash provided by operating activities—discontinued operations
— 2
Cash provided by operations 5,116 2,812
Investing activities
Expenditures for property and equipment ( 1,414 ) ( 1,394 )
Proceeds from disposal of property and equipment 10 10
Other investments 2 —
Cash required for investing activities ( 1,402 ) ( 1,384 )
Financing activities
Additions to long-term debt 2,480 994
Reductions of long-term debt ( 126 ) ( 1,026 )
Dividends paid ( 662 ) ( 658 )
Repurchase of stock ( 706 ) ( 662 )
Stock option exercises 7 24
Cash provided by / (required for) financing activities 993 ( 1,328 )
Net increase in cash and cash equivalents 4,707 100
Cash and cash equivalents at beginning of period 2,577 1,556
Cash and cash equivalents at end of period $ 7,284 $ 1,656
Supplemental information
Leased assets obtained in exchange for new finance lease liabilities
$ 246 $ 156
Leased assets obtained in exchange for new operating lease liabilities
142 195
See accompanying Notes to Consolidated Financial Statements .
TARGET CORPORATION
Q2 2020 Form 10-Q 4
FINANCIAL STATEMENTS Table of Contents
Index to Notes
Consolidated Statements of Shareholders’ Investment
Common Stock Additional Accumulated Other
Stock Par Paid-in Retained Comprehensive
(millions) (unaudited) Shares Value Capital Earnings (Loss) / Income
Total
February 2, 2019 517.8 $ 43 $ 6,042 $ 6,017 $ ( 805 ) $ 11,297
Net earnings — — — 795 — 795
Other comprehensive income — — — — 13 13
Dividends declared — — — ( 330 ) — ( 330 )
Repurchase of stock ( 3.6 ) — — ( 277 ) — ( 277 )
Accelerated share repurchase pending final settlement
( 3.0 ) — ( 153 ) ( 247 ) — ( 400 )
Stock options and awards 1.1 — 19 — — 19
May 4, 2019 512.3 $ 43 $ 5,908 $ 5,958 $ ( 792 ) $ 11,117
Net earnings — — — 938 — 938
Other comprehensive income — — — — 10 10
Dividends declared — — — ( 341 ) — ( 341 )
Repurchase of stock ( 1.3 ) — 153 ( 94 ) — 59
Stock options and awards 0.3 — 53 — — 53
August 3, 2019 511.3 $ 43 $ 6,114 $ 6,461 $ ( 782 ) $ 11,836
Net earnings — — — 714 — 714
Other comprehensive income — — — — 9 9
Dividends declared — — — ( 338 ) — ( 338 )
Repurchase of stock ( 3.0 ) ( 1 ) — ( 295 ) — ( 296 )
Accelerated share repurchase pending final settlement
( 2.5 ) — ( 178 ) ( 272 ) — ( 450 )
Stock options and awards 0.9 — 70 — — 70
November 2, 2019 506.7 $ 42 $ 6,006 $ 6,270 $ ( 773 ) $ 11,545
Net earnings — — — 834 — 834
Other comprehensive loss — — — — ( 95 ) ( 95 )
Dividends declared — — — ( 336 ) — ( 336 )
Repurchase of stock ( 2.6 ) — 178 ( 335 ) — ( 157 )
Stock options and awards 0.1 — 42 — — 42
February 1, 2020 504.2 $ 42 $ 6,226 $ 6,433 $ ( 868 ) $ 11,833
TARGET CORPORATION
Q2 2020 Form 10-Q 5
FINANCIAL STATEMENTS Table of Contents
Index to Notes
Consolidated Statements of Shareholders’ Investment
Common Stock Additional Accumulated Other
Stock Par Paid-in Retained Comprehensive
(millions) (unaudited) Shares Value Capital Earnings (Loss) / Income
Total
February 1, 2020 504.2 $ 42 $ 6,226 $ 6,433 $ ( 868 ) $ 11,833
Net earnings — — — 284 — 284
Other comprehensive income — — — — 14 14
Dividends declared — — — ( 333 ) — ( 333 )
Repurchase of stock ( 5.7 ) — — ( 609 ) — ( 609 )
Stock options and awards 1.4 — ( 20 ) — — ( 20 )
May 2, 2020 499.9 $ 42 $ 6,206 $ 5,775 $ ( 854 ) $ 11,169
Net earnings — — — 1,690 — 1,690
Other comprehensive income — — — — 21 21
Dividends declared — — — ( 344 ) — ( 344 )
Stock options and awards 0.4 — 42 — — 42
August 1, 2020 500.3 $ 42 $ 6,248 $ 7,121 $ ( 833 ) $ 12,578
We declared $ 0.68 and $ 0.66 dividends per share for the three months ended August 1, 2020, and August 3, 2019, respectively, and $ 2.62 per share for the fiscal year ended February 1, 2020.
See accompanying Notes to Consolidated Financial Statements .
TARGET CORPORATION
Q2 2020 Form 10-Q 6
FINANCIAL STATEMENTS Table of Contents
INDEX Index to Notes
INDEX TO NOTES
Notes to Consolidated Financial Statements
8
Note 1
Accounting Policies
8
Note 2
Impact of Coronavirus (COVID-19)
8
Note 3
Revenues
9
Note 4
Fair Value Measurements
10
Note 5
Property and Equipment
10
Note 6
Commercial Paper and Long-Term Debt
10
Note 7
Derivative Financial Instruments
11
Note 8
Share Repurchase
11
Note 9
Pension Benefits
12
Note 10
Accumulated Other Comprehensive Loss
12
TARGET CORPORATION
Q2 2020 Form 10-Q 7
FINANCIAL STATEMENTS Table of Contents
NOTES Index to Notes
Notes to Consolidated Financial Statements (unaudited)
1. Accounting Policies
These unaudited condensed consolidated financial statements are prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC) applicable to interim financial statements. While these statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by United States (U.S.) generally accepted accounting principles (U.S. GAAP) for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the financial statement disclosures in our 2019 Form 10-K.
We use the same accounting policies in preparing quarterly and annual financial statements. Unless otherwise noted, amounts presented within the Notes to Consolidated Financial Statements refer to our continuing operations.
We operate as a single segment that includes all of our continuing operations, which are designed to enable guests to purchase products seamlessly in stores or through our digital channels. Nearly all of our revenues are generated in the U.S. The vast majority of our long-lived assets are located within the U.S.
Due to the seasonal nature of our business, quarterly revenues, expenses, earnings, and cash flows are not necessarily indicative of the results that may be expected for the full year.
2. Impact of Coronavirus (COVID-19)
On March 11, 2020, the World Health Organization declared the novel coronavirus disease (COVID-19) a pandemic, and on March 13, 2020, the United States declared a national emergency. 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. To date all of our stores, digital channels, and distribution centers remain open.
Throughout the six months ended August 1, 2020, guest shopping patterns changed significantly and unpredictably in reaction to the COVID-19 pandemic. Four of our five core merchandise categories have experienced significant sales grow th year-to-date ; however, sales of Apparel and Accessories declined significantly in the first quarter before rebounding in the second quarter. Note 3 provides sales by category. In response to these changes, we have taken many actions, including accelerating purchases of certain merchandise in our core categories and slowing or canceling certain purchase orders, primarily for Apparel and Accessories. As a result of these actions, during the first quarter of 2020, we recorded $ 216 million of purchase order cancellation fees in Cost of Sales.
TARGET CORPORATION
Q2 2020 Form 10-Q 8
FINANCIAL STATEMENTS Table of Contents
NOTES Index to Notes
3. Revenues
General merchandise sales represent the vast majority of our revenues. We also earn revenues from a variety of other sources, most notably credit card profit sharing income from our arrangement with TD Bank Group (TD).
Revenues Three Months Ended Six Months Ended
(millions) August 1,
2020 August 3,
2019 August 1,
2020 August 3,
2019
Apparel and accessories (a)
$ 4,084 $ 3,656 $ 6,703 $ 6,946
Beauty and household essentials (b)
6,158 5,076 12,069 10,047
Food and beverage (c)
4,186 3,460 8,761 7,182
Hardlines (d)
3,608 2,503 6,582 4,889
Home furnishings and décor (e)
4,625 3,457 7,889 6,458
Other 35 31 63 62
Sales 22,696 18,183 42,067 35,584
Credit card profit sharing 158 168 324 328
Other 121 71 199 137
Other revenue 279 239 523 465
Total revenue $ 22,975 $ 18,422 $ 42,590 $ 36,049
(a) Includes apparel for women, men, boys, girls, toddlers, infants and newborns, as well as jewelry, accessories, and shoes.
(b) Includes beauty and personal care, baby gear, cleaning, paper products, and pet supplies.
(c) Includes dry grocery, dairy, frozen food, beverages, candy, snacks, deli, bakery, meat, produce, and food service in our stores.
(d) Includes electronics (including video game hardware and software), toys, entertainment, sporting goods, and luggage.
(e) Includes furniture, lighting, storage, kitchenware, small appliances, home décor, bed and bath, home improvement, school/office supplies, greeting cards and party supplies, and other seasonal merchandise.
Merchandise sales – We record almost all retail store revenues at the point of sale. Digitally originated sales may include shipping revenue and are recorded upon delivery to the guest or upon guest pickup at the store. Sales are recognized net of expected returns, which we estimate using historical return patterns and our expectation of future returns. As of August 1, 2020, February 1, 2020, and August 3, 2019, the accrual for estimated returns was $ 201 million, $ 117 million, and $ 131 million, respectively. Other than as described below, we have not historically had notable adjustments to our returns estimates.
From March 26, 2020 to April 26, 2020, we did not accept in-store merchandise returns and exchanges to protect our team members from COVID-19. We lengthened the return period for merchandise affected by this change. Our returns estimate for sales during the suspension period included significant assumptions, including the impact of the lengthened return period, sales mix, and recent changes in guest returns behavior. At May 2, 2020, the returns reserve totaled $ 398 million. After resuming guest returns, we received fewer returns than originally expected. During the second quarter, we reduced our estimate of sales returns, which increased sales by $ 146 million and operating income by $ 110 million.
Revenue from Target gift card sales is recognized upon gift card redemption, which is typically within one year of issuance.
Gift Card Liability Activity February 1,
2020 Gift Cards Issued During Current Period But Not Redeemed (b)
Revenue Recognized From Beginning Liability August 1,
2020
(millions)
Gift card liability (a)
$ 935 $ 315 $ ( 475 ) $ 775
(a) Included in Accrued and Other Current Liabilities.
(b) Net of estimated breakage.
Credit card profit sharing – We receive payments under a credit card program agreement with TD. Under the agreement, we receive a percentage of the profits generated by the Target Credit Card and Target MasterCard receivables in exchange for performing account servicing and primary marketing functions. TD underwrites, funds, and owns Target Credit Card and Target MasterCard receivables, controls risk management policies, and oversees regulatory compliance.
TARGET CORPORATION
Q2 2020 Form 10-Q 9
FINANCIAL STATEMENTS Table of Contents
NOTES Index to Notes
4. Fair Value Measurements
Fair value measurements are reported in one of three levels reflecting the valuation techniques used to determine fair value.
Fair Value Measurements - Recurring Basis Fair Value at
(millions) Classification Pricing Category August 1,
2020 February 1,
2020 August 3,
2019
Assets
Short-term investments Cash and Cash Equivalents Level 1 $ 6,370 $ 1,810 $ 796
Prepaid forward contracts Other Current Assets Level 1 26 23 20
Equity securities (a)
Other Current Assets Level 1 27 39 80
Interest rate swaps Other Noncurrent Assets Level 2 239 137 108
Liabilities
Interest rate swaps Other Noncurrent Liabilities Level 2 12 — —
(a) Represents our investment in Casper Sleep Inc. common stock .
Significant Financial Instruments Not Measured at Fair Value (a)
(millions)
August 1, 2020 February 1, 2020 August 3, 2019
Carrying
Amount Fair
Value Carrying
Amount Fair
Value Carrying
Amount Fair
Value
Long-term debt, including current portion (b)
$ 12,384 $ 15,457 $ 9,992 $ 11,864 $ 10,244 $ 11,635
(a) The carrying amounts of certain other current assets, commercial paper, accounts payable, and certain accrued and other current liabilities approximate fair value due to their short-term nature.
(b) The fair value of debt is generally measured using a discounted cash flow analysis based on current market interest rates for the same or similar types of financial instruments and would be classified as Level 2. These amounts exclude commercial paper, unamortized swap valuation adjustments, and lease liabilities.
5. Property and Equipment
We review long-lived assets for impairment when store performance expectations, events, or changes in circumstances—such as a decision to relocate or close a store or distribution center, discontinue projects, or make significant software changes—indicate that the asset’s carrying value may not be recoverable. We recognized impairment charges of $ 25 million and $ 60 million during the three and six months ended August 1, 2020, respectively. We recognized impairment charges of $ 10 million and $ 13 million during the three and six months ended August 3, 2019, respectively. These impairment charges are included in Selling, General and Administrative Expenses (SG&A).
6. Commercial Paper and Long-Term Debt
In March 2020, we issued unsecured fixed rate debt of $ 1.5 billion at 2.250 percent that matures in April 2025 and $ 1.0 billion at 2.650 percent that matures in September 2030.
We obtain short-term financing from time to time under our commercial paper program. No balances were outstanding at any time during the six months ended August 1, 2020. For the six months ended August 3, 2019, the maximum amount outstanding was $ 744 million, and the average daily amount outstanding was $ 74 million at a weighted average annual interest rate of 2.4 percent, with no balance outstanding as of August 3, 2019.
In April 2020, we obtained a committed $ 900 million 364 -day unsecured revolving credit facility that expires in April 2021. This new facility is in addition to our $ 2.5 billion unsecured revolving credit facility that expires in October 2023. No balances were outstanding under either credit facility at any time during 2020 or 2019.
TARGET CORPORATION
Q2 2020 Form 10-Q 10
FINANCIAL STATEMENTS Table of Contents
NOTES Index to Notes
7. Derivative Financial Instruments
Our derivative instruments consist of interest rate swaps used to mitigate interest rate risk. As a result, we have counterparty credit exposure to large global financial institutions, which we monitor on an ongoing basis. Note 4 to the Consolidated Financial Statements provides the fair value and classification of these instruments.
As of August 1, 2020, and August 3, 2019, we were party to interest rate swaps with notional amounts totaling $ 1.5 billion. We pay a variable rate and receive a fixed rate under each of these agreements. All of the agreements are designated as fair value hedges, and all were perfectly effective during the three and six months ended August 1, 2020, and August 3, 2019.
As of August 1, 2020, we were party to forward-starting interest rate swaps with notional amounts totaling $ 250 million to hedge the interest rate exposure of anticipated future debt issuances. We designated these derivative financial instruments as cash flow hedges. We assess, both at inception and on an ongoing basis, whether the derivative financial instrument is highly effective in offsetting changes in cash flows of the hedged item and whether it is probable that the hedged forecasted transaction will occur. As of August 1, 2020, a $ 12 million loss was recorded in Accumulated Other Comprehensive Loss and will be reclassified to Net Interest Expense when the forecasted transaction affects earnings.
Effect of Hedges on Debt
(millions) August 1,
2020 February 1,
2020 August 3,
2019
Long-term debt and other borrowings
Carrying amount of hedged debt $ 1,732 $ 1,630 $ 1,600
Cumulative hedging adjustments, included in carrying amount 239 137 108
Effect of Hedges on Net Interest Expense Three Months Ended Six Months Ended
(millions) August 1,
2020 August 3,
2019 August 1,
2020 August 3,
2019
Gain (loss) on fair value hedges recognized in Net Interest Expense
Interest rate swap designated as fair value hedges $ 11 $ 86 $ 102 $ 101
Hedged debt ( 11 ) ( 86 ) ( 102 ) ( 101 )
Total $ — $ — $ — $ —
8. Share Repurchase
We periodically repurchase shares of our common stock under a board-authorized repurchase program through a combination of open market transactions, accelerated share repurchase (ASR) arrangements, and other privately negotiated transactions with financial institutions.
Share Repurchase Activity Three Months Ended Six Months Ended
(millions, except per share data) August 1,
2020 August 3,
2019 (a)
August 1,
2020 August 3,
2019 (a)
Number of shares purchased — 4.3 5.7 7.9
Average price paid per share $ — $ 80.02 $ 107.58 $ 78.63
Total investment $ — $ 341 $ 609 $ 618
(a) This table includes activity related to the ASR arrangement entered in first quarter 2019 because final settlement occurred in second quarter 2019. Under the ASR arrangement, we repurchased 4.2 million shares for a total cash investment of $ 340 million. We did not enter into any new ASR arrangements during second quarter 2019.
In March 2020, we suspended share repurchase activity.
TARGET CORPORATION
Q2 2020 Form 10-Q 11
FINANCIAL STATEMENTS Table of Contents
NOTES Index to Notes
9. Pension Benefits
We provide pension plan benefits to eligible team members.
Net Pension Benefits Expense Three Months Ended Six Months Ended
(millions) Classification August 1,
2020 August 3,
2019 August 1,
2020 August 3,
2019
Service cost benefits earned SG&A Expenses $ 25 $ 23 $ 51 $ 46
Interest cost on projected benefit obligation
Net Other (Income) / Expense 29 37 59 74
Expected return on assets Net Other (Income) / Expense ( 60 ) ( 62 ) ( 121 ) ( 124 )
Amortization of losses Net Other (Income) / Expense 32 16 64 31
Amortization of prior service cost Net Other (Income) / Expense ( 3 ) ( 3 ) ( 6 ) ( 5 )
Total $ 23 $ 11 $ 47 $ 22
10. Accumulated Other Comprehensive Loss
Change in Accumulated Other Comprehensive Loss Cash Flow
Hedges Currency Translation Adjustment Pension Total
(millions)
February 1, 2020 $ ( 12 ) $ ( 19 ) $ ( 837 ) $ ( 868 )
Other comprehensive income before reclassifications, net of tax
( 9 ) — — ( 9 )
Amounts reclassified from AOCI, net of tax
— — 44 44
August 1, 2020 $ ( 21 ) $ ( 19 ) $ ( 793 ) $ ( 833 )
TARGET CORPORATION
Q2 2020 Form 10-Q 12
MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents
FINANCIAL SUMMARY Index to Notes