Item 1. Financial Statements
Item 1. Financial Statements
Consolidated Statements of Operations
Three Months Ended Six Months Ended
(millions, except per share data) (unaudited) July 31, 2021 August 1, 2020 July 31, 2021 August 1, 2020
Sales $ 24,826 $ 22,696 $ 48,705 $ 42,067
Other revenue 334 279 652 523
Total revenue 25,160 22,975 49,357 42,590
Cost of sales 17,280 15,673 33,996 30,183
Selling, general and administrative expenses 4,849 4,460 9,358 8,520
Depreciation and amortization (exclusive of depreciation included in cost of sales) 564 542 1,162 1,119
Operating income 2,467 2,300 4,841 2,768
Net interest expense 104 122 212 239
Net other (income) / expense ( 7 ) ( 11 ) ( 350 ) 11
Earnings before income taxes 2,370 2,189 4,979 2,518
Provision for income taxes 553 499 1,065 544
Net earnings $ 1,817 $ 1,690 $ 3,914 $ 1,974
Basic earnings per share $ 3.68 $ 3.38 $ 7.89 $ 3.94
Diluted earnings per share $ 3.65 $ 3.35 $ 7.82 $ 3.91
Weighted average common shares outstanding
Basic 493.1 500.1 495.8 500.6
Diluted 497.5 504.4 500.4 505.1
Antidilutive shares — — — —
Note: Per share amounts may not foot due to rounding.
See accompanying Notes to Consolidated Financial Statements .
TARGET CORPORATION
Q2 2021 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) July 31, 2021 August 1, 2020 July 31, 2021 August 1, 2020
Net earnings $ 1,817 $ 1,690 $ 3,914 $ 1,974
Other comprehensive income / (loss), net of tax
Pension benefit liabilities 20 22 42 44
Currency translation adjustment and cash flow hedges ( 8 ) ( 1 ) 1 ( 9 )
Other comprehensive income 12 21 43 35
Comprehensive income $ 1,829 $ 1,711 $ 3,957 $ 2,009
See accompanying Notes to Consolidated Financial Statements .
TARGET CORPORATION
Q2 2021 Form 10-Q 2
FINANCIAL STATEMENTS Table of Contents
Index to Notes
Consolidated Statements of Financial Position
(millions, except footnotes) (unaudited) July 31,
2021 January 30,
2021 August 1,
2020
Assets
Cash and cash equivalents $ 7,368 $ 8,511 $ 7,284
Inventory 11,259 10,653 8,876
Other current assets 1,604 1,592 1,463
Total current assets 20,231 20,756 17,623
Property and equipment
Land 6,148 6,141 6,027
Buildings and improvements 32,133 31,557 30,946
Fixtures and equipment 5,892 5,914 5,665
Computer hardware and software 2,260 2,765 2,631
Construction-in-progress 944 780 811
Accumulated depreciation ( 20,133 ) ( 20,278 ) ( 19,341 )
Property and equipment, net 27,244 26,879 26,739
Operating lease assets 2,503 2,227 2,233
Other noncurrent assets 1,407 1,386 1,405
Total assets $ 51,385 $ 51,248 $ 48,000
Liabilities and shareholders’ investment
Accounts payable $ 12,632 $ 12,859 $ 10,726
Accrued and other current liabilities 5,600 6,122 5,057
Current portion of long-term debt and other borrowings 1,190 1,144 109
Total current liabilities 19,422 20,125 15,892
Long-term debt and other borrowings 11,589 11,536 14,188
Noncurrent operating lease liabilities 2,462 2,218 2,241
Deferred income taxes 1,146 990 1,121
Other noncurrent liabilities 1,906 1,939 1,980
Total noncurrent liabilities 17,103 16,683 19,530
Shareholders’ investment
Common stock 41 42 42
Additional paid-in capital 6,332 6,329 6,248
Retained earnings 9,200 8,825 7,121
Accumulated other comprehensive loss ( 713 ) ( 756 ) ( 833 )
Total shareholders’ investment 14,860 14,440 12,578
Total liabilities and shareholders’ investment $ 51,385 $ 51,248 $ 48,000
Common Stock Authorized 6,000,000,000 shares, $ 0.0833 par value; 489,651,196 , 500,877,129 and 500,252,831 shares issued and outstanding as of July 31, 2021, January 30, 2021, and August 1, 2020, 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 2021 Form 10-Q 3
FINANCIAL STATEMENTS Table of Contents
Index to Notes
Consolidated Statements of Cash Flows
Six Months Ended
(millions) (unaudited) July 31, 2021 August 1, 2020
Operating activities
Net earnings $ 3,914 $ 1,974
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation and amortization 1,300 1,245
Share-based compensation expense 138 104
Deferred income taxes 143 ( 12 )
Gain on Dermstore sale ( 335 ) —
Noncash losses / (gains) and other, net
7 86
Changes in operating accounts:
Inventory ( 606 ) 116
Other assets 3 ( 14 )
Accounts payable ( 311 ) 795
Accrued and other liabilities ( 831 ) 822
Cash provided by operating activities 3,422 5,116
Investing activities
Expenditures for property and equipment ( 1,338 ) ( 1,414 )
Proceeds from disposal of property and equipment 15 10
Proceeds from Dermstore sale 356 —
Other investments ( 5 ) 2
Cash required for investing activities ( 972 ) ( 1,402 )
Financing activities
Additions to long-term debt — 2,480
Reductions of long-term debt ( 72 ) ( 126 )
Dividends paid ( 676 ) ( 662 )
Repurchase of stock ( 2,850 ) ( 706 )
Stock option exercises 5 7
Cash (required for) / provided by financing activities ( 3,593 ) 993
Net (decrease) / increase in cash and cash equivalents ( 1,143 ) 4,707
Cash and cash equivalents at beginning of period 8,511 2,577
Cash and cash equivalents at end of period $ 7,368 $ 7,284
Supplemental information
Leased assets obtained in exchange for new finance lease liabilities $ 182 $ 246
Leased assets obtained in exchange for new operating lease liabilities 386 142
See accompanying Notes to Consolidated Financial Statements .
TARGET CORPORATION
Q2 2021 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 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
Net earnings — — — 1,014 — 1,014
Other comprehensive income — — — — 36 36
Dividends declared — — — ( 346 ) — ( 346 )
Stock options and awards 0.5 — 37 — — 37
October 31, 2020 500.8 $ 42 $ 6,285 $ 7,789 $ ( 797 ) $ 13,319
Net earnings — — — 1,380 — 1,380
Other comprehensive income — — — — 41 41
Dividends declared — — — ( 344 ) — ( 344 )
Stock options and awards 0.1 — 44 — — 44
January 30, 2021 500.9 $ 42 $ 6,329 $ 8,825 $ ( 756 ) $ 14,440
TARGET CORPORATION
Q2 2021 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
January 30, 2021 500.9 $ 42 $ 6,329 $ 8,825 $ ( 756 ) $ 14,440
Net earnings — — — 2,097 — 2,097
Other comprehensive income — — — — 31 31
Dividends declared — — — ( 343 ) — ( 343 )
Repurchase of stock ( 6.1 ) ( 1 ) — ( 1,207 ) — ( 1,208 )
Stock options and awards 1.3 — ( 58 ) — — ( 58 )
May 1, 2021 496.1 $ 41 $ 6,271 $ 9,372 $ ( 725 ) $ 14,959
Net earnings — — — 1,817 — 1,817
Other comprehensive income — — — — 12 12
Dividends declared — — — ( 445 ) — ( 445 )
Repurchase of stock ( 6.6 ) — — ( 1,544 ) — ( 1,544 )
Stock options and awards 0.2 — 61 — — 61
July 31, 2021 489.7 $ 41 $ 6,332 $ 9,200 $ ( 713 ) $ 14,860
We declared $ 0.90 and $ 0.68 dividends per share for the three months ended July 31, 2021, and August 1, 2020, respectively, and $ 2.70 per share for the fiscal year ended January 30, 2021.
See accompanying Notes to Consolidated Financial Statements .
TARGET CORPORATION
Q2 2021 Form 10-Q 6
FINANCIAL STATEMENTS Table of Contents
INDEX Index to Notes
INDEX TO NOTES
Notes to Consolidated Financial Statements
7
Note 1
Accounting Policies
8
Note 2
Coronavirus (COVID-19)
8
Note 3
Dermstore Sale
8
Note 4
Revenues
9
Note 5
Fair Value Measurements
10
Note 6
Property and Equipment
10
Note 7
Derivative Financial Instruments
10
Note 8
Income Taxes
11
Note 9
Share Repurchase
11
Note 10
Pension Benefits
12
Note 11
Accumulated Other Comprehensive Loss
12
TARGET CORPORATION
Q2 2021 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 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 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 2020 Form 10-K.
We use the same accounting policies in preparing quarterly and annual financial statements.
We operate as a single segment that is 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. Coronavirus (COVID-19)
The novel coronavirus (COVID-19) pandemic continues to evolve. In 2020, states and cities took 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, virtually all of our stores, digital channels, and distribution centers have remained open.
Since the onset of the COVID-19 pandemic, we have experienced strong comparable sales growth and significant volatility in our sales category and channel mix, including same-day fulfillment options. Note 4 presents sales by category. We have taken various actions, including accelerating purchases of certain merchandise in our core categories and slowing or canceling purchase orders, primarily for Apparel and Accessories. As a result, during the quarter ended May 2, 2020, we recorded $ 216 million of purchase order cancellation fees in Cost of Sales.
3. Dermstore Sale
In February 2021, we sold our wholly owned subsidiary Dermstore LLC (Dermstore) for $ 356 million in cash and recognized a $ 335 million pretax gain, which is included in Net Other (Income) / Expense. Dermstore has historically represented less than 1 percent of our consolidated revenues, operating income and net assets.
TARGET CORPORATION
Q2 2021 Form 10-Q 8
FINANCIAL STATEMENTS Table of Contents
NOTES Index to Notes
4. 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) July 31, 2021 August 1, 2020 July 31, 2021 August 1, 2020
Apparel and accessories (a)
$ 4,751 $ 4,084 $ 9,020 $ 6,703
Beauty and household essentials (b)
6,726 6,158 13,090 12,069
Food and beverage (c)
4,687 4,186 9,543 8,761
Hardlines (d)
3,867 3,608 7,813 6,582
Home furnishings and décor (e)
4,748 4,625 9,158 7,889
Other 47 35 81 63
Sales 24,826 22,696 48,705 42,067
Credit card profit sharing 172 158 343 324
Other 162 121 309 199
Other revenue 334 279 652 523
Total revenue $ 25,160 $ 22,975 $ 49,357 $ 42,590
(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 and 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. As of July 31, 2021, January 30, 2021, and August 1, 2020, the accrual for estimated returns was $ 176 million, $ 139 million, and $ 201 million, respectively.
Revenue from Target gift card sales is recognized upon gift card redemption, which is typically within one year of issuance.
Gift Card Liability Activity January 30,
2021 Gift Cards Issued During Current Period But Not Redeemed (b)
Revenue Recognized From Beginning Liability July 31,
2021
(millions)
Gift card liability (a)
$ 1,035 $ 378 $ ( 533 ) $ 880
(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 2021 Form 10-Q 9
FINANCIAL STATEMENTS Table of Contents
NOTES Index to Notes
5. Fair Value Measurements
Fair value measurements are reported in one of three levels reflecting the valuation techniques used to determine fair value.
Financial Instruments Measured On a Recurring Basis Fair Value
(millions) Classification Pricing Category July 31, 2021 January 30, 2021 August 1, 2020
Assets
Short-term investments Cash and Cash Equivalents Level 1 $ 6,439 $ 7,644 $ 6,370
Prepaid forward contracts Other Current Assets Level 1 44 38 26
Equity securities Other Current Assets Level 1 — — 27
Interest rate swaps Other Noncurrent Assets Level 2 160 188 239
Liabilities
Interest rate swaps Other Noncurrent Liabilities Level 2 — — 12
Significant Financial Instruments Not Measured at Fair Value (a)
(millions)
July 31, 2021 January 30, 2021 August 1, 2020
Carrying
Amount Fair
Value Carrying
Amount Fair
Value Carrying
Amount Fair
Value
Long-term debt, including current portion (b)
$ 10,620 $ 12,594 $ 10,643 $ 12,787 $ 12,384 $ 15,457
(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.
6. 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, office, or distribution center, discontinue a project, or make significant software changes—indicate that the asset’s carrying value may not be recoverable. We recognized impairment charges of $ 39 million and $ 81 million during the three and six months ended July 31, 2021, respectively. We recognized impairment charges of $ 25 million and $ 60 million during the three and six months ended August 1, 2020, respectively. These impairment charges are included in Selling, General and Administrative Expenses (SG&A).
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 5 to the Consolidated Financial Statements provides the fair value and classification of these instruments.
As of July 31, 2021, January 30, 2021, and August 1, 2020, we were party to interest rate swaps with notional amounts totaling $ 1.5 billion. We pay a floating rate and receive a fixed rate under each of these agreements. All of the agreements are designated as fair value hedges, and all were considered to be perfectly effective under the shortcut method during the three and six months ended July 31, 2021, and August 1, 2020.
As of July 31, 2021, January 30, 2021, and August 1, 2020, we were party to forward-starting interest rate swaps with notional amounts totaling $ 250 million. We use these derivative financial instruments, which have been designated as cash flow hedges, to hedge the interest rate exposure of anticipated future debt issuances. As of July 31, 2021, Accumulated Other Comprehensive Loss (AOCI) included $ 6 million that will be reclassified and reduce Net Interest Expense when the forecasted transaction affects earnings.
During August 2021, we entered into additional forward-starting interest rate swaps with notional amounts totaling $ 675 million.
TARGET CORPORATION
Q2 2021 Form 10-Q 10
FINANCIAL STATEMENTS Table of Contents
NOTES Index to Notes
Effect of Hedges on Debt
(millions)
July 31, 2021 January 30, 2021 August 1, 2020
Long-term debt and other borrowings
Carrying amount of hedged debt $ 1,649 $ 1,677 $ 1,732
Cumulative hedging adjustments, included in carrying amount 154 183 239
Effect of Hedges on Net Interest Expense Three Months Ended Six Months Ended
(millions) July 31, 2021 August 1, 2020 July 31, 2021 August 1, 2020
Gain (loss) on fair value hedges recognized in Net Interest Expense
Interest rate swap designated as fair value hedges $ 22 $ 11 $ ( 29 ) $ 102
Hedged debt ( 22 ) ( 11 ) 29 ( 102 )
Total $ — $ — $ — $ —
8. Income Taxes
For the three and six months ended July 31, 2021, our effective tax rate was 23.4 percent and 21.4 percent, respectively, compared with 22.8 percent and 21.6 percent for the three and six months ended August 1, 2020, as higher pretax earnings diluted the tax-rate benefit from fixed and discrete items, such as employee share-based compensation and the Dermstore sale. A dditionally, for the six months ended July 31, 2021, the favorable resolution of certain income tax matters resulted in a $ 44 million discrete tax benefit.
9. 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 arrangements, and other privately negotiated transactions with financial institutions.
Share Repurchase Activity Three Months Ended Six Months Ended
(millions, except per share data) July 31, 2021 August 1, 2020 July 31, 2021 August 1, 2020
Number of shares purchased 6.6 — 12.7 5.7
Average price paid per share $ 233.81 $ — $ 213.06 $ 107.58
Total investment $ 1,535 $ — $ 2,700 $ 609
TARGET CORPORATION
Q2 2021 Form 10-Q 11
FINANCIAL STATEMENTS Table of Contents
NOTES Index to Notes
10. Pension Benefits
We provide pension plan benefits to eligible team members.
Net Pension Benefits Expense Three Months Ended Six Months Ended
(millions) Classification July 31, 2021 August 1, 2020 July 31, 2021 August 1, 2020
Service cost benefits earned SG&A $ 24 $ 25 $ 48 $ 51
Interest cost on projected benefit obligation Net Other (Income) / Expense 24 29 48 59
Expected return on assets Net Other (Income) / Expense ( 59 ) ( 60 ) ( 118 ) ( 121 )
Amortization of losses Net Other (Income) / Expense 28 32 57 64
Amortization of prior service cost Net Other (Income) / Expense ( 1 ) ( 3 ) ( 1 ) ( 6 )
Total $ 16 $ 23 $ 34 $ 47
11. Accumulated Other Comprehensive Loss
Change in Accumulated Other Comprehensive Loss Cash Flow
Hedges Currency Translation Adjustment Pension Total
(millions)
January 30, 2021 $ ( 3 ) $ ( 18 ) $ ( 735 ) $ ( 756 )
Other comprehensive income before reclassifications, net of tax 1 — — 1
Amounts reclassified from AOCI, net of tax — — 42 42
July 31, 2021 $ ( 2 ) $ ( 18 ) $ ( 693 ) $ ( 713 )
TARGET CORPORATION
Q2 2021 Form 10-Q 12
MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents
FINANCIAL SUMMARY Index to Notes
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.