TARGET CORP 10-Q

Item 1. Financial Statements Consolidated Statements of Operations Three Months Ended (millions, except per share data) (unaudited) April 30, 2022 May 1, 2021 Sales $ 24,830 $ 23,879 Other revenue 340 318 Total revenue 25,170 24,197 Cost of sales 18,461 16,716 Selling, general and administrative expenses 4,762 4,509 Depreciation and amortization (exclusive of depreciation included in cost of sales) 601 598 Operating income 1,346 2,374 Net interest expense 112 108 Net other (income) / expense ( 15 ) ( 343 ) Earnings before income taxes 1,249 2,609 Provision for income taxes 240 512 Net earnings $ 1,009 $ 2,097 Basic earnings per share $ 2.17 $ 4.20 Diluted earnings per share $ 2.16 $ 4.17 Weighted average common shares outstanding Basic 464.0 498.6 Diluted 467.8 503.4 Antidilutive shares — — See accompanying Notes to Consolidated Financial Statements . TARGET CORPORATION Q1 2022 Form 10-Q 1 FINANCIAL STATEMENTS Table of Contents Index to Notes Consolidated Statements of Comprehensive Income Three Months Ended (millions) (unaudited) April 30, 2022 May 1, 2021 Net earnings $ 1,009 $ 2,097 Other comprehensive income, net of tax Pension benefit liabilities 11 22 Cash flow hedges and currency translation adjustment 190 9 Other comprehensive income 201 31 Comprehensive income $ 1,210 $ 2,128 See accompanying Notes to Consolidated Financial Statements . TARGET CORPORATION Q1 2022 Form 10-Q 2 FINANCIAL STATEMENTS Table of Contents Index to Notes Consolidated Statements of Financial Position (millions, except footnotes) (unaudited) April 30, 2022 January 29, 2022 May 1, 2021 Assets Cash and cash equivalents $ 1,112 $ 5,911 $ 7,816 Inventory 15,083 13,902 10,539 Other current assets 1,758 1,760 1,576 Total current assets 17,953 21,573 19,931 Property and equipment Land 6,164 6,164 6,146 Buildings and improvements 33,300 32,985 31,710 Fixtures and equipment 6,459 6,407 5,496 Computer hardware and software 2,588 2,505 2,256 Construction-in-progress 1,444 1,257 973 Accumulated depreciation ( 21,285 ) ( 21,137 ) ( 19,777 ) Property and equipment, net 28,670 28,181 26,804 Operating lease assets 2,571 2,556 2,362 Other noncurrent assets 1,648 1,501 1,374 Total assets $ 50,842 $ 53,811 $ 50,471 Liabilities and shareholders’ investment Accounts payable $ 14,053 $ 15,478 $ 11,637 Accrued and other current liabilities 5,582 6,098 5,788 Current portion of long-term debt and other borrowings 1,089 171 1,173 Total current liabilities 20,724 21,747 18,598 Long-term debt and other borrowings 13,379 13,549 11,509 Noncurrent operating lease liabilities 2,581 2,493 2,337 Deferred income taxes 1,752 1,566 1,169 Other noncurrent liabilities 1,632 1,629 1,899 Total noncurrent liabilities 19,344 19,237 16,914 Shareholders’ investment Common stock 39 39 41 Additional paid-in capital 5,592 6,421 6,271 Retained earnings 5,495 6,920 9,372 Accumulated other comprehensive loss ( 352 ) ( 553 ) ( 725 ) Total shareholders’ investment 10,774 12,827 14,959 Total liabilities and shareholders’ investment $ 50,842 $ 53,811 $ 50,471 Common Stock Authorized 6,000,000,000 shares, $ 0.0833 par value; 463,683,711 , 471,274,073 and 496,093,160 shares issued and outstanding as of April 30, 2022, January 29, 2022, and May 1, 2021, 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 Q1 2022 Form 10-Q 3 FINANCIAL STATEMENTS Table of Contents Index to Notes Consolidated Statements of Cash Flows Three Months Ended (millions) (unaudited) April 30, 2022 May 1, 2021 Operating activities Net earnings $ 1,009 $ 2,097 Adjustments to reconcile net earnings to cash (required for) provided by operating activities: Depreciation and amortization 679 667 Share-based compensation expense 83 79 Deferred income taxes 115 170 Gain on Dermstore sale — ( 335 ) Noncash losses / (gains) and other, net 52 ( 30 ) Changes in operating accounts: Inventory ( 1,181 ) 114 Other assets ( 86 ) ( 5 ) Accounts payable ( 1,560 ) ( 1,205 ) Accrued and other liabilities ( 505 ) ( 413 ) Cash (required for) provided by operating activities ( 1,394 ) 1,139 Investing activities Expenditures for property and equipment ( 952 ) ( 540 ) Proceeds from disposal of property and equipment 2 12 Proceeds from Dermstore sale — 356 Other investments 2 7 Cash required for investing activities ( 948 ) ( 165 ) Financing activities Change in commercial paper, net 945 — Reductions of long-term debt ( 48 ) ( 21 ) Dividends paid ( 424 ) ( 340 ) Repurchase of stock ( 181 ) ( 1,310 ) Accelerated share repurchase pending final settlement ( 2,750 ) — Stock option exercises 1 2 Cash required for financing activities ( 2,457 ) ( 1,669 ) Net decrease in cash and cash equivalents ( 4,799 ) ( 695 ) Cash and cash equivalents at beginning of period 5,911 8,511 Cash and cash equivalents at end of period $ 1,112 $ 7,816 Supplemental information Leased assets obtained in exchange for new finance lease liabilities $ 62 $ 69 Leased assets obtained in exchange for new operating lease liabilities 59 189 See accompanying Notes to Consolidated Financial Statements . TARGET CORPORATION Q1 2022 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 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 Net earnings — — — 1,488 — 1,488 Other comprehensive income — — — — 26 26 Dividends declared — — — ( 439 ) — ( 439 ) Repurchase of stock ( 8.8 ) ( 1 ) — ( 2,180 ) — ( 2,181 ) Stock options and awards — — 49 — — 49 October 30, 2021 480.9 $ 40 $ 6,381 $ 8,069 $ ( 687 ) $ 13,803 Net earnings — — — 1,544 — 1,544 Other comprehensive income — — — — 134 134 Dividends declared — — — ( 428 ) — ( 428 ) Repurchase of stock ( 9.8 ) ( 1 ) — ( 2,265 ) — ( 2,266 ) Stock options and awards 0.2 — 40 — — 40 January 29, 2022 471.3 $ 39 $ 6,421 $ 6,920 $ ( 553 ) $ 12,827 TARGET CORPORATION Q1 2022 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 29, 2022 471.3 $ 39 $ 6,421 $ 6,920 $ ( 553 ) $ 12,827 Net earnings — — — 1,009 — 1,009 Other comprehensive income — — — — 201 201 Dividends declared — — — ( 426 ) — ( 426 ) Repurchase of stock ( 0.1 ) — — ( 10 ) — ( 10 ) Accelerated share repurchase pending final settlement ( 8.9 ) ( 1 ) ( 751 ) ( 1,998 ) — ( 2,750 ) Stock options and awards 1.4 1 ( 78 ) — — ( 77 ) April 30, 2022 463.7 $ 39 $ 5,592 $ 5,495 $ ( 352 ) $ 10,774 We declared $ 0.90 and $ 0.68 dividends per share for the three months ended April 30, 2022, and May 1, 2021, respectively, and $ 3.38 per share for the fiscal year ended January 29, 2022. See accompanying Notes to Consolidated Financial Statements . TARGET CORPORATION Q1 2022 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 Dermstore Sale 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 10 Note 8 Share Repurchase 11 Note 9 Pension Benefits 12 Note 10 Accumulated Other Comprehensive Income (Loss) 12 TARGET CORPORATION Q1 2022 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 2021 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. 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 represented less than 1 percent of our consolidated revenues, operating income and net assets. TARGET CORPORATION Q1 2022 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 (millions) April 30, 2022 May 1, 2021 Apparel and accessories (a) $ 4,239 $ 4,269 Beauty and household essentials (b) 7,053 6,364 Food and beverage (c) 5,505 4,856 Hardlines (d) 3,713 3,946 Home furnishings and décor (e) 4,271 4,410 Other 49 34 Sales 24,830 23,879 Credit card profit sharing 185 171 Other 155 147 Other revenue 340 318 Total revenue $ 25,170 $ 24,197 (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 April 30, 2022, January 29, 2022, and May 1, 2021, the accrual for estimated returns was $ 204 million, $ 165 million, and $ 196 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 29, 2022 Gift Cards Issued During Current Period But Not Redeemed (b) Revenue Recognized From Beginning Liability April 30, 2022 (millions) Gift card liability (a) $ 1,202 $ 276 $ ( 465 ) $ 1,013 (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 Q1 2022 Form 10-Q 9 FINANCIAL STATEMENTS Table of Contents NOTES Index to Notes Other — Includes advertising, Shipt membership and service revenues, commissions earned on third-party sales through Target.com, rental income, and other miscellaneous revenues. 4. Fair Value Measurements Fair value measurements are reported in one of three levels reflecting the significant inputs used to determine fair value. Financial Instruments Measured On a Recurring Basis Fair Value (millions) Classification Measurement Level April 30, 2022 January 29, 2022 May 1, 2021 Assets Short-term investments Cash and Cash Equivalents Level 1 $ 182 $ 4,985 $ 6,895 Prepaid forward contracts Other Current Assets Level 1 37 35 37 Interest rate swaps Other Current Assets Level 2 41 17 — Interest rate swaps Other Noncurrent Assets Level 2 292 135 149 Liabilities Interest rate swaps Other Noncurrent Liabilities Level 2 27 — — Significant Financial Instruments Not Measured at Fair Value (a) (millions) April 30, 2022 January 29, 2022 May 1, 2021 Carrying Amount Fair Value Carrying Amount Fair Value Carrying Amount Fair Value Long-term debt, including current portion (b) $ 11,549 $ 11,466 $ 11,568 $ 12,808 $ 10,646 $ 12,335 (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, 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 $ 23 million and $ 41 million during the three months ended April 30, 2022, and May 1, 2021, respectively. These impairment charges are included in Selling, General and Administrative Expenses (SG&A). 6. Commercial Paper and Long-Term Debt We obtain short-term financing from time to time under our commercial paper program. For the three months ended April 30, 2022 , the maximum amount outstanding was $ 1.1 billion, and the average daily amount outstanding was $ 291 million, at a weighted average annual interest rate of 0.4 percent. As of April 30, 2022, $ 945 million was outstanding and is classified within Current Portion of Long-Term Debt and Other Borrowings on our Consolidated Statement of Financial Position. No balances were outstanding at any time during the three months ended May 1, 2021. 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. TARGET CORPORATION Q1 2022 Form 10-Q 10 FINANCIAL STATEMENTS Table of Contents NOTES Index to Notes As of April 30, 2022, January 29, 2022, and May 1, 2021, 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 months ended April 30, 2022, and May 1, 2021. We were party to forward-starting interest rate swaps with notional amounts totaling $ 2.15 billion as of April 30, 2022, and January 29, 2022, and $ 250 million as of May 1, 2021. 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 during the next three years. Based on the fair value of these swaps as of April 30, 2022, Accumulated Other Comprehensive Loss (AOCI) included an unrealized gain of $ 333 million. Any unrealized gain or loss at the time of debt issuance will be reclassified and reduce Net Interest Expense as we record interest expense on the associated debt. Effect of Hedges on Debt (millions) April 30, 2022 January 29, 2022 May 1, 2021 Long-term debt and other borrowings Carrying amount of hedged debt $ 1,468 $ 1,572 $ 1,627 Cumulative hedging adjustments, included in carrying amount ( 27 ) 77 132 Effect of Hedges on Net Interest Expense Three Months Ended (millions) April 30, 2022 May 1, 2021 Gain (loss) on fair value hedges recognized in Net Interest Expense Interest rate swap designated as fair value hedges $ ( 104 ) $ ( 51 ) Hedged debt 104 51 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 (millions, except per share data) April 30, 2022 May 1, 2021 Number of shares purchased 0.1 6.1 Average price paid per share $ 208.60 $ 190.77 Total investment $ 10 $ 1,165 Note: This table excludes activity related to the ASR arrangements described below because final settlement had not occurred as of April 30, 2022. During the first quarter of 2022, we entered into an ASR arrangement to repurchase up to $ 2.75 billion of our common stock. Under the agreement, we paid $ 2.75 billion and received an initial delivery of 8.9 million shares, which were retired, resulting in a $ 2 billion reduction to Retained Earnings. As of April 30, 2022, $ 751 million is included in the Consolidated Statement of Financial Position as a reduction to Additional Paid-in Capital. TARGET CORPORATION Q1 2022 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 (millions) Classification April 30, 2022 May 1, 2021 Service cost benefits earned SG&A $ 23 $ 24 Interest cost on projected benefit obligation Net Other (Income) / Expense 29 24 Expected return on assets Net Other (Income) / Expense ( 59 ) ( 59 ) Amortization of losses Net Other (Income) / Expense 15 29 Total $ 8 $ 18 10. Accumulated Other Comprehensive Income (Loss) Change in Accumulated Other Comprehensive Income (Loss) Cash Flow Hedges Currency Translation Adjustment Pension Total (millions) January 29, 2022 $ 49 $ ( 19 ) $ ( 583 ) $ ( 553 ) Other comprehensive income (loss) before reclassifications, net of tax 190 — — 190 Amounts reclassified from AOCI, net of tax — — 11 11 April 30, 2022 $ 239 $ ( 19 ) $ ( 572 ) $ ( 352 ) TARGET CORPORATION Q1 2022 Form 10-Q 12 MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents FINANCIAL SUMMARY Index to Notes