What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-23 compared with 2022-08-26 · 114 added, 97 removed, 225 unchanged (48% of the section changed)

1 unchanged sentence

Financial Summary

Second quarter 2022 included the following notable items:

Third quarter 2022 included the following notable items:

• GAAP diluted earnings per share were $1.54.

1 unchanged sentence

• Total revenue increased 3.4 percent, reflecting total sales growth of 3.3 percent and a 9.5 percent increase in other revenue.

• Comparable sales increased 2.6 percent, driven by a 2.7 percent increase in traffic.

• Comparable sales increased 2.7 percent, driven by a 1.4 percent increase in traffic and a 1.3 percent increase in average transaction amount.

◦ Comparable stores originated sales grew 3.2 percent.

◦ Comparable digitally originated sales increased 0.3 percent.

• Operating income of $321 million was 87.0 percent lower than the comparable prior-year period, driven primarily by a decrease in gross margin, reflecting inventory actions taken as a result of lower-than-expected sales in our discretionary categories (Apparel and Accessories, Hardlines, and Home Furnishings and Décor) and supply chain disruptions, as well as increased freight and merchandise costs.

See Business Environment below for additional information.

Sales were $25.7 billion for the three months ended July 30, 2022, an increase of $0.8 billion , or 3.3 percent, from the comparable prior-year period.

Cash flow required for operating activities was $47 million for the six months ended July 30, 2022, compared with $3.4 billion cash flow provided by operating activities for the six months ended July 31, 2021.

• Operating income of $1.0 billion was 49.2 percent lower than the comparable prior-year period, driven primarily by a decrease in gross margin, reflecting higher clearance and promotional markdown rates, inventory shrink, and higher freight and merchandise costs, partially offset by the benefit of retail price increases.

See Business Environment and Gross Margin Rate sections below for additional information.

Sales were $26.1 billion for the three months ended October 29, 2022, an increase of $832 million , or 3.3 percent, from the comparable prior-year period.

Cash flow provided by operating activities was $552 million for the nine months ended October 29, 2022, compared with $5.6 billion for the nine months ended October 30, 2021.

The drivers of the operating cash flow decrease are described on page 21 .

Earnings Per Share Three Months Ended Six Months Ended

July 30, 2022 July 31, 2021 Change July 30, 2022 July 31, 2021 Change

Earnings Per Share Three Months Ended Nine Months Ended

October 29, 2022 October 30, 2021 Change October 29, 2022 October 30, 2021 Change

GAAP diluted earnings per share $ 1.54 $ 3.04 (49.3) % $ 4.09 $ 10.87 (62.4) %

6 unchanged sentences

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

For the trailing twelve months ended July 30, 2022, after-tax ROIC was 18.4 percent , compared with 31.7 percent for the trailing twelve months ended July 31, 2021.

For the trailing twelve months ended October 29, 2022, after-tax ROIC was 14.6 percent , compared with 31.3 percent for the trailing twelve months ended October 30, 2021.

The calculation of ROIC is provided on page 20 .

Business Environment

During the first two quarters of 2022, we have seen a shift in consumer demand away from discretionary categories (Apparel and Accessories, Hardlines, and Home Furnishings and Décor), resulting in lower-than-expected sales and higher-than-expected inventories in these areas.

In response to this shift in demand, we took several actions to address our inventory position and create additional flexibility in a rapidly changing environment, including increasing promotional and clearance markdowns, removing excess inventory, and cancelling purchase orders.

These factors, net of pricing actions we have taken to address the impact of merchandise and freight cost inflation, have resulted in decreased profitability in the first half of 2022 compared to the prior-year period.

Additionally, in response to continued disruption in our supply chain, we have ordered and are receiving merchandise earlier, and added incremental holding capacity near U.S.

ports to add flexibility in the portions of the supply chain most affected by external volatility.

We believe that the actions we have taken, including the reduction of orders for Fall merchandise in our discretionary categories, reduce our risks and provide additional flexibility to focus on serving guests in a rapidly changing environment.

The Gros s Margin Rate analysis on page 16 and the Inventory section on page 20 provide additional information.

During the third quarter of 2022, we have continued to see soft trends in Discretionary categories (Apparel and Accessories, Hardlines, and Home Furnishings and Décor), which accelerated in October.

We believe this is consistent with the broader industry trends.

Our overall comparable sales increase reflects growth in our Frequency categories (Beauty and Household Essentials and Food and Beverage), partially offset by sales decreases in our Discretionary categories.

Our comparable sales performance also reflects the impact of retail price increases.

Within the quarter, comparable sales grew 2.8 percent in August, 4.0 percent in September, and 0.9 percent in October.

Notably, within October, we saw a significant change in the pace of sales, with an increase in comparable sales during the first week, followed by a decrease over the last three weeks of the month, driven by steeper declines in our Discretionary categories.

TARGET CORPORATION

1 unchanged sentence

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF RESULTS OF OPERATIONS

FINANCIAL SUMMARY Index to Notes

Throughout the COVID-19 pandemic, the retail industry has experienced continued disruption and volatility in the global supply chain.

In response, we have ordered import merchandise (which typically has longer lead times) earlier, and added incremental holding capacity near U.S.

ports to add flexibility in the portions of the supply chain most affected by external volatility.

During the third quarter of 2022, port congestion, shipping container availability, and other supply chain pressures have improved.

This has resulted in inventory arriving earlier than anticipated, which has resulted in increased costs of managing elevated inventory levels.

These factors, net of pricing actions we have taken to address the impact of higher merchandise and freight costs, have resulted in decreased profitability in the three and nine months ended October 29, 2022, compared to the prior-year periods.

We believe that the actions we have taken reduce our risks and provide additional flexibility to focus on serving guests in a rapidly changing environment.

The Gross Margin Rate analysis on page 17 and the Inventory section on page 21 provide additional information.

Analysis of Results of Operations

Summary of Operating Income Three Months Ended Six Months Ended

(dollars in millions) July 30, 2022 July 31, 2021 Change July 30, 2022 July 31, 2021 Change

Summary of Operating Income Three Months Ended Nine Months Ended

(dollars in millions) October 29, 2022 October 30, 2021 Change October 29, 2022 October 30, 2021 Change

Sales $ 26,122 $ 25,290 3.3 % $ 76,605 $ 73,995 3.5 %

5 unchanged sentences

Operating income $ 1,022 $ 2,010 (49.2) % $ 2,689 $ 6,851 (60.8) %

Rate Analysis Three Months Ended Six Months Ended

July 30, 2022 July 31, 2021 July 30, 2022 July 31, 2021

Rate Analysis Three Months Ended Nine Months Ended

October 29, 2022 October 30, 2021 October 29, 2022 October 30, 2021

Gross margin rate 24.7 % 28.0 % 23.9 % 29.5 %

12 unchanged sentences

Digitally originated sales may also be fulfilled through our distribution centers, our vendors, or other third parties.

TARGET CORPORATION

Q3 2022 Form 10-Q 14

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF RESULTS OF OPERATIONS

Sales growth—from both comparable sales and new stores—represents an important driver of our long-term profitability.

1 unchanged sentence

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).

Comparable Sales Three Months Ended Six Months Ended

July 30, 2022 July 31, 2021 July 30, 2022 July 31, 2021

Comparable Sales Three Months Ended Nine Months Ended

October 29, 2022 October 30, 2021 October 29, 2022 October 30, 2021

Comparable sales change 2.7 % 12.7 % 2.9 % 14.4 %

2 unchanged sentences

Average transaction amount 1.3 (0.2) 0.2 0.3

TARGET CORPORATION

Q2 2022 Form 10-Q 14

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF RESULTS OF OPERATIONS

Comparable Sales by Channel Three Months Ended Six Months Ended

July 30, 2022 July 31, 2021 July 30, 2022 July 31, 2021

Comparable Sales by Channel Three Months Ended Nine Months Ended

October 29, 2022 October 30, 2021 October 29, 2022 October 30, 2021

Stores originated comparable sales change 3.2 % 9.7 % 2.6 % 11.9 %

Digitally originated comparable sales change 0.3 28.9 4.1 27.8

Sales by Channel Three Months Ended Six Months Ended

July 30, 2022 July 31, 2021 July 30, 2022 July 31, 2021

Sales by Channel Three Months Ended Nine Months Ended

October 29, 2022 October 30, 2021 October 29, 2022 October 30, 2021

Stores originated 82.9 % 82.4 % 82.3 % 82.3 %

1 unchanged sentence

Total 100 % 100 % 100 % 100 %

Sales by Fulfillment Channel Three Months Ended Six Months Ended

July 30, 2022 July 31, 2021 July 30, 2022 July 31, 2021

Sales by Fulfillment Channel Three Months Ended Nine Months Ended

October 29, 2022 October 30, 2021 October 29, 2022 October 30, 2021

Stores 96.8 % 96.7 % 96.7 % 96.5 %

2 unchanged sentences

Sales fulfilled by stores include in-store purchases and digitally originated sales fulfilled by shipping merchandise from stores to guests, Order Pickup, Drive Up, and Shipt.

Sales by Product Category Three Months Ended Six Months Ended

July 30, 2022 July 31, 2021 July 30, 2022 July 31, 2021

Sales by Product Category Three Months Ended Nine Months Ended

October 29, 2022 October 30, 2021 October 29, 2022 October 30, 2021

Apparel and accessories 17 % 17 % 17 % 18 %

6 unchanged sentences

The collective interaction of a broad array of macroeconomic, competitive, and consumer behavioral factors, as well as sales mix and the transfer of sales to new stores, makes further analysis of sales metrics infeasible.

TARGET CORPORATION

Q3 2022 Form 10-Q 15

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF RESULTS OF OPERATIONS

We monitor the percentage of purchases that are paid for using RedCards (RedCard Penetration) because our internal analysis has indicated that a meaningful portion of the incremental purchases on RedCards are also incremental sales for Target.

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

RedCard sales increased for the three and six months ended July 30, 2022, and July 31, 2021;

however, RedCard penetration declined as total Sales increased at a faster pace.

RedCard Penetration Three Months Ended Six Months Ended

July 30, 2022 July 31, 2021 July 30, 2022 July 31, 2021

RedCard Penetration Three Months Ended Nine Months Ended

October 29, 2022 October 30, 2021 October 29, 2022 October 30, 2021

Target Debit Card 10.8 % 11.7 % 11.2 % 11.8 %

7 unchanged sentences

Gross Margin Rate

Quarter-to-Date

For the three months ended July 30, 2022, our gross margin rate was 21.5 percent compared with 30.4 percent in the comparable prior-year period.

For the six months ended July 30, 2022, our gross margin rate was 23.5 percent compared with 30.2 percent in the comparable prior-year period.

For both the three and six months ended July 30, 2022, the decrease reflected the net impact of

For the three months ended October 29, 2022, our gross margin rate was 24.7 percent compared with 28.0 percent in the comparable prior-year period.

The decrease reflected the net impact of

• merchandising pressure, including

◦ higher clearance and promotional markdown rates, which were largely the result of inventory impairments and other actions taken in our discretionary categories;

◦ higher merchandise and freight costs and higher inventory shrink, partially offset by the benefit of retail price increases;

• supply chain pressure related to increased compensation and headcount in our distribution centers, costs of managing excess inventory, and higher last-mile shipping cost;

• unfavorable mix in the relative growth rates of higher and lower margin categories.

◦ higher clearance and promotional markdown rates, which were primarily in our Discretionary categories;

◦ higher merchandise and freight costs, partially offset by the benefit of retail price increases;

◦ higher inventory shrink;

• supply chain pressure related to increased compensation and headcount in our distribution centers and costs of managing elevated inventory levels, including the impact of early receipts;

• favorable mix in the relative growth rates of higher and lower margin categories.

For the nine months ended October 29, 2022, our gross margin rate was 23.9 percent compared with 29.5 percent in the comparable prior-year period.

The decrease reflected the net impact of

• merchandising pressure, including

◦ higher clearance and promotional markdown rates, which were primarily the result of inventory impairments and other actions taken in our Discretionary categories;

◦ higher merchandise and freight costs, partially offset by the benefit of retail price increases;

◦ higher inventory shrink;

• supply chain pressure related to increased compensation and headcount in our distribution centers and costs of managing elevated inventory levels, including the impact of early receipts.

Business Environment on page 13 provides additional information.

Selling, General, and Administrative Expense Rate

For the three months ended July 30, 2022, our SG&A expense rate was 19.2 percent compared with 19.3 percent for the comparable prior-year period.

For the six months ended July 30, 2022, our SG&A expense rate was 19.1 percent compared with 19.0 percent for the comparable prior-year end.

For both the three and six months ended July 30, 2022, the rates reflected lower incentive compensation, and the net impact of cost increases across our business, including investments in hourly team member wages, compared to the comparable prior-year periods.

TARGET CORPORATION

2 unchanged sentences

ANALYSIS OF RESULTS OF OPERATIONS

Change in Number of Stores Three Months Ended Six Months Ended

July 30, 2022 July 31, 2021 July 30, 2022 July 31, 2021

Selling, General, and Administrative Expense Rate

For the three months ended October 29, 2022, our SG&A expense rate was 19.7 percent compared with 18.9 percent for the comparable prior-year period.

For the nine months ended October 29, 2022, our SG&A expense rate was 19.3 percent compared with 19.0 percent for the comparable prior-year period.

For both the three and nine months ended October 29, 2022, the rates reflected the net impact of cost increases across our business, including investments in hourly team member wages, partially offset by lower incentive compensation expense, compared to the comparable prior-year periods.

Change in Number of Stores Three Months Ended Nine Months Ended

October 29, 2022 October 30, 2021 October 29, 2022 October 30, 2021

Beginning store count 1,937 1,909 1,926 1,897

2 unchanged sentences

Ending store count 1,941 1,924 1,941 1,924

Number of Stores and

Retail Square Feet Number of Stores Retail Square Feet (a)

July 30, 2022 January 29, 2022 July 31, 2021 July 30, 2022 January 29, 2022 July 31, 2021

Number of Stores and Number of Stores Retail Square Feet (a)

Retail Square Feet October 29, 2022 January 29, 2022 October 30, 2021 October 29, 2022 January 29, 2022 October 30, 2021

170,000 or more sq.

9 unchanged sentences

Net Interest Expense

Net interest expense was $112 million and $224 million for the three and six months ended July 30, 2022, respectively, compared with $104 million and $212 million in the comparable prior-year period s.

The increase in net interest expense was primarily due to higher average debt and commercial paper levels for the three and six months ended July 30, 2022, compared with the prior-year periods.

N et interest expense was $125 million and $349 million for the three and nine months ended October 29, 2022, respectively, compared with $105 million and $317 million in the comparable prior-year periods.

The increase in net interest expense was primarily due to higher average debt and commercial paper levels for the three and nine months ended October 29, 2022, compared with the prior-year periods.

Net Other (Income) / Expense

Net Other (Income) / Expense was $(8) million and $(23) million for the three and six months ended July 30, 2022, respectively, compared with $(7) million and $(350) million in the comparable prior-year periods.

The six months ended July 31, 2021, included the $335 million pretax gain on the February 2021 sale of Dermstore.

Net Other (Income) / Expense was $(12) million and $(35) million for the three and nine months ended October 29, 2022, respectively, compared with $(6) million and $(356) million in the comparable prior-year periods.

The nine months ended October 30, 2021, included the $335 million pretax gain on the February 2021 sale of Dermstore.

Note 2 to the Financial Statements provides additional information.

Provision for Income Taxes

Our effective income tax rate for the three and six months ended July 30, 2022, was 15.8 percent and 18.7 percent, respectively, compared with 23.4 percent and 21.4 percent in the respective comparable prior-year periods.

For the three month period, the decrease reflects lower pretax earnings in the current year resulting in a larger tax rate benefit from ongoing and discrete tax items.

For the six month period, the decrease reflects lower pretax earnings in the current period, partially offset by the impacts of discrete tax benefits in the prior-year period, including the resolution of certain income tax matters.

Our effective income tax rate for the three and nine months ended October 29, 2022, was 21.6 percent and 19.8 percent, respectively, compared with 22.1 percent and 21.6 percent in the respective comparable prior-year periods.

For the three and nine month periods, the decrease reflects lower pretax earnings resulting in a larger tax rate benefit from ongoing and discrete tax items in the current year, partially offset by the impacts of discrete tax benefits in the prior-year.

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

12 unchanged sentences

Reconciliation of Non-GAAP Adjusted EPS Three Months Ended

July 30, 2022 July 31, 2021

October 29, 2022 October 30, 2021

(millions, except per share data) Pretax Net of Tax Per Share Pretax Net of Tax Per Share

2 unchanged sentences

Adjusted diluted earnings per share $ 1.54 $ 3.03

Reconciliation of Non-GAAP Adjusted EPS Six Months Ended

July 30, 2022 July 31, 2021

Reconciliation of Non-GAAP Adjusted EPS Nine Months Ended

October 29, 2022 October 30, 2021

(millions, except per share data) Pretax Net of Tax Per Share Pretax Net of Tax Per Share

11 unchanged sentences

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 Six Months Ended

(dollars in millions) July 30, 2022 July 31, 2021 Change July 30, 2022 July 31, 2021 Change

EBIT and EBITDA Three Months Ended Nine Months Ended

(dollars in millions) October 29, 2022 October 30, 2021 Change October 29, 2022 October 30, 2021 Change

Net earnings $ 712 $ 1,488 (52.1) % $ 1,904 $ 5,402 (64.7) %

16 unchanged sentences

Trailing Twelve Months

Numerator July 30, 2022 July 31, 2021

Numerator October 29, 2022 October 30, 2021

Operating income $ 4,784 $ 8,687

4 unchanged sentences

Net operating profit after taxes $ 3,875 $ 7,183

Denominator July 30, 2022 July 31, 2021 August 1, 2020

Denominator October 29, 2022 October 30, 2021 October 31, 2020

Current portion of long-term debt and other borrowings $ 2,207 $ 1,176 $ 131

11 unchanged sentences

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, which were 21.7 percent and 21.2 percent for the trailing twelve months ended July 30, 2022, and July 31, 2021, respectively.

For the trailing twelve months ended July 30, 2022, and July 31, 2021, includes tax effect of $1.3 billion and $1.9 billion related to EBIT, and $19 million and $18 million, respectively, related to operating lease interest.

(b) Calculated using the effective tax rates, which were 21.5 percent and 21.3 percent for the trailing twelve months ended October 29, 2022, and October 30, 2021, respectively.

For the trailing twelve months ended October 29, 2022, and October 30, 2021, includes tax effect of $1.0 billion and $1.9 billion 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, respectively.

11 unchanged sentences

and finally, we return any excess cash to shareholders by repurchasing shares within the limits of our credit rating goals.

Our cash and cash equivalents balance was $1.1 billion, $5.9 billion, and $7.4 billion as of July 30, 2022, January 29, 2022, and July 31, 2021, respectively.

Our cash and cash equivalents balance includes short-term investments of $189 million, $5.0 billion, and $6.4 billion as of July 30, 2022, January 29, 2022, and July 31, 2021, respectively.

Our cash and cash equivalents balance was $954 million, $5.9 billion, and $5.8 billion as of October 29, 2022, January 29, 2022, and October 30, 2021, respectively.

Our cash and cash equivalents balance includes short-term investments of $5.0 billion and $4.8 billion as of January 29, 2022 and October 30, 2021, respectively.

We had no short-term investments as of October 29, 2022.

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

2 unchanged sentences

Operating Cash Flows

Cash flows required for operating activities were $47 million for the six months ended July 30, 2022, compared with $3.4 billion of cash flows provided by operating activities for the six months ended July 31, 2021.

For the six months ended July 30, 2022, operating cash flows decreased as a result of lower earnings, increased inventory levels and lower accounts payable leverage due to decreased inventory turnover, compared with the six months ended July 31, 2021.

Inventory was $15.3 billion as of July 30, 2022, compared with $13.9 billion and $11.3 billion at January 29, 2022, and July 31, 2021, respectively.

The increase over the balance as of July 31, 2021, primarily reflects the following:

• our decision to move merchandise receipt timing earlier due to expected supply chain volatility,

Cash flows provided by operating activities were $552 million for the nine months ended October 29, 2022, compared with $5.6 billion of cash flows provided by operating activities for the nine months ended October 30, 2021.

For the nine months ended October 29, 2022, operating cash flows decreased as a result of lower earnings, increased inventory levels, and lower accounts payable leverage, compared with the nine months ended October 30, 2021.

Inventory was $17.1 billion as of October 29, 2022, compared with $13.9 billion and $15.0 billion at January 29, 2022, and October 30, 2021, respectively.

The increase over the balance as of October 30, 2021, primarily reflects the following:

• our decision to move import merchandise receipt timing earlier due to expected supply chain volatility, coupled with recent decreases in shipping times, resulting in earlier-than-expected inventory receipts,

• investments in our inventory position in our frequency categories (Food and Beverage and Beauty and Household Essentials),

1 unchanged sentence

• increases in unit costs across all of our categories.

The increase was amplified by unintentionally low inventory levels last year resulting from supply chain disruptions, and demand shifts, described within the Business En vironmen t section on page 13 .

The increase was amplified by unintentionally low inventory levels last year resulting from supply chain disruptions and high sell-through rates.

The Business Environmen t section on page 13 provides additional information.

Investing Cash Flows

Investing cash flows included capital investments of $2.5 billion and $1.3 billion for the six months ended July 30, 2022, and July 31, 2021, respectively.

Investing cash flows included capital investments of $4.3 billion and $2.5 billion for the nine months ended October 29, 2022, and October 30, 2021, respectively.

The increase primarily reflects an increase in store remodel activity, investment in supply chain, and the impact of inflation on these projects.

F or the six months ended July 31, 2021 , investing cash flows included $356 million of proceeds from the sale of Dermstore.

We paid dividends totaling $417 million ($0.90 per share) and $841 million ($1.80 per share) for the three and six months ended July 30, 2022, respectively, and $336 million ($0.68 per share) and $676 million ($1.36 per share) for the three and six months ended July 31, 2021, respectively, a per share increase of 32.4 percent.

We declared dividends totaling $502 million ($1.08 per share) during the second quarter of 2022 and $445 million ($0.90 per share) during the second quarter of 2021, a per share increase of 20.0 percent.

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.

For the nine months ended October 30, 2021, investing cash flows included $356 million of proceeds from the sale of Dermstore.

TARGET CORPORATION

2 unchanged sentences

ANALYSIS OF FINANCIAL CONDITION Index to Notes

We paid dividends totaling $497 million ($1.08 per share) and $1.3 billion ($2.88 per share) for the three and nine months ended October 29, 2022, respectively, and $440 million ($0.90 per share) and $1.1 billion ($2.26 per share) for the three and nine months ended October 30, 2021, respectively, a per share increase of 20.0 percent for the three month period and 27.4 percent for the nine month period.

We declared dividends totaling $502 million ($1.08 per share) during the third quarter of 2022 and $439 million ($0.90 per share) during the third quarter of 2021, a per share increase of 20.0 percent.

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 $2.6 billion to shareholders through share repurchase during the six months ended July 30, 2022.

We returned $2.6 billion to shareholders through share repurchase during the nine months ended October 29, 2022.

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 Financial Statements for more information.

3 unchanged sentences

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 July 30, 2022, our credit ratings were as follows:

As of October 29, 2022, our credit ratings were as follows:

Credit Ratings Moody’s Standard and Poor’s Fitch

4 unchanged sentences

We have the ability to obtain short-term financing from time to time under our commercial paper program and credit facility.

Our committed $3.0 billion unsecured revolving credit facility expires in October 2026 and backstops our commercial paper program.

No balances were outstanding under our credit facility at any time during 2022 or 2021.

As of July 30, 2022, we had $1.5 billion outstanding under our commercial paper program.

We did not have any balances outstanding under our commercial paper program as of July 31, 2021.

In October 2022, we obtained a new committed $1.0 billion 364-day unsecured revolving credit facility that will expire in October 2023.

We also extended our existing committed $3.0 billion unsecured revolving credit facility, which now expires in October 2027.

Both credit facilities backstop our commercial paper program.

No balances were outstanding under either credit facility at any time during 2021 or 2022.

As of October 29, 2022, we had $2.1 billion outstanding under our commercial paper program.

We did not have any balances outstanding under our commercial paper program as of October 30, 2021.

Note 6 to the Financial Statements provides additional information.

Most of our long-term debt obligations contain covenants related to secured debt levels.

In addition to a secured debt level covenant, our credit facility also contains a debt leverage covenant.

In addition to a secured debt level covenant, our credit facilities also contain a debt leverage covenant.

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

Additionally, as of July 30, 2022, 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 October 29, 2022, 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.

We believe our sources of liquidity, namely operating cash flows, credit facility capacity, and access to capital markets, will continue to be adequate to meet our contractual obligations, working capital and planned capital expenditures, finance anticipated expansion and strategic initiatives, fund debt maturities, pay dividends, and execute purchases under our share repurchase program for the foreseeable future.

New Accounting Pronouncements

We do not expect any recently issued accounting pronouncements to have a material effect on our financial statements.

TARGET CORPORATION

Q3 2022 Form 10-Q 22

MANAGEMENT'S DISCUSSION AND ANALYSIS & SUPPLEMENTAL INFORMATION Table of Contents

FORWARD LOOKING STATEMENTS & CONTROLS AND PROCEDURES Index to Notes

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF FINANCIAL CONDITION Index to Notes

New Accounting Pronouncements

We do not expect any recently issued accounting pronouncements to have a material effect on our financial statements.

Forward-Looking Statements

10 unchanged sentences

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