TARGET CORP 10-Q

Item 1. Financial Statements Consolidated Statements of Operations Three Months Ended (millions, except per share data) (unaudited) April 29, 2023 April 30, 2022 Sales $ 24,948 $ 24,830 Other revenue 374 340 Total revenue 25,322 25,170 Cost of sales 18,386 18,461 Selling, general and administrative expenses 5,025 4,762 Depreciation and amortization (exclusive of depreciation included in cost of sales) 583 601 Operating income 1,328 1,346 Net interest expense 147 112 Net other income ( 23 ) ( 15 ) Earnings before income taxes 1,204 1,249 Provision for income taxes 254 240 Net earnings $ 950 $ 1,009 Basic earnings per share $ 2.06 $ 2.17 Diluted earnings per share $ 2.05 $ 2.16 Weighted average common shares outstanding Basic 460.9 464.0 Diluted 462.9 467.8 Antidilutive shares 1.2 — See accompanying Notes to Consolidated Financial Statements . TARGET CORPORATION Q1 2023 Form 10-Q 1 FINANCIAL STATEMENTS Table of Contents Index to Notes Consolidated Statements of Comprehensive Income Three Months Ended (millions) (unaudited) April 29, 2023 April 30, 2022 Net earnings $ 950 $ 1,009 Other comprehensive income, net of tax Pension benefit liabilities 2 11 Cash flow hedges and currency translation adjustment ( 5 ) 190 Other comprehensive income ( 3 ) 201 Comprehensive income $ 947 $ 1,210 See accompanying Notes to Consolidated Financial Statements . TARGET CORPORATION Q1 2023 Form 10-Q 2 FINANCIAL STATEMENTS Table of Contents Index to Notes Consolidated Statements of Financial Position (millions, except footnotes) (unaudited) April 29, 2023 January 28, 2023 April 30, 2022 Assets Cash and cash equivalents $ 1,321 $ 2,229 $ 1,112 Inventory 12,616 13,499 15,083 Other current assets 1,836 2,118 1,758 Total current assets 15,773 17,846 17,953 Property and equipment Land 6,493 6,231 6,164 Buildings and improvements 35,198 34,746 33,300 Fixtures and equipment 7,473 7,439 6,459 Computer hardware and software 3,067 3,039 2,588 Construction-in-progress 2,822 2,688 1,444 Accumulated depreciation ( 22,657 ) ( 22,631 ) ( 21,285 ) Property and equipment, net 32,396 31,512 28,670 Operating lease assets 2,640 2,657 2,571 Other noncurrent assets 1,341 1,320 1,648 Total assets $ 52,150 $ 53,335 $ 50,842 Liabilities and shareholders’ investment Accounts payable $ 11,935 $ 13,487 $ 14,053 Accrued and other current liabilities 5,732 5,883 5,582 Current portion of long-term debt and other borrowings 200 130 1,089 Total current liabilities 17,867 19,500 20,724 Long-term debt and other borrowings 16,010 16,009 13,379 Noncurrent operating lease liabilities 2,621 2,638 2,581 Deferred income taxes 2,289 2,196 1,752 Other noncurrent liabilities 1,758 1,760 1,632 Total noncurrent liabilities 22,678 22,603 19,344 Shareholders’ investment Common stock 38 38 39 Additional paid-in capital 6,541 6,608 5,592 Retained earnings 5,448 5,005 5,495 Accumulated other comprehensive loss ( 422 ) ( 419 ) ( 352 ) Total shareholders’ investment 11,605 11,232 10,774 Total liabilities and shareholders’ investment $ 52,150 $ 53,335 $ 50,842 Common Stock Authorized 6,000,000,000 shares, $ 0.0833 par value; 461,552,843 , 460,346,947 , and 463,683,711 shares issued and outstanding as of April 29, 2023, January 28, 2023, and April 30, 2022, 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 2023 Form 10-Q 3 FINANCIAL STATEMENTS Table of Contents Index to Notes Consolidated Statements of Cash Flows Three Months Ended (millions) (unaudited) April 29, 2023 April 30, 2022 Operating activities Net earnings $ 950 $ 1,009 Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation and amortization 667 679 Share-based compensation expense 43 83 Deferred income taxes 95 115 Noncash losses / (gains) and other, net ( 11 ) 52 Changes in operating accounts: Inventory 883 ( 1,181 ) Other assets 34 ( 86 ) Accounts payable ( 1,463 ) ( 1,560 ) Accrued and other liabilities 67 ( 505 ) Cash provided by (required for) operating activities 1,265 ( 1,394 ) Investing activities Expenditures for property and equipment ( 1,605 ) ( 952 ) Proceeds from disposal of property and equipment 2 2 Other investments 1 2 Cash required for investing activities ( 1,602 ) ( 948 ) Financing activities Change in commercial paper, net 90 945 Reductions of long-term debt ( 46 ) ( 48 ) Dividends paid ( 497 ) ( 424 ) Repurchase of stock — ( 10 ) Accelerated share repurchase pending final settlement — ( 2,750 ) Shares withheld for taxes on share-based compensation ( 118 ) ( 171 ) Stock option exercises — 1 Cash required for financing activities ( 571 ) ( 2,457 ) Net decrease in cash and cash equivalents ( 908 ) ( 4,799 ) Cash and cash equivalents at beginning of period 2,229 5,911 Cash and cash equivalents at end of period $ 1,321 $ 1,112 Supplemental information Leased assets obtained in exchange for new finance lease liabilities $ 15 $ 62 Leased assets obtained in exchange for new operating lease liabilities 54 59 See accompanying Notes to Consolidated Financial Statements . TARGET CORPORATION Q1 2023 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 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 Net earnings — — — 183 — 183 Other comprehensive loss — — — — ( 17 ) ( 17 ) Dividends declared — — — ( 502 ) — ( 502 ) Repurchase of stock ( 3.6 ) ( 1 ) 870 ( 755 ) — 114 Stock options and awards 0.1 — 40 — — 40 July 30, 2022 460.2 $ 38 $ 6,502 $ 4,421 $ ( 369 ) $ 10,592 Net earnings — — — 712 — 712 Other comprehensive income — — — — 161 161 Dividends declared — — — ( 502 ) — ( 502 ) Stock options and awards 0.1 — 56 — — 56 October 29, 2022 460.3 $ 38 $ 6,558 $ 4,631 $ ( 208 ) $ 11,019 Net earnings — — — 876 — 876 Other comprehensive loss — — — — ( 211 ) ( 211 ) Dividends declared — — — ( 502 ) — ( 502 ) Stock options and awards — — 50 — — 50 January 28, 2023 460.3 $ 38 $ 6,608 $ 5,005 $ ( 419 ) $ 11,232 TARGET CORPORATION Q1 2023 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 28, 2023 460.3 $ 38 $ 6,608 $ 5,005 $ ( 419 ) $ 11,232 Net earnings — — — 950 — 950 Other comprehensive loss — — — — ( 3 ) ( 3 ) Dividends declared — — — ( 507 ) — ( 507 ) Stock options and awards 1.3 — ( 67 ) — — ( 67 ) April 29, 2023 461.6 $ 38 $ 6,541 $ 5,448 $ ( 422 ) $ 11,605 We declared $ 1.08 and $ 0.90 dividends per share for the three months ended April 29, 2023, and April 30, 2022, and $ 4.14 per share for the fiscal year ended January 28, 2023. See accompanying Notes to Consolidated Financial Statements . TARGET CORPORATION Q1 2023 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 Revenue 9 Note 3 Fair Value Measurements 10 Note 4 Supplier Finance Programs 10 Note 5 Commercial Paper and Long-Term Debt 10 Note 6 Derivative Financial Instruments 11 Note 7 Share Repurchase 12 Note 8 Pension Benefits 12 Note 9 Accumulated Other Comprehensive Income (Loss) 12 TARGET CORPORATION Q1 2023 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 most recent 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. TARGET CORPORATION Q1 2023 Form 10-Q 8 FINANCIAL STATEMENTS Table of Contents NOTES Index to Notes 2. Revenue 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). Revenue Three Months Ended (millions) April 29, 2023 April 30, 2022 Apparel & accessories (a) $ 3,967 $ 4,239 Beauty & household essentials (b) 7,682 7,053 Food & beverage (c) 5,997 5,505 Hardlines (d) 3,391 3,713 Home furnishings & décor (e) 3,855 4,271 Other 56 49 Sales 24,948 24,830 Credit card profit sharing 174 185 Other 200 155 Other revenue 374 340 Total revenue $ 25,322 $ 25,170 (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 29, 2023, January 28, 2023, and April 30, 2022, the accrual for estimated returns was $ 206 million, $ 174 million, and $ 204 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 28, 2023 Gift Cards Issued During Current Period But Not Redeemed (b) Revenue Recognized From Beginning Liability April 29, 2023 (millions) Gift card liability (a) $ 1,240 $ 268 $ ( 481 ) $ 1,027 (a) Included in Accrued and Other Current Liabilities. (b) Net of estimated breakage. Other Revenue 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 2023 Form 10-Q 9 FINANCIAL STATEMENTS Table of Contents NOTES Index to Notes Other — Includes advertising revenue, Shipt membership and service revenues, commissions earned on third-party sales through Target.com, rental income, and other miscellaneous revenues. 3. 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 29, 2023 January 28, 2023 April 30, 2022 Assets Short-term investments Cash and Cash Equivalents Level 1 $ 408 $ 1,343 $ 182 Prepaid forward contracts Other Current Assets Level 1 25 27 37 Interest rate swaps Other Current Assets Level 2 — — 41 Interest rate swaps Other Noncurrent Assets Level 2 7 7 292 Liabilities Interest rate swaps Other Noncurrent Liabilities Level 2 72 81 27 Significant Financial Instruments Not Measured at Fair Value (a) (millions) April 29, 2023 January 28, 2023 April 30, 2022 Carrying Amount Fair Value Carrying Amount Fair Value Carrying Amount Fair Value Long-term debt, including current portion (b) $ 14,144 $ 13,672 $ 14,141 $ 13,688 $ 11,549 $ 11,466 (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, fair value hedge adjustments, and lease liabilities. 4. Supplier Finance Programs We have arrangements with several financial institutions to act as our paying agents to certain vendors. The arrangements also permit the financial institutions to provide vendors with an option, at our vendors' sole discretion, to sell their receivables from Target to the financial institutions. A vendor’s election to receive early payment at a discounted amount from the financial institutions does not change the amount that we must remit to the financial institutions or our payment date, which is up to 120 days from the invoice date. We do not pay any fees or pledge any security to these financial institutions under these arrangements. The arrangements can be terminated by either party with notice ranging up to 120 days. Our outstanding vendor obligations eligible for early payment under these arrangements totaled $ 3.3 billion, $ 3.4 billion, and $ 4.4 billion as of April 29, 2023, January 28, 2023, and April 30, 2022, respectively, and are included within Accounts Payable on our Consolidated Statements of Financial Position. Our outstanding vendor obligations do not represent actual receivables sold by our vendors to the financial institutions, which may be lower. 5. 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 29, 2023 and April 30, 2022, the maximum amounts outstanding were $ 90 million and $ 1.1 billion, respectively, and the average daily amounts outstanding were $ 2 million and $ 291 million, respectively, at a weighted average annual interest rate of 4.8 percent and 0.4 percent, respectively. As of April 29, 2023 and April 30, 2022, $ 90 million and $ 945 million, respectively, were outstanding and are classified within Current Portion of Long-Term Debt and Other Borrowings on our Consolidated Statements of Financial Position. TARGET CORPORATION Q1 2023 Form 10-Q 10 FINANCIAL STATEMENTS Table of Contents NOTES Index to Notes 6. 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 3 to the Consolidated Financial Statements provides the fair value and classification of these instruments. We were party to interest rate swaps with notional amounts totaling $ 2.45 billion as of April 29, 2023 and January 28, 2023, and $ 1.50 billion as of April 30, 2022. 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 29, 2023 and April 30, 2022. During the first quarter of 2023, we amended certain of our interest rate swaps, with notional amounts totaling $ 1.25 billion, to replace the London Interbank Offered Rate (LIBOR) with the daily Secured Overnight Financing Rate (SOFR) as part of our planned reference rate reform activities. These amendments did not result in any change to our application of hedge accounting or any impact to our consolidated financial statements. We were party to forward-starting interest rate swaps with notional amounts totaling $ 2.15 billion as of April 30, 2022. During 2022, we terminated all remaining forward-starting interest rate swap agreements. The resulting gains upon termination were recorded in Accumulated Other Comprehensive Loss and will be recognized as a reduction to Net Interest Expense over the respective term of the debt. Effect of Hedges on Debt (millions) April 29, 2023 January 28, 2023 April 30, 2022 Long-term debt and other borrowings Carrying amount of hedged debt $ 2,376 $ 2,366 $ 1,468 Cumulative hedging adjustments, included in carrying amount ( 65 ) ( 74 ) ( 27 ) Effect of Hedges on Net Interest Expense Three Months Ended (millions) April 29, 2023 April 30, 2022 Gain (loss) on fair value hedges recognized in Net Interest Expense Interest rate swap designated as fair value hedges $ 9 $ ( 104 ) Hedged debt ( 9 ) 104 Gain on cash flow hedges recognized in Net Interest Expense 6 — Total $ 6 $ — TARGET CORPORATION Q1 2023 Form 10-Q 11 FINANCIAL STATEMENTS Table of Contents NOTES Index to Notes 7. 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. We did not repurchase any of our shares during the three months ended April 29, 2023. Share Repurchase Activity Three Months Ended (millions, except per share data) April 29, 2023 April 30, 2022 Number of shares purchased — 0.1 Average price paid per share $ — $ 208.60 Total investment $ — $ 10 Note: This table excludes activity related to the ASR arrangement 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 $ 2.0 billion reduction to Retained Earnings. As of April 30, 2022, $ 751 million was included in the Consolidated Statement of Financial Position as a reduction to Additional Paid-in Capital. Final settlement occurred during the second quarter of 2022. In total, under the ASR arrangement, we repurchased 12.5 million shares for a total cash investment of $ 2.6 billion. 8. Pension Benefits We provide pension plan benefits to eligible team members. Net Pension Benefits Expense Three Months Ended (millions) Classification April 29, 2023 April 30, 2022 Service cost benefits earned SG&A $ 20 $ 23 Interest cost on projected benefit obligation Net Other Income 41 29 Expected return on assets Net Other Income ( 67 ) ( 59 ) Amortization of losses Net Other Income — 15 Prior service cost Net Other Income 3 — Total $ ( 3 ) $ 8 9. Accumulated Other Comprehensive Income (Loss) Change in Accumulated Other Comprehensive Income (Loss) Cash Flow Hedges Currency Translation Adjustment Pension Total (millions) January 28, 2023 $ 300 $ ( 23 ) $ ( 696 ) $ ( 419 ) Other comprehensive income (loss) before reclassifications, net of tax — — — — Amounts reclassified from AOCI, net of tax ( 5 ) — 2 ( 3 ) April 29, 2023 $ 295 $ ( 23 ) $ ( 694 ) $ ( 422 ) TARGET CORPORATION Q1 2023 Form 10-Q 12 MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents FINANCIAL SUMMARY Index to Notes