TARGET CORP 10-Q

Item 1. Financial Statements Consolidated Statements of Operations Three Months Ended Nine Months Ended (millions, except per share data) (unaudited) October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 Sales $ 25,004 $ 26,122 $ 74,336 $ 76,605 Other revenue 394 396 1,157 1,120 Total revenue 25,398 26,518 75,493 77,725 Cost of sales 18,149 19,680 54,333 58,283 Selling, general and administrative expenses 5,316 5,219 15,525 14,983 Depreciation and amortization (exclusive of depreciation included in cost of sales) 616 597 1,793 1,770 Operating income 1,317 1,022 3,842 2,689 Net interest expense 107 125 395 349 Net other income ( 25 ) ( 12 ) ( 64 ) ( 35 ) Earnings before income taxes 1,235 909 3,511 2,375 Provision for income taxes 264 197 755 471 Net earnings $ 971 $ 712 $ 2,756 $ 1,904 Basic earnings per share $ 2.10 $ 1.55 $ 5.97 $ 4.11 Diluted earnings per share $ 2.10 $ 1.54 $ 5.96 $ 4.09 Weighted average common shares outstanding Basic 461.6 460.3 461.4 462.6 Diluted 462.6 462.5 462.7 465.3 Antidilutive shares 3.0 1.3 2.6 1.1 See accompanying Notes to Consolidated Financial Statements . TARGET CORPORATION Q3 2023 Form 10-Q 1 FINANCIAL STATEMENTS Table of Contents Index to Notes Consolidated Statements of Comprehensive Income Three Months Ended Nine Months Ended (millions) (unaudited) October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 Net earnings $ 971 $ 712 $ 2,756 $ 1,904 Other comprehensive income, net of tax Pension benefit liabilities — 11 3 33 Cash flow hedges and currency translation adjustment ( 5 ) 150 ( 14 ) 312 Other comprehensive income (loss) ( 5 ) 161 ( 11 ) 345 Comprehensive income $ 966 $ 873 $ 2,745 $ 2,249 See accompanying Notes to Consolidated Financial Statements . TARGET CORPORATION Q3 2023 Form 10-Q 2 FINANCIAL STATEMENTS Table of Contents Index to Notes Consolidated Statements of Financial Position (millions, except footnotes) (unaudited) October 28, 2023 January 28, 2023 October 29, 2022 Assets Cash and cash equivalents $ 1,910 $ 2,229 $ 954 Inventory 14,731 13,499 17,117 Other current assets 1,958 2,118 2,322 Total current assets 18,599 17,846 20,393 Property and equipment Land 6,520 6,231 6,214 Buildings and improvements 36,627 34,746 34,279 Fixtures and equipment 8,490 7,439 7,184 Computer hardware and software 3,312 3,039 2,899 Construction-in-progress 2,000 2,688 2,358 Accumulated depreciation ( 23,781 ) ( 22,631 ) ( 22,013 ) Property and equipment, net 33,168 31,512 30,921 Operating lease assets 3,086 2,657 2,596 Other noncurrent assets 1,376 1,320 1,705 Total assets $ 56,229 $ 53,335 $ 55,615 Liabilities and shareholders’ investment Accounts payable $ 14,291 $ 13,487 $ 15,438 Accrued and other current liabilities 6,099 5,883 6,138 Current portion of long-term debt and other borrowings 1,112 130 2,207 Total current liabilities 21,502 19,500 23,783 Long-term debt and other borrowings 14,883 16,009 14,237 Noncurrent operating lease liabilities 3,031 2,638 2,590 Deferred income taxes 2,447 2,196 2,240 Other noncurrent liabilities 1,852 1,760 1,746 Total noncurrent liabilities 22,213 22,603 20,813 Shareholders’ investment Common stock 38 38 38 Additional paid-in capital 6,681 6,608 6,558 Retained earnings 6,225 5,005 4,631 Accumulated other comprehensive loss ( 430 ) ( 419 ) ( 208 ) Total shareholders’ investment 12,514 11,232 11,019 Total liabilities and shareholders’ investment $ 56,229 $ 53,335 $ 55,615 Common Stock Authorized 6,000,000,000 shares, $ 0.0833 par value; 461,651,176 , 460,346,947 , and 460,297,654 shares issued and outstanding as of October 28, 2023, January 28, 2023, and October 29, 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 Q3 2023 Form 10-Q 3 FINANCIAL STATEMENTS Table of Contents Index to Notes Consolidated Statements of Cash Flows Nine Months Ended (millions) (unaudited) October 28, 2023 October 29, 2022 Operating activities Net earnings $ 2,756 $ 1,904 Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation and amortization 2,072 2,004 Share-based compensation expense 176 177 Deferred income taxes 252 548 Noncash losses / (gains) and other, net 101 141 Changes in operating accounts: Inventory ( 1,232 ) ( 3,215 ) Other assets ( 208 ) ( 205 ) Accounts payable 887 ( 224 ) Accrued and other liabilities 528 ( 578 ) Cash provided by operating activities 5,332 552 Investing activities Expenditures for property and equipment ( 3,952 ) ( 4,323 ) Proceeds from disposal of property and equipment 24 4 Other investments 18 16 Cash required for investing activities ( 3,910 ) ( 4,303 ) Financing activities Change in commercial paper, net — 2,104 Additions to long-term debt — 991 Reductions of long-term debt ( 114 ) ( 139 ) Dividends paid ( 1,503 ) ( 1,339 ) Repurchase of stock — ( 2,646 ) Shares withheld for taxes on share-based compensation ( 124 ) ( 179 ) Stock option exercises — 2 Cash required for financing activities ( 1,741 ) ( 1,206 ) Net decrease in cash and cash equivalents ( 319 ) ( 4,957 ) Cash and cash equivalents at beginning of period 2,229 5,911 Cash and cash equivalents at end of period $ 1,910 $ 954 Supplemental information Leased assets obtained in exchange for new finance lease liabilities $ 86 $ 116 Leased assets obtained in exchange for new operating lease liabilities 679 203 See accompanying Notes to Consolidated Financial Statements . TARGET CORPORATION Q3 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 Q3 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 Net earnings — — — 835 — 835 Other comprehensive loss — — — — ( 3 ) ( 3 ) Dividends declared — — — ( 516 ) — ( 516 ) Stock options and awards — — 69 — — 69 July 29, 2023 461.6 $ 38 $ 6,610 $ 5,767 $ ( 425 ) $ 11,990 Net earnings — — — 971 — 971 Other comprehensive loss — — — — ( 5 ) ( 5 ) Dividends declared — — — ( 513 ) — ( 513 ) Stock options and awards 0.1 — 71 — — 71 October 28, 2023 461.7 $ 38 $ 6,681 $ 6,225 $ ( 430 ) $ 12,514 We declared $ 1.10 and $ 1.08 dividends per share for the three months ended October 28, 2023 and October 29, 2022, respectively, and $ 4.14 per share for the fiscal year ended January 28, 2023. See accompanying Notes to Consolidated Financial Statements . TARGET CORPORATION Q3 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 Property and Equipment 11 Note 6 Commercial Paper and Long-Term Debt 11 Note 7 Derivative Financial Instruments 11 Note 8 Share Repurchase 12 Note 9 Pension Benefits 12 Note 10 Accumulated Other Comprehensive Income (Loss) 13 TARGET CORPORATION Q3 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 Q3 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 Nine Months Ended (millions) October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 Apparel & accessories (a) $ 4,007 $ 4,367 $ 12,075 $ 13,223 Beauty & household essentials (b) 7,619 7,465 22,814 21,726 Food & beverage (c) 5,736 5,748 17,125 16,521 Hardlines (d) 3,192 3,665 9,966 11,244 Home furnishings & décor (e) 4,420 4,832 12,230 13,750 Other 30 45 126 141 Sales 25,004 26,122 74,336 76,605 Credit card profit sharing 165 184 508 550 Other 229 212 649 570 Other revenue 394 396 1,157 1,120 Total revenue $ 25,398 $ 26,518 $ 75,493 $ 77,725 (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 October 28, 2023, January 28, 2023, and October 29, 2022, the accrual for estimated returns was $ 207 million, $ 174 million, and $ 209 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 October 28, 2023 (millions) Gift card liability (a) $ 1,240 $ 466 $ ( 796 ) $ 910 (a) Included in Accrued and Other Current Liabilities. (b) Net of estimated breakage. TARGET CORPORATION Q3 2023 Form 10-Q 9 FINANCIAL STATEMENTS Table of Contents NOTES Index to Notes 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. 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 October 28, 2023 January 28, 2023 October 29, 2022 Assets Short-term investments Cash and Cash Equivalents Level 1 $ 1,004 $ 1,343 $ — Prepaid forward contracts Other Current Assets Level 1 18 27 27 Interest rate swaps Other Current Assets Level 2 — — 53 Interest rate swaps Other Noncurrent Assets Level 2 — 7 341 Liabilities Interest rate swaps Other Current Liabilities Level 2 7 — — Interest rate swaps Other Noncurrent Liabilities Level 2 190 81 147 Significant Financial Instruments Not Measured at Fair Value (a) (millions) October 28, 2023 January 28, 2023 October 29, 2022 Carrying Amount Fair Value Carrying Amount Fair Value Carrying Amount Fair Value Long-term debt, including current portion (b) $ 14,149 $ 12,485 $ 14,141 $ 13,688 $ 12,505 $ 11,291 (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 $ 4.5 billion, $ 3.4 billion, and $ 4.5 billion as of October 28, 2023, January 28, 2023, and October 29, 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. TARGET CORPORATION Q3 2023 Form 10-Q 10 FINANCIAL STATEMENTS Table of Contents NOTES Index to Notes 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 $ 64 million and $ 98 million for the three and nine months ended October 28, 2023, respectively. We recognized impairment charges of $ 5 million and $ 55 million for the three and nine months ended October 29, 2022, 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 October 28, 2023, there were no commercial paper amounts outstanding. For the three months ended October 29, 2022, the maximum amount outstanding was $ 2.1 billion and the average daily amount outstanding was $ 1.1 billion, at a weighted average annual interest rate of 2.8 percent. For the nine months ended October 28, 2023 and October 29, 2022, the maximum amounts outstanding were $ 90 million and $ 2.1 billion, respectively, and the average daily amounts outstanding were $ 1 million and $ 713 million, respectively, at a weighted average annual interest rate of 4.8 percent and 1.9 percent, respectively. No balances were outstanding as of October 28, 2023. As of October 29, 2022, $ 2.1 billion was outstanding and is classified within Current Portion of Long-Term Debt and Other Borrowings on our Consolidated Statements of Financial Position. In October 2023, we obtained a new committed $ 1.0 billion 364 -day unsecured revolving credit facility that will expire in October 2024 and terminated our prior 364 -day credit facility. We also exercised our option to extend our existing five-year unsecured revolving credit facility, which has a maximum committed capacity of $ 3.0 billion and now expires in October 2028. No balances were outstanding under either credit facility at any time during 2023 or 2022. 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 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 October 28, 2023, January 28, 2023, and October 29, 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 and nine months ended October 28, 2023 and October 29, 2022. During 2023, we amended interest rate swaps with notional amounts totaling $ 1.5 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 $ 1.45 billion as of October 29, 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. TARGET CORPORATION Q3 2023 Form 10-Q 11 FINANCIAL STATEMENTS Table of Contents NOTES Index to Notes Effect of Hedges on Debt (millions) October 28, 2023 January 28, 2023 October 29, 2022 Long-term debt and other borrowings Carrying amount of hedged debt $ 2,245 $ 2,366 $ 2,294 Cumulative hedging adjustments, included in carrying amount ( 197 ) ( 74 ) ( 146 ) Effect of Hedges on Net Interest Expense Three Months Ended Nine Months Ended (millions) October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 Gain (loss) on fair value hedges recognized in Net Interest Expense Interest rate swaps designated as fair value hedges $ ( 60 ) $ ( 168 ) $ ( 123 ) $ ( 223 ) Hedged debt 60 168 123 223 Gain on cash flow hedges recognized in Net Interest Expense 6 — 18 — Total $ 6 $ — $ 18 $ — 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. We did no t repurchase any of our shares during the nine months ended October 28, 2023. Share Repurchase Activity Three Months Ended Nine Months Ended (millions, except per share data) October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 Number of shares purchased — — — 12.5 Average price paid per share $ — $ — $ — $ 211.57 Total investment $ — $ — $ — $ 2,646 9. Pension Benefits We provide pension plan benefits to eligible team members. Net Pension Benefits Expense Three Months Ended Nine Months Ended (millions) Classification October 28, 2023 October 29, 2022 October 28, 2023 October 29, 2022 Service cost benefits earned SG&A $ 19 $ 22 $ 58 $ 68 Interest cost on projected benefit obligation Net Other Income 42 29 125 88 Expected return on assets Net Other Income ( 67 ) ( 59 ) ( 201 ) ( 176 ) Amortization of losses Net Other Income — 16 1 46 Prior service cost Net Other Income — — 11 10 Total $ ( 6 ) $ 8 $ ( 6 ) $ 36 TARGET CORPORATION Q3 2023 Form 10-Q 12 FINANCIAL STATEMENTS Table of Contents NOTES Index to Notes 10. 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 — ( 1 ) — ( 1 ) Amounts reclassified from AOCI, net of tax ( 13 ) — 3 ( 10 ) October 28, 2023 $ 287 $ ( 24 ) $ ( 693 ) $ ( 430 ) TARGET CORPORATION Q3 2023 Form 10-Q 13 MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents FINANCIAL SUMMARY Index to Notes