What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-13 compared with 2023-03-08 · 125 added, 123 removed, 299 unchanged (45% of the section changed)

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Executive Overview

We continue to make strategic investments to support our durable operating and financial model that further differentiates Target and is designed to drive sustainable sales and profit growth.

We continue to make strategic investments to support our durable operating and financial model that further differentiates Target and is designed to drive sustainable sales and profit growth over the long term.

During 2023, in support of our enterprise strategy described in Item 1 on page 2 of this Form 10-K, we

• Expanded our supply chain capacity and digital fulfillment capabilities, including adding one new distribution center and six new sortation centers to support our growth and commitment to fast delivery times, while helping our teams work more efficiently and managing our shipping costs;

• Expanded our supply chain capacity and digital fulfillment capabilities, including adding three new supply chain facilities to support our growth and commitment to fast delivery times, while helping our teams work more efficiently and managing our shipping costs;

• Fulfilled over 60 percent of our digital sales through our same-day fulfillment options:

Order Pickup, Drive Up, and delivery via Shipt;

• Continued the steady stream of newness across our assortment and continued to introduce new owned and exclusive brands, including fashion forward brands Future Collective TM and Houston White x Target;

• Completed 140 full store remodels and invested in hundreds of other stores through projects to increase efficiency of our Same-Day Services, build-out and open Ulta Beauty shop-in-shops, and expand Apple and Disney experiences;

• Opened 23 new stores, including a new larger-footprint store with reimagined design elements and additional stores in key urban markets and on college campuses;

• Invested in our team through our updated starting wage range, expanded access to health care benefits, and our debt-free education assistance program;

• Offered compelling promotions, attractive every day price points on key items, and free and easy payment and fulfillment options, including our new RedCard Reloadable Account, which provides all the benefits of our RedCard program without the need for a credit check or an existing bank account;

• Launched Target Zero, a collection of products designed to reduce waste and make it easier to shop sustainably, and completed retrofitting our first store designed to be net zero energy, located in Vista, California.

• Rolled out Drive Up with Starbucks and Returns with Drive Up nationwide;

• Continued to emphasize newness across our assortment and continued to introduce new owned and exclusive brands and designer collaborations, including our first kitchen owned brand Figmint, collections from Kendra Scott, a collaboration with Rowing Blazers, and Stanley drinkware in exclusive colors;

• Completed 65 full store remodels and continued to invest in other stores, including projects to increase efficiency of our Same-Day Services, build-out and open Ulta Beauty shop-in-shops, and expand Apple and Disney experiences;

• Opened 21 new stores in a variety of sizes with new design elements that reflect the local community;

• Invested in team member wages and benefits;

• Offered compelling promotions, attractive every day price points on key items, and free and easy payment and fulfillment options.

Financial Summary

2022 included the following notable items:

• GAAP diluted earnings per share were $5.98.

• Adjusted diluted earnings per share were $6.02.

• Total revenue increased 2.9 percent, reflecting total sales growth of 2.8 percent and a 9.8 percent increase in other revenue.

• Comparable sales increased 2.2 percent, driven by a 2.1 percent increase in traffic.

◦ Comparable store originated sales grew 2.4 percent.

◦ Comparable digitally originated sales increased 1.5 percent.

• Operating income of $3.8 billion was 57.0 percent lower than the comparable prior-year period.

Fiscal 2023 (a 53-week year) included the following notable items:

• GAAP and Adjusted diluted earnings per share were $8.94.

• Total revenue decreased 1.6 percent, reflecting a total sales decline of 1.7 percent and a 5.1 percent increase in other revenue.

• Comparable sales decreased 3.7 percent, driven by a 2.4 percent decrease in traffic and a 1.4 percent decrease in average transaction amount.

◦ Comparable store originated sales declined 3.5 percent.

◦ Comparable digitally originated sales decreased 4.8 percent.

• Operating income of $5.7 billion was 48.3 percent higher than the comparable prior-year period.

See Business Environment below for additional information.

Sales were $107.6 billion for 2022, an increase of $3.0 billion, or 2.8 percent, from the prior year.

Operating cash flow was $4.0 billion for 2022, a decrease of $(4.6) billion, or (53.4) percent, from $8.6 billion for 2021.

The drivers of the operating cash flow decrease are described on page 27 .

Sales were $105.8 billion for 2023, a decrease of $1.8 billion, or 1.7 percent, from the prior year.

Operating cash flow was $8.6 billion for 2023, an increase of $4.6 billion, or 114.6 percent, from $4.0 billion for 2022.

The drivers of the operating cash flow increase are described on page 30 .

TARGET CORPORATION

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MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

FINANCIAL SUMMARY & ANALYSIS OF OPERATIONS Index to Financial Statements

FINANCIAL SUMMARY Index to Financial Statements

Earnings Per Share

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A reconciliation of non-GAAP financial measures to GAAP measures is provided on page 28 .

(a) 2023 consisted of 53 weeks compared with 52 weeks in 2022 and 2021.

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 January 28, 2023, after-tax ROIC was 12.6 percent, compared with 33.1 percent for the trailing twelve months ended January 29, 2022.

For the trailing twelve months ended February 3, 2024, after-tax ROIC was 16.1 percent, compared with 12.6 percent for the trailing twelve months ended January 28, 2023.

The calculation of ROIC is provided on page 29 .

Business Environment

Following the onset of the COVID-19 pandemic in 2020, we experienced strong comparable sales growth and significant volatility in our category and channel mix, which continued through 2021, along with increasing supply chain disruptions.

In addition to country of origin production delays, trucker and dockworker shortages, a broad-based surge in consumer demand, and other factors led to industry-wide U.S.

port and ground transportation delays.

In response to the rising guest demand and supply chain constraints, we took various actions, including ordering merchandise earlier, securing ocean freight routes, adding incremental holding capacity near U.S.

ports, and increasing use of air transport for certain merchandise.

Some of these supply chain disruptions and resulting actions resulted in increased costs.

In 2022, our comparable sales growth slowed significantly, reflecting sales decreases in our Discretionary categories (Apparel & Accessories, Hardlines, and Home Furnishings & Decor) that substantially offset growth in our Frequency categories (Beauty & Household Essentials and Food & Beverage).

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.

In addition, during the second half of 2022, port congestion, shipping container availability, and other supply chain pressures improved.

This resulted in some inventory arriving earlier than anticipated, which resulted in increased costs of managing elevated inventory levels and an increased working capital investment.

These factors, net of the impact of retail price increases taken to address merchandise and freight cost inflation, resulted in decreased profitability compared to the prior year.

In 2023, we experienced sales declines across our business, primarily in each of our Discretionary categories (Apparel & Accessories, Hardlines, and Home Furnishings & Decor) partially offset by growth in Frequency categories (Beauty & Household Essentials and Food & Beverage).

This trend of decreased Discretionary category sales began in 2022.

In response, during 2022, we took actions and employed strategies to align inventories with sales trends.

These actions, as well as improvements in the supply chain, have resulted in decreased inventory in 2023 compared with 2022, as well as a reduction in costs related to managing elevated inventory levels.

In 2023, we experienced a significant decrease in freight costs due to a decline in freight rates compared to 2022.

We have also experienced lower digital fulfillment costs due to a decrease in digital sales and an increased mix of digital sales fulfilled through lower-cost same-day services.

We continue to experience higher inventory shrink, as a percentage of sales, relative to historical levels — including significantly higher shrink rates at certain stores.

We believe that this trend is pervasive across the retail industry.

Increased shrink has had, and if current trends persist will continue to have, an adverse impact on our results of operations, including impairment of our long-lived assets.

Note 11 to the Financial Statements provides more information on impairment charges, including those related to store closures.

The Gross Margin Rate analysis on page 26 and Inventory section on page 30 provide additional information.

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Summary of Operating Income Percent Change

(dollars in millions) 2022 2021 2020 2022/2021 2021/2020

(dollars in millions) 2023 (a)

2022 2021 2023/2022 2022/2021

Sales $ 105,803 $ 107,588 $ 104,611 (1.7) % 2.8 %

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Operating income $ 5,707 $ 3,848 $ 8,946 48.3 % (57.0) %

(a) 2023 consisted of 53 weeks compared with 52 weeks in 2022 and 2021.

Rate Analysis 2023 2022 2021

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A discussion regarding Analysis of Results of Operations and Analysis of Financial Condition for 2022, as compared to 2021, is included in Part II, Item 7, MD&A to our Annual Report on Form 10-K for the year ended January 28, 2023.

TARGET CORPORATION

2023 Form 10-K 24

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF OPERATIONS Index to Financial Statements

Sales include all merchandise sales, net of expected returns, and our estimate of gift card breakage.

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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 (number of transactions, or "traffic") and the amount spent each visit (average transaction amount).

The extra week in 2023 contributed $1,715 million to total sales.

Comparable Sales 2023 2022 2021

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Average transaction amount (1.4) 0.1 0.4

TARGET CORPORATION

2022 Form 10-K 21

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF OPERATIONS Index to Financial Statements

Comparable Sales by Channel 2023 2022 2021

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

TARGET CORPORATION

2023 Form 10-K 25

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF OPERATIONS Index to Financial Statements

TD Bank Group offers credit to qualified guests through Target-branded credit cards:

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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 incremental purchases on our RedCards are also incremental sales for Target.

For the years ended January 28, 2023, January 29, 2022, and January 30, 2021, total RedCard Penetration was 19.8 percent, 20.5 percent, and 21.5 percent, respectively.

TARGET CORPORATION

2022 Form 10-K 22

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF OPERATIONS Index to Financial Statements

For the years ended February 3, 2024, January 28, 2023, and January 29, 2022, total RedCard Penetration was 18.6 percent, 19.8 percent, and 20.5 percent, respectively.

See the Customer Loyalty Programs section within Item 1.

Business on page 5 for information about the rebranding of RedCards.

Gross Margin Rate

Our gross margin rate was 26.5 percent in 2023 and 23.6 percent in 2022.

This decrease reflected the net impact of

• merchandising pressure, including

◦ higher clearance and promotional markdown rates, including the impact 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;

• supply chain pressure related to increased compensation and headcount in our distribution centers, investments in new facilities, and costs of managing excess inventory;

The increase reflected the net impact of

• merchandising benefit, including

◦ lower freight costs;

◦ lower clearance and promotional markdown rates and other costs compared with the prior-year, which included the impact of inventory impairments and other actions;

• lower digital fulfillment and supply chain costs due to

◦ a decrease in digital volume;

◦ an increased mix of digital sales fulfilled through lower-cost same-day services;

◦ lower inventory levels;

• higher inventory shrink.

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

Selling, General and Administrative (SG&A) Expense Rate

Our SG&A expense rate was 18.9 percent in 2022, compared with 18.6 percent in 2021, reflecting the net impact of cost increases across our business, including investments in hourly team member wages, partially offset by lower incentive compensation in 2022 compared to the prior year.

Our SG&A expense rate was 20.1 percent in 2023, compared with 18.9 percent in 2022, reflecting the net impact of cost increases across our business, including investments in team member pay and benefits, and the deleveraging impact of lower sales in 2023 compared to the prior year.

TARGET CORPORATION

2023 Form 10-K 26

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF OPERATIONS & OTHER PERFORMANCE FACTORS Index to Financial Statements

Change in Number of Stores 2023 2022

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

January 28, 2023 January 29, 2022 January 28, 2023 January 29, 2022

February 3, 2024 January 28, 2023 February 3, 2024 January 28, 2023

170,000 or more sq.

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reflects total square feet less office, distribution center, and vacant space.

TARGET CORPORATION

2022 Form 10-K 23

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF OPERATIONS Index to Financial Statements

Other Performance Factors

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Net interest expense was $502 million for 2023, compared with $478 million for 2022.

The increase in net interest expense was primarily due to higher average debt and commercial paper levels in 2022 compared with 2021.

Net Other (Income) / Expense

Net Other (Income) / Expense was $(48) million and $(382) million for 2022 and 2021, respectively.

2021 included the $335 million gain on the February 2021 sale of Dermstore.

The increase in net interest expense was primarily due to higher average debt levels and the impact of higher floating interest rates on our interest rate swaps in 2023 compared with 2022, partially offset by an increase in interest income.

Provision for Income Taxes

Our 2023 effective income tax rate was 21.9 percent compared with 18.7 percent in 2022.

The decrease reflects lower pretax earnings in the current year and the impacts of discrete tax benefits.

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.

The increase primarily reflects higher pretax earnings in the current year, as well as lower discrete tax benefits related to share-based compensation compared to the prior year.

Note 19 to the Financial Statements provides additional information.

TARGET CORPORATION

2023 Form 10-K 27

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Index to Financial Statements

Reconciliation of Non-GAAP Financial Measures to GAAP Measures

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Reconciliation of Non-GAAP

Adjusted EPS 2022 2021 2020

Adjusted EPS 2023 (a)

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

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Gain on Dermstore Sale $ — $ — $ — $ — $ — $ — $ (335) $ (269) $ (0.55)

Loss on debt extinguishment — — — — — — 512 379 0.75

Loss on investment (a)

— — — 20 15 0.03 9 7 0.01

20 15 0.03 9 7 0.01 28 20 0.04

Income tax matters (c)

— — — — — — — (21) (0.04)

Adjusted diluted earnings per share

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Amounts may not foot due to rounding.

(a) Represents a loss on our investment in Casper Sleep Inc., which is not core to our operations.

(a) 2023 consisted of 53 weeks compared with 52 weeks in 2022 and 2021.

(b) Other items unrelated to current period operations, none of which were individually significant.

TARGET CORPORATION

2022 Form 10-K 24

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Index to Financial Statements

Earnings before interest expense and income taxes (EBIT) and earnings before interest expense, income taxes, depreciation, and amortization (EBITDA) are non-GAAP financial measures.

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EBIT and EBITDA Percent Change

(dollars in millions) 2022 2021 2020 2022/2021 2021/2020

(dollars in millions) 2023 (a)

2022 2021 2023/2022

Net earnings $ 4,138 $ 2,780 $ 6,946 48.8 % (60.0) %

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$ 5,799 $ 3,896 $ 9,328 48.8 % (58.2) %

+ Total depreciation and amortization (a)

+ Total depreciation and amortization (b)

2,801 2,700 2,642 3.8 2.2

$ 8,600 $ 6,596 $ 11,970 30.4 % (44.9) %

(a) Represents total depreciation and amortization, including amounts classified within Depreciation and Amortization and within Cost of Sales.

(a) 2023 consisted of 53 weeks compared with 52 weeks in 2022 and 2021.

(b) Represents total depreciation and amortization, including amounts classified within Depreciation and Amortization and within Cost of Sales.

TARGET CORPORATION

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Trailing Twelve Months

January 28, 2023 January 29, 2022

February 3, 2024 (a)

January 28, 2023

Operating income

$ 5,707 $ 3,848

+ Net other income / (expense) 48 382

+ Net other income

EBIT 5,799 3,896

+ Operating lease interest (a)

- Income taxes (b)

+ Operating lease interest (b)

- Income taxes (c)

Net operating profit after taxes $ 4,624 $ 3,245

January 28, 2023 January 29, 2022 January 30, 2021

February 3, 2024 January 28, 2023 January 29, 2022

Current portion of long-term debt and other borrowings $ 1,116 $ 130 $ 171

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+ Shareholders' investment 13,432 11,232 12,827

+ Operating lease liabilities (c)

+ Operating lease liabilities (d)

3,608 2,934 2,747

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Invested capital $ 29,273 $ 28,076 $ 23,383

Average invested capital (d)

Average invested capital (e)

$ 28,674 $ 25,729

After-tax return on invested capital 16.1 % 12.6 %

(a) Represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases.

(a) 2023 consisted of 53 weeks compared with 52 weeks in the prior-year period.

(b) Represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases.

Calculated using the discount rate for each lease and recorded as a component of rent expense within SG&A Expenses.

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 18.7 percent and 22.0 percent for the trailing twelve months ended January 28, 2023, and January 29, 2022, respectively.

For the trailing twelve months ended January 28, 2023, and January 29, 2022, includes tax effect of $0.7 billion and $2.1 billion, respectively, related to EBIT, and $17 million and $19 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.

(d) Average based on the invested capital at the end of the current period and the invested capital at the end of the comparable prior period.

(c) Calculated using the effective tax rates, which were 21.9 percent and 18.7 percent for the trailing twelve months ended February 3, 2024, and January 28, 2023, respectively.

For the trailing twelve months ended February 3, 2024, and January 28, 2023, includes tax effect of $1.3 billion and $0.7 billion, respectively, related to EBIT, and $26 million and $17 million, respectively, related to operating lease interest.

(d) Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities, respectively.

(e) Average based on the invested capital at the end of the current period and the invested capital at the end of the comparable prior period.

TARGET CORPORATION

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

Our year-end cash and cash equivalents balance decreased to $2.2 billion from $5.9 billion in 2021.

Our cash and cash equivalents balance includes short-term investments of $1.3 billion and $5.0 billion as of January 28, 2023, and January 29, 2022, respectively.

Our year-end cash and cash equivalents balance increased to $3.8 billion from $2.2 billion in 2022.

Our cash and cash equivalents balance includes short-term investments of $2.9 billion and $1.3 billion as of February 3, 2024, and January 28, 2023, respectively.

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

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Cash flows provided by operating activities were $8.6 billion in 2023 compared with $4.0 billion in 2022.

For 2022, operating cash flows decreased as a result of lower earnings and lower accounts payable leverage, partially offset by decreased inventory investment, compared with 2021.

For 2023, operating cash flows increased as a result of higher net earnings and an improvement in working capital, including lower inventory levels, compared with 2022.

Year-end inventory was $11.9 billion, compared with $13.5 billion in 2022.

The decrease in inventory levels primarily reflects the following:

• decreased in-transit and late-arriving inventory as lead times improved,

• investments in our inventory position in our Frequency categories, offsetting reductions in our Discretionary categories, and

• increases in unit costs across all of our categories.

The decrease in inventory levels primarily reflects

• improvements in the supply chain, including on-time arrivals and reduced in-transit inventory,

• alignment of inventory levels with sales trends, and

• cost decreases, primarily due to lower freight rates in 2023 compared to 2022.

The Business Environment section on page 23 provides additional information.

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Amounts may not foot due to rounding.

Capital expenditures increased in 2022 from the prior year as we invested in our strategic initiatives, including an increase in investments in both stores and in our supply chain.

The increase also reflects the impact of inflation on these projects.

Beyond full-store remodels, we invested in optimizing front-end space in high-volume locations to increase the efficiency of our Same-Day Services, and built-out and opened approximately 250 Ulta Beauty shop-in-shops.

We have completed over 1,000 full-store remodels since the launch of the current program in 2017, including 140 in 2022.

In addition to these cash investments, we entered into leases related to new stores in 2022, 2021, and 2020 with total future minimum lease payments of $319 million, $401 million, and $764 million, respectively, and new leases related to our supply chain with total future minimum lease payments of $1.6 billion, $226 million, and $442 million, respectively.

We expect capital expenditures in 2023 of approximately $4.0 billion to $5.0 billion to support full-store remodels and other existing store investments, new stores, and supply chain projects.

Supply chain projects will add replenishment capacity and modernize our network, including the use of sortation centers to enhance our last-mile delivery capabilities.

We expect to complete approximately 70 full-store remodels, open about 20 new stores, and add additional Ulta Beauty shop-in-shops during 2023.

Additionally, we will continue to invest in optimizing front-end space.

Capital expenditures in 2023 reflect investments in our strategic initiatives, including investments in both stores and in our supply chain.

We completed 65 full-store remodels during 2023 and opened approximately 140 Ulta Beauty shop-in-shops.

We have completed over 1,100 full-store remodels since the launch of the current program in 2017.

In addition to these cash investments, we entered into leases related to new stores in 2023, 2022, and 2021 with total future minimum lease payments of $122 million, $319 million, and $401 million, respectively, and new leases related to our supply chain with total future minimum lease payments of $21 million, $1.6 billion, and $226 million, respectively.

We expect capital expenditures in 2024 of approximately $3.0 billion to $4.0 billion to support new stores, remodels and other existing store investments, and supply chain projects.

We expect to open about 20 new stores and add additional Ulta Beauty shop-in-shops during 2024.

We also expect to continue to invest in new store and supply chain leases.

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Share Repurchases

During 2022 and 2021 we returned $2.6 billion and $7.2 billion, respectively, to shareholders through share repurchase.

We did not repurchase any shares during 2023.

During 2022 we returned $2.6 billion to shareholders through share repurchase.

See Part II , Item 5 , Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities of this Annual Report on Form 10-K and Note 21 to the Financial Statements for more information.

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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 January 28, 2023, our credit ratings were as follows:

As of February 3, 2024, our credit ratings were as follows:

Credit Ratings Moody's Standard and Poor's Fitch

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Each of the credit rating agencies reviews its rating periodically and there is no guarantee our current credit ratings will remain the same as described above.

In 2022, we issued $2.7 billion of debt, and we repaid $62 million of debt at maturity.

In 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.

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

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.

Both credit facilities backstop our commercial paper program.

No balances were outstanding under either credit facility at any time during 2023 or 2022.

We did not have any balances outstanding under our commercial paper program as of February 3, 2024 or January 28, 2023.

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

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

Additionally, as of January 28, 2023, 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 February 3, 2024, 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.

Note 16 to the Financial Statements provides additional information.

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We reduce inventory for estimated losses related to shrink and markdowns.

Our shrink estimate is based on historical losses verified by physical inventory counts.

Historically, our actual physical inventory count results have shown our estimates to be reliable.

Our shrink estimate is based on historical losses and is adjusted to reflect results of actual physical inventory counts.

We generally perform counts at each location annually, with counts taking place throughout the year.

A 10% increase in our year-end inventory shrink reserve would increase cost of sales by approximately $150 million.

Historically, our actual physical inventory count results have shown our estimates to be reasonably accurate.

Market adjustments for markdowns are recorded when the salability of the merchandise has diminished.

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We believe the risk of inventory obsolescence is largely mitigated because our inventory typically turns in less than three months.

Inventory was $13.5 billion and $13.9 billion as of January 28, 2023, and January 29, 2022, respectively, and is further described in Note 9 to the Financial Statements.

Inventory was $11.9 billion and $13.5 billion as of February 3, 2024, and January 28, 2023, respectively, and is further described in Note 9 to the Financial Statements.

Vendor income:

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Historically, adjustments to our vendor income receivable have not been material.

Vendor income receivable was $526 million and $518 million as of January 28, 2023, and January 29, 2022, respectively.

Vendor income receivable was $513 million and $526 million as of February 3, 2024, and January 28, 2023, respectively.

Vendor income is described further in Note 5 to the Financial Statements.

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other liabilities referred to above are not discounted.

Our workers' compensation and general liability accrual was $560 million and $519 million as of January 28, 2023, and January 29, 2022, respectively.

Our workers' compensation and general liability accrual was $650 million and $560 million as of February 3, 2024, and January 28, 2023, respectively.

We believe that the amounts accrued are appropriate;

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We maintain insurance coverage to limit our exposure to certain events, including network security matters.

TARGET CORPORATION

2023 Form 10-K 33

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF FINANCIAL CONDITION & NEW ACCOUNTING PRONOUNCEMENTS Index to Financial Statements

Income taxes:

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We periodically reassess these probabilities and record any changes in the financial statements as appropriate.

Gross uncertain tax positions, including interest and penalties, were $241 million and $138 million as of January 28, 2023, and January 29, 2022, respectively.

Gross uncertain tax positions, including interest and penalties, were $366 million and $241 million as of February 3, 2024, and January 28, 2023, respectively.

We believe the resolution of these matters will not materially affect our consolidated financial statements.

Income taxes are described further in Note 19 to the Financial Statements.

TARGET CORPORATION

2022 Form 10-K 30

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF FINANCIAL CONDITION & NEW ACCOUNTING PRONOUNCEMENTS Index to Financial Statements

Pension accounting:

We maintain a funded qualified defined benefit pension plan, as well as nonqualified and international pension plans that are generally unfunded, for certain current and retired team members.

We maintain a funded qualified defined benefit pension plan, as well as nonqualified and international pension plans that are generally unfunded, for certain current and former team members.

The costs for these plans are determined based on actuarial calculations using the assumptions described in the following paragraphs.

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This report contains forward-looking statements, which are based on our current assumptions and expectations.

These statements are typically accompanied by the words "expect," "may," "could," "believe," "would," "might," "anticipates," or similar words.

The principal forward-looking statements in this report include:

our financial performance, statements regarding the adequacy of and costs associated with our sources of liquidity, the funding of debt maturities, the execution of our share repurchase program, our expected capital expenditures and new lease commitments, the expected compliance with debt covenants, the expected impact of new accounting pronouncements, our intentions regarding future dividends, the expected contributions and payments related to our pension plan, the expected return on plan assets, the expected timing and recognition of compensation expenses, the adequacy of our reserves for general liability, workers' compensation, and property loss, the expected outcome of, and adequacy of our reserves for claims, litigation, and the resolution of tax matters, our expectations regarding our contractual obligations, liabilities, and vendor income, the expected ability to recognize deferred tax assets and liabilities and the timing of such recognition, our expectations regarding arrangements with our partners, and changes in our assumptions and expectations.

These statements are typically accompanied by the words "aim," "anticipate," "believe," "could," "expect," "may," "might," "seek," "will," "would," or similar words.

The principal forward-looking statements in this report include statements regarding:

our future financial and operational performance, our strategy for growth, the adequacy of and costs associated with our sources of liquidity, the funding of debt maturities, the execution of our share repurchase program, our expected capital expenditures and new lease commitments, the expected compliance with debt covenants, the expected impact of new accounting pronouncements, our intentions regarding future dividends, the expected contributions and payments related to our pension plan, the expected return on plan assets, the expected timing and recognition of compensation expenses, the adequacy of our reserves for general liability, workers' compensation, and property loss, the expected outcome of, and adequacy of our reserves for, claims, litigation, and the resolution of tax matters, our expectations regarding our contractual obligations, liabilities, and vendor income, the expected ability to recognize deferred tax assets and liabilities and the timing of such recognition, our expectations regarding arrangements with our partners, and changes in our assumptions and expectations.

All such forward-looking statements are intended to enjoy the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, as amended.

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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-K

Item 7. Management’s Discussion and Analysis