What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-12 compared with 2024-03-13 · 113 added, 123 removed, 301 unchanged (44% 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 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 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;

• 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.

In 2024, we drove our strategy (as described on page 2 ) by investing in core strengths that deepened connection with existing guests, while introducing innovations that further differentiated Target, unlocked new channels of growth, and gave consumers more reasons to become loyal Target guests.

During 2024, we

• Continued to emphasize newness and differentiation across our assortment, including a steady flow of exclusive products and designer collaborations, such as:

◦ 2,000 new wellness products introduced in January of 2025—600 of which were exclusive to Target;

◦ our exclusive official "Taylor Swift | The Eras Tour Book";

◦ our large assortment of exclusive Wicked products including Wicked Quenchers from Stanley;

◦ partnerships with celebrities such as Dwayne “The Rock” Johnson, Tom Holland, Jennifer Aniston, Ashley Tisdale and more;

◦ the Diane von Furstenberg for Target collection;

◦ The Cuddle Collab limited-edition collection for pets and pet lovers;

◦ a limited-time pickleball collection with tennis and lifestyle brand Prince;

• Launched or expanded several owned brands, including dealworthy TM — our new low-price line of essentials — and Auden TM , Cat & Jack TM , Gigglescape TM , and up&up TM , with 11 of our owned brands exceeding $1 billion in annual sales;

• Expanded the selection of products available on our Target Plus digital marketplace;

• Launched our reimagined Target Circle loyalty program to deliver an easier and more personalized shopping and saving experience, including a free-to-join option and a paid membership for same-day delivery, as well as the integration of Target Circle Card (formerly RedCard);

• Continued to enhance our Roundel digital media products and services, including through a new self-service buying tool, Roundel Media Studio, and experiential events integrated with marketing activities;

• Invested in new artificial intelligence (AI) technology, including modernized AI-powered inventory management systems and Store Companion, an AI-powered chatbot designed to make team members' jobs easier and enhance the shopping experience;

• Opened 23 new stores, many of which are full-size stores, reflecting our large-format focus and stores as hubs strategy;

• Fulfilled over 65 percent of our digital sales through our same-day fulfillment options (Order Pickup, Drive Up, and Same Day Delivery), which grew 7.7 percent compared to 2023, including double-digit percentage growth in both Same Day Delivery and Drive Up.

Financial Summary

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

Fiscal 2024 included the following notable items:

• GAAP and Adjusted diluted earnings per share were $8.86.

• 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 $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 .

• Net Sales were $106.6 billion, a decrease of $0.8 billion, or 0.8 percent, from the prior year, driven by one less week in the current year.

• Comparable sales increased 0.1 percent, driven by a 1.4 percent increase in traffic and partially offset by a 1.3 percent decrease in average transaction amount.

• Operating income of $5.6 billion was 2.5 percent lower than the 53-week prior-year period.

TARGET CORPORATION

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Percent Change

2024 2023 (a)

2022 2024/2023 2023/2022

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

For the trailing twelve months ended February 1, 2025, after-tax ROIC was 15.4 percent, compared to 16.1 percent for the trailing twelve months ended February 3, 2024.

The calculation of ROIC is provided on page 31 .

Business Environment

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.

Sale of Dermstore

In February 2021, we sold Dermstore LLC (Dermstore) for $356 million in cash and recognized a $335 million pretax gain, which is included in Net Other (Income) / Expense.

Dermstore represented less than 1 percent of our consolidated revenues, operating income and net assets.

TARGET CORPORATION

2023 Form 10-K 23

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF OPERATIONS Index to Financial Statements

Analysis of Results of Operations

Summary of Operating Income Percent Change

(dollars in millions) 2023 (a)

(dollars in millions) 2024 2023 (c)

2022 2024/2023 2023/2022

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

Other revenue 1,609 1,532 1,394 5.1 9.8

Total revenue 107,412 109,120 106,005 (1.6) 2.9

Cost of sales 77,736 82,229 74,963 (5.5) 9.7

SG&A expenses 21,554 20,658 19,752 4.3 4.6

Net sales (a)

$ 106,566 $ 107,412 $ 109,120 (0.8) % (1.6) %

Cost of sales (b)

76,502 77,828 82,306 (1.7) (5.4)

SG&A expenses (b)

21,969 21,462 20,581 2.4 4.3

Depreciation and amortization (exclusive of depreciation included in cost of sales)

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Operating income $ 5,566 $ 5,707 $ 3,848 (2.5) % 48.3 %

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

(a) In 2024, we changed the presentation of revenue in our Consolidated Statements of Operations, consolidating the previous three-line format (Sales, Other Revenue, and Total Revenue) to a single line labeled "Net Sales", which reflects all revenues (formerly Total Revenue).

Note 2 to the Financial Statements provides additional information.

We believe this presentation better reflects our strategy, which includes growing capabilities and business offerings that leverage Target's assets and competitive strengths.

(b) Refer to Note 3 to the Financial Statements for additional information about a reclassification of prior year amounts to conform with current year presentation.

Rate Analysis 2024 2023 2022

Gross margin rate 26.5 % 23.6 % 28.3 %

SG&A expense rate 20.1 18.9 18.6

Gross margin rate (a)

28.2 % 27.5 % 24.6 %

SG&A expense rate (a)

20.6 20.0 18.9

Depreciation and amortization (exclusive of depreciation included in cost of sales) expense rate

Operating income margin rate 5.2 5.3 3.5

Gross margin rate is calculated as gross margin (sales less cost of sales) divided by sales.

All other rates are calculated by dividing the applicable amount by total revenue.

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.

(a) Reflects the impact of a reclassification of prior year amounts to conform with current year presentation.

Refer to Note 3 to the Financial Statements for additional information.

Gross margin is calculated as Net Sales less Cost of Sales.

All rates are calculated by dividing the applicable amount by Net Sales.

Previously our gross margin rate was calculated based only on Merchandise Sales.

The calculation change aligns with our 2024 transition to a single-line revenue presentation on our Consolidated Statements of Operations, with prior period amounts updated to conform to the current year presentation.

We also updated prior period gross margin rates to conform to the current year calculations, which resulted in an approximate 1 percentage point increase in our gross margin rate for both 2023 and 2022.

TARGET CORPORATION

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ANALYSIS OF OPERATIONS Index to Financial Statements

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

Note 3 to the Financial Statements defines gift card "breakage." We use comparable sales to evaluate the performance of our stores and digital channel sales by measuring the change in sales for a period over the comparable, prior-year period of equivalent length.

Comparable sales include all sales, except sales from stores open less than 13 months, digital acquisitions we have owned less than 13 months, stores that have been closed, and digital acquisitions that we no longer operate.

A discussion regarding Analysis of Results of Operations and Analysis of Financial Condition for 2023, as compared to 2022, is included in Part II, Item 7, MD&A to our Annual Report on Form 10-K for the year ended February 3, 2024 .

Net Sales includes Merchandise Sales and revenues from other sources, most notably advertising revenue and credit card profit-sharing income.

Note 2 to the Financial Statements provides more information.

Merchandise Sales are net of expected returns, and our estimate of gift card breakage.

Note 2 to the Financial Statements defines gift card "breakage." We use comparable sales to evaluate the performance of our stores and digital channels by measuring the change in sales for a period over the comparable, prior-year period of equivalent length.

Comparable sales include all Merchandise Sales, except sales from stores open less than 13 months or that have been closed.

Comparable sales measures vary across the retail industry.

As a result, our comparable sales calculation is not necessarily comparable to similarly titled measures reported by other companies.

Digitally originated sales include all sales initiated through mobile applications and our websites.

Our stores fulfill the majority of digitally originated sales, including shipment from stores to guests, store Order Pickup or Drive Up, and delivery via Shipt.

Digitally originated sales include all Merchandise Sales initiated through mobile applications and our websites.

Our stores fulfill the majority of digitally originated sales, including shipment from stores to guests, store Order Pickup or Drive Up, and Same Day Delivery.

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

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

We expect that comparable sales growth will drive the majority of our total sales growth.

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

We expect that comparable sales growth will drive a significant portion of our total sales growth.

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.

The extra week in 2023 contributed $1.7 billion to Net Sales.

Comparable Sales 2024 2023 2022

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Digitally originated comparable sales change 7.5 (4.8) 1.5

Sales by Channel 2023 2022 2021

Merchandise Sales by Channel

2024 2023 2022

Stores originated 80.4 % 81.7 % 81.4 %

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Total 100 % 100 % 100 %

Sales by Fulfillment Channel 2023 2022 2021

Merchandise Sales by Fulfillment Channel

2024 2023 2022

Stores 97.6 % 97.4 % 96.7 %

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Total 100 % 100 % 100 %

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.

Part I, Item 1, Business of this Form 10-K and Note 3 to the Financial Statements provides additional product category sales information.

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.

Merchandise 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 Same Day Delivery.

TARGET CORPORATION

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ANALYSIS OF OPERATIONS Index to Financial Statements

Part I, Item 1, Business of this Form 10-K and Note 2 to the Financial Statements provides additional product category sales information.

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

the Target Credit Card and the Target MasterCard Credit Card (Target Credit Cards).

Additionally, we offer a branded proprietary Target Debit Card and RedCard Reloadable Account.

Collectively, we refer to these products as RedCards™.

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

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 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.

Additionally, we offer a branded proprietary Target Debit Card and Target Circle Card Reloadable Account.

Collectively, we refer to these products as Target Circle Cards.

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

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

For the years ended February 1, 2025, February 3, 2024, and January 28, 2023, total Target Circle Card Penetration was 17.8 percent, 18.6 percent, and 19.8 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

Gross Margin (GM) Rate

Our gross margin rate was 28.2 percent in 2024 and 27.5 percent in 2023.

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.

• merchandising activities, including cost improvements which more than offset higher promotional and clearance markdown rates, as well as growth in advertising and marketplace revenues;

• lower book to physical inventory adjustments in 2024;

• higher supply chain & digital fulfillment costs due to new supply chain facilities coming online and an increase in digital volume.

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

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.

Our SG&A expense rate was 20.6 percent in 2024, compared with 20.0 percent in 2023, reflecting the net impact of cost increases across our business, including higher team member pay and benefits and higher general liability expenses, partially offset by the benefit of lower store remodel-related expenses.

TARGET CORPORATION

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

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

February 1, 2025 February 3, 2024 February 1, 2025 February 3, 2024

170,000 or more sq.

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Net interest expense was $411 million for 2024, compared with $502 million for 2023.

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.

The decrease in net interest expense was primarily due to an increase in interest income.

Provision for Income Taxes

Our 2024 effective income tax rate was 22.2 percent compared with 21.9 percent in 2023.

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.

The increase primarily reflects lower discrete tax benefits compared to the prior year.

Numerous countries, including certain jurisdictions in which we operate, have enacted legislation to implement the model rules of the Organization for Economic Cooperation and Development Pillar Two framework (Pillar Two), which is designed to ensure large multinational enterprises are subject to a 15 percent global minimum tax on income earned in each jurisdiction in which they operate.

We do not expect the enacted rules, which will be applicable to us in 2025, to materially impact our 2025 financial results.

Under the Pillar Two framework, any existing deferred tax assets not disclosed in our financial statements will not be available for future use.

Accordingly, we are disclosing the existence of gross tax loss carryforwards of $1.1 billion in Canada and $0.2 billion in Luxembourg.

The losses are deemed to have a remote possibility of realization;

therefore, a deferred tax asset and valuation allowance are not established.

TARGET CORPORATION

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$ 8.86 $ 8.94 $ 5.98

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

— — — — — — $ 20 $ 15 0.03

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Trailing Twelve Months

February 3, 2024 (a)

January 28, 2023

February 1, 2025 February 3, 2024 (a)

Operating income

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Net operating profit after taxes $ 4,534 $ 4,624

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

February 1, 2025 February 3, 2024 January 28, 2023

Current portion of long-term debt and other borrowings $ 1,636 $ 1,116 $ 130

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After-tax return on invested capital 15.4 % 16.1 %

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

(a) Consisted of 53 weeks.

(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.

Calculated using the discount rate for each lease and recorded as a component of rent expense within Operating Income.

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.

(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.

(c) Calculated using the effective tax rates, which were 22.2 percent and 21.9 percent for the trailing twelve months ended February 1, 2025, and February 3, 2024, respectively.

Includes tax effect of $1.3 billion related to EBIT for each of the trailing twelve month periods ended February 1, 2025, and February 3, 2024, and $35 million and $26 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.

(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.

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Our year-end cash and cash equivalents balance increased to $4.8 billion from $3.8 billion in 2023.

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 cash and cash equivalents balance includes short-term investments of $3.9 billion and $2.9 billion as of February 1, 2025, and February 3, 2024, 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 $7.4 billion in 2024 compared with $8.6 billion in 2023.

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

• 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.

The operating cash flow decrease is primarily due to higher income tax payments and the combined impact of inventory and accounts payable activity.

Year-end inventory was $12.7 billion in 2024, compared with $11.9 billion in 2023.

The increase in inventory levels reflects

• earlier inventory receipts compared to the prior year, including to support merchandising strategies;

• inventory investments in select merchandise categories to support sales growth and an improved in-stock position.

TARGET CORPORATION

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Amounts may not foot due to rounding.

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.

Capital expenditures in 2024 reflect investments in our strategic initiatives, including investments in both stores and in our supply chain, enhancing our capabilities and guest experience across stores and digital channels.

The decrease in capital expenditures in 2024 compared with 2023 primarily reflects a slowdown in store remodel activities.

We expect capital expenditures in 2025 of approximately $4 billion to $5 billion, with the majority focused on store assets, including both new stores and remodels, as well as continued investment in supply chain and technology projects.

We expect to open about 20 new stores during 2025 and to resume a faster pace of remodel activities compared with 2024.

We paid dividends totaling $2.0 billion ($4.44 per share) in 2024 and $2.0 billion ($4.36 per share) in 2023, a per share increase of 1.8 percent.

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Share Repurchases

During 2024, we deployed $1.0 billion to repurchase shares.

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 20 to the Financial Statements for more information.

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In October 2024, we obtained a new committed $1.0 billion 364-day unsecured revolving credit facility that will expire in October 2025 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.

This credit facility and our $3.0 billion unsecured revolving credit facility that will expire in October 2028 provide a liquidity backstop to our commercial paper program.

No balances were outstanding under either credit facility at any time during 2024 or 2023.

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

We did not have any balances outstanding under our commercial paper program as of February 1, 2025 or February 3, 2024.

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

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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.

A 10 percent increase or decrease in our 2024 year-end inventory shrink reserve would impact our cost of sales by approximately $150 million.

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

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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 $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.

Inventory was $12.7 billion and $11.9 billion as of February 1, 2025, and February 3, 2024, respectively, and is further described in Note 8 to the Financial Statements.

Vendor income:

We receive various forms of consideration from our vendors (vendor income), principally earned as a result of volume rebates, markdown allowances, promotions, and advertising allowances.

Substantially all vendor income is recorded as a reduction of cost of sales.

We receive various forms of consideration from our vendors (vendor income), principally earned as a result of volume rebates, promotions, advertising allowances, and markdown allowances.

Vendor income is recorded as a reduction of cost of sales except in arrangements where the payment is a reimbursement of specific, incremental, and identifiable costs and recorded as an offset to those costs.

Vendor income earned can vary based on a number of factors, including purchase volumes, sales volumes, and our pricing and promotion strategies.

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

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

Vendor income receivable was $543 million and $513 million as of February 1, 2025, and February 3, 2024, respectively.

Vendor income is described further in Note 4 to the Financial Statements.

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The evaluation is performed primarily at the store level.

An impairment loss is recognized when estimated undiscounted future cash flows from the operation and/or eventual disposition of the asset or asset group is less than its carrying amount, and is measured as the excess of its carrying amount over fair value.

An impairment loss is recognized when estimated undiscounted future cash flows from the operation and/or eventual disposition of the asset or asset group are less than its carrying amount, and is measured as the excess of its carrying amount over fair value.

We estimate fair value by obtaining market appraisals, obtaining valuations from third-party brokers, or using other valuation techniques.

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other liabilities referred to above are not discounted.

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

Our workers' compensation and general liability accrual was $772 million and $650 million as of February 1, 2025, and February 3, 2024, respectively.

We believe that the amounts accrued are appropriate;

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Significant judgment is required in determining the timing and amounts of deductible and taxable items, and in evaluating the ultimate resolution of tax matters in dispute with tax authorities.

The benefits of uncertain tax positions are recorded in our financial statements only after determining it is likely the uncertain tax positions would withstand challenge by taxing authorities.

The benefits of uncertain tax positions are recorded in our financial statements only after determining it is more likely than not the uncertain tax positions would withstand challenge by taxing authorities.

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

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.

Gross uncertain tax positions, including interest and penalties, were $454 million and $366 million as of February 1, 2025, and February 3, 2024, respectively.

Although we believe our tax positions are reasonable, the resolution of these matters could be materially different from our assumptions, which would affect our consolidated results of operations and/or operating cash flows.

Income taxes are described further in Note 18 to the Financial Statements.

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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