What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-29 compared with 2025-05-30 · 95 added, 63 removed, 230 unchanged (41% of the section changed)

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Financial Summary

First quarter 2025 included the following notable items:

• GAAP diluted earnings per share were $2.27 and Adjusted EPS 1 were $1.30.

Second quarter 2025 included the following notable items:

• GAAP diluted earnings per share and Adjusted EPS 1 were $2.05.

• Net Sales were $25.2 billion, a decrease of 0.9 percent from the comparable prior-year period.

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◦ Comparable digitally-originated sales increased 4.3 percent.

• Operating income of $1.5 billion, including $593 million of pretax net gains related to interchange fee settlements further described in Note 3 to the Financial Statements.

Earnings Per Share Three Months Ended

May 3, 2025 May 4, 2024 Change

• Operating income of $1.3 billion was 19.4 percent lower than the comparable prior-year period.

Earnings Per Share Three Months Ended Six Months Ended

August 2, 2025 August 3, 2024 Change August 2, 2025 August 3, 2024 Change

GAAP diluted earnings per share $ 2.05 $ 2.57 (20.2) % $ 4.32 $ 4.60 (6.1) %

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Adjusted diluted earnings per share $ 2.05 $ 2.57 (20.2) % $ 3.35 $ 4.60 (27.1) %

Amounts may not foot due to rounding.

1 Adjusted diluted earnings per share (Adjusted EPS), a non-GAAP metric, excludes the impact of certain items.

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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 May 3, 2025, after-tax ROIC was 15.1 percent , compared with 15.4 percent for the trailing twelve months ended May 4, 2024.

For the trailing twelve months ended August 2, 2025, after-tax ROIC was 14.3 percent , compared with 16.6 percent for the trailing twelve months ended August 3, 2024.

The calculation of ROIC is provided on page 22 .

Business Environment

Our financial results for the quarter ended May 3, 2025, reflected several challenges, including recent declines in consumer confidence, uncertainty regarding the impact of potential tariffs, the reaction to updates we shared in January on our approach to belonging, as well as the continued trend of reduced consumer spending in discretionary categories.

While we believe each of these factors played a meaningful role in our first quarter performance, we can't reasonably estimate the impact of each one separately.

Recently, the United States (U.S.) imposed a range of tariffs on all products manufactured in foreign countries and jurisdictions, and subsequently imposed incremental tariffs, paused, modified, or issued specific exceptions to recently imposed tariffs, and indicated that the U.S.

In April 2025, the U.S.

imposed a range of tariffs on the vast majority of products manufactured in foreign countries and jurisdictions, and subsequently imposed incremental tariffs, paused, modified, or issued specific exceptions to recently imposed tariffs, and indicated that the U.S.

is actively negotiating country-specific agreements that it expects will result in changes to imposed tariff rates.

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We are closely monitoring the evolving consumer and regulatory landscape and adjusting plans as needed, including, but not limited to, vendor negotiations, assortment changes, movements in country of production, adjustments in order unit quantities and timing, and pricing strategies.

The Gross Margin Rate section below provides additional information about the impact of such actions.

Additionally, we are working closely with industry associations and government leaders, all with a goal to continue delivering the products our guests expect and minimizing the impact of tariffs on our guests.

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Analysis of Results of Operations

Summary of Operating Income Three Months Ended

(dollars in millions) May 3, 2025 May 4, 2024 Change

Summary of Operating Income Three Months Ended Six Months Ended

(dollars in millions) August 2, 2025 August 3, 2024 Change August 2, 2025 August 3, 2024 Change

Net sales $ 25,211 $ 25,452 (0.9) % 49,057 $ 49,983 (1.9) %

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Operating income $ 1,317 $ 1,635 (19.4) % $ 2,789 $ 2,931 (4.8) %

Rate Analysis Three Months Ended

May 3, 2025 May 4, 2024

Rate Analysis Three Months Ended Six Months Ended

August 2, 2025 August 3, 2024 August 2, 2025 August 3, 2024

Gross margin rate (a)

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SG&A expense rate (a)

21.3 21.1 20.3 21.0

Depreciation and amortization expense rate (exclusive of depreciation included in cost of sales) 2.5 2.5 2.6 2.5

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

We updated the prior period gross margin rate to conform to the current year calculation, which resulted in an approximate 1 percentage point increase in our gross margin rate for the 2024 period presented.

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

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ANALYSIS OF RESULTS OF OPERATIONS Index to Notes

Comparable Sales Three Months Ended

May 3, 2025 May 4, 2024

Comparable Sales Three Months Ended Six Months Ended

August 2, 2025 August 3, 2024 August 2, 2025 August 3, 2024

Comparable sales change (1.9) % 2.0 % (2.8) % (0.9) %

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Average transaction amount (0.6) (0.9) (1.0) (1.4)

Comparable Sales by Channel Three Months Ended

May 3, 2025 May 4, 2024

Comparable Sales by Channel Three Months Ended Six Months Ended

August 2, 2025 August 3, 2024 August 2, 2025 August 3, 2024

Stores originated comparable sales change (3.2) % 0.7 % (4.4) % (2.1) %

Digitally originated comparable sales change 4.3 8.7 4.5 5.0

Merchandise Sales by Channel Three Months Ended

May 3, 2025 May 4, 2024

Merchandise Sales by Channel Three Months Ended Six Months Ended

August 2, 2025 August 3, 2024 August 2, 2025 August 3, 2024

Stores originated 81.1 % 82.1 % 80.7 % 81.9 %

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Total 100 % 100 % 100 % 100 %

Merchandise Sales by Fulfillment Channel Three Months Ended

May 3, 2025 May 4, 2024

Merchandise Sales by Fulfillment Channel Three Months Ended Six Months Ended

August 2, 2025 August 3, 2024 August 2, 2025 August 3, 2024

Stores 97.7 % 97.9 % 97.7 % 97.8 %

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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.

Merchandise Sales by Product Category Three Months Ended

May 3, 2025 May 4, 2024

Merchandise Sales by Product Category Three Months Ended Six Months Ended

August 2, 2025 August 3, 2024 August 2, 2025 August 3, 2024

Apparel & accessories 16 % 17 % 16 % 17 %

Beauty 14 14 14 13

Food & beverage 23 22 24 23

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

TARGET CORPORATION

Q2 2025 Form 10-Q 16

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF RESULTS OF OPERATIONS Index to Notes

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 the incremental purchases on our Target Circle Cards are also incremental sales for Target.

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

For the three months ended May 3, 2025 and May 4, 2024, total Target Circle Card Penetration was 17.4 percent and 18.0 percent, respectively.

For the three months ended August 2, 2025, and August 3, 2024, total Target Circle Card Penetration was 16.9 percent and 17.7 percent, respectively.

For the six months ended August 2, 2025, and August 3, 2024, total Target Circle Card Penetration was 17.1 percent and 17.9 percent, respectively.

TARGET CORPORATION

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Quarter-to-Date

For the three months ended May 3, 2025, our gross margin rate was 28.2 percent compared with 28.8 percent in the comparable prior-year period.

For the three months ended May 3, 2025, the changes reflected the net impact of

• merchandising activities, including higher markdown rates, partially offset by growth in advertising and other revenues;

• higher supply chain and digital fulfillment costs due to new supply chain facilities coming online and an increase in digital penetration;

For the three months ended August 2, 2025, our gross margin rate was 29.0 percent compared with 30.0 percent in the comparable prior-year period.

The decrease reflected the net impact of

• merchandising, including higher markdown rates and purchase order cancellation costs 1 , partially offset by growth in advertising and other revenues;

• changes in category sales mix;

• lower inventory shrink.

For the six months ended August 2, 2025, our gross margin rate was 28.6 percent compared with 29.4 percent in the comparable prior-year period.

The decrease reflected the net impact of

• merchandising activities, including higher markdown rates and purchase order cancellation costs 1 , partially offset by growth in advertising and other revenues;

• higher supply chain and digital fulfillment costs, partially due to to new supply chain facilities;

• changes in category sales mix;

• lower inventory shrink.

1 The Business Environment section provides additional information.

TARGET CORPORATION

Q2 2025 Form 10-Q 18

MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

ANALYSIS OF RESULTS OF OPERATIONS Index to Notes

Selling, General, and Administrative Expense Rate

For the three months ended May 3, 2025, our SG&A expense rate was 19.3 percent compared with 21.0 percent for the comparable prior-year period.

The decrease reflected a favorable impact of interchange fee settlements of approximately 2.5 percentage points, as further described in Note 3 , partially offset by the deleveraging impact of lower Net Sales, and the net impact of other costs.

Change in Number of Stores Three Months Ended

May 3, 2025 May 4, 2024

For the three months ended August 2, 2025, our SG&A expense rate was 21.3 percent compared with 21.1 percent for the comparable prior-year period, reflecting the deleveraging impact of lower Net Sales.

Higher remodel-related expenses during the three months ended August 2, 2025, were offset by the net impact of cost savings.

For the six months ended August 2, 2025, our SG&A expense rate was 20.3 percent compared with 21.0 percent for the comparable prior-year period.

The decrease reflected a favorable impact of interchange fee settlements during the first quarter of 2025 of approximately 1.2 percentage points, as further described in Note 3 , partially offset by the deleveraging impact of lower Net Sales, and the net impact of other costs.

Change in Number of Stores Three Months Ended Six Months Ended

August 2, 2025 August 3, 2024 August 2, 2025 August 3, 2024

Beginning store count 1,981 1,963 1,978 1,956

Opened 1 3 4 10

Closed — — — —

Ending store count 1,982 1,966 1,982 1,966

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

Retail Square Feet May 3, 2025 February 1, 2025 May 4, 2024 May 3, 2025 February 1, 2025 May 4, 2024

Retail Square Feet August 2, 2025 February 1, 2025 August 3, 2024 August 2, 2025 February 1, 2025 August 3, 2024

170,000 or more sq.

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Net Interest Expense

For the three months ended May 3, 2025, net interest expense was $116 million compared with $106 million in the comparable prior-year period.

The increase was primarily due to a decrease in interest income.

Net interest expense was $116 million and $232 million f or the three and six months ended August 2, 2025, respectively, compared with $110 million and $216 million in the comparable prior-year periods.

The increase was primarily due to higher average debt levels.

Provision for Income Taxes

Our effective income tax rate for the three months ended May 3, 2025, was 25.0 percent compared with 22.7 percent in the comparable prior-year period.

The increase primarily reflects discrete tax expense in the current year related to share-based compensation.

Our effective income tax rates for the three and six months ended August 2, 2025, were 23.2 percent and 24.2 percent, respectively, compared with 22.9 percent and 22.8 percent in the comparable prior-year periods.

For the three month period, the increase is driven by the impact of Pillar Two global minimum taxes.

For the six month period, the increase reflects discrete tax expense in the current year, primarily related to share-based compensation, and the impact of Pillar Two global minimum taxes.

On July 4, 2025, the U.S.

enacted new legislation that includes several U.S.

corporate tax provisions, including restoring immediate deductibility of certain capital expenditures, restoring full expensing of domestic research and development costs, and changes in the computations of U.S.

taxation on international earnings.

We expect the provisions of the legislation to result in a favorable timing shift in our U.S.

cash tax payments, with no material impact on our income tax expense.

TARGET CORPORATION

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Reconciliation of Non-GAAP Adjusted EPS Three Months Ended Three Months Ended

May 3, 2025 May 4, 2024

August 2, 2025 August 3, 2024

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

GAAP and Adjusted EPS $ 2.05 $ 2.57

Reconciliation of Non-GAAP Adjusted EPS Six Months Ended Six Months Ended

August 2, 2025 August 3, 2024

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

GAAP diluted earnings per share $ 4.32 $ 4.60

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Adjusted EPS $ 3.35 $ 4.60

Amounts may not foot due to rounding.

(a) Note 3 to the Financial Statements provides additional information.

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Other companies may calculate EBIT and EBITDA differently, limiting the usefulness of the measures for comparisons with other companies.

EBIT and EBITDA Three Months Ended

(dollars in millions) May 3, 2025 May 4, 2024 Change

EBIT and EBITDA Three Months Ended Six Months Ended

(dollars in millions) August 2, 2025 August 3, 2024 Change August 2, 2025 August 3, 2024 Change

Net earnings $ 935 $ 1,192 (21.5) % $ 1,971 $ 2,134 (7.6) %

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+ Total depreciation and amortization (a)

770 743 3.6 1,558 1,461 6.6

EBITDA $ 2,104 $ 2,398 (12.2) % $ 4,390 $ 4,441 (1.2) %

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Trailing Twelve Months

Numerator May 3, 2025 May 4, 2024 (a)

Numerator August 2, 2025 August 3, 2024 (a)

Operating income $ 5,425 $ 6,113

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Net operating profit after taxes $ 4,385 $ 4,934

Denominator May 3, 2025 May 4, 2024 April 29, 2023

Denominator August 2, 2025 August 3, 2024 July 29, 2023

Current portion of long-term debt and other borrowings $ 1,136 $ 1,640 $ 1,106

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14.3 % 16.6 %

(a) The trailing twelve months ended May 4, 2024, consisted of 53 weeks compared with 52 weeks in the current-year period.

(a) The trailing twelve months ended August 3, 2024, consisted of 53 weeks compared with 52 weeks in the current-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 was owned or accounted for under finance leases.

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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 22.8 percent and 22.2 percent for the trailing twelve months ended May 3, 2025 and May 4, 2024, respectively.

For the trailing twelve months ended May 3, 2025, and May 4, 2024, includes tax effect of $1.3 billion related to EBIT and $38 million and $30 million, respectively, related to operating lease interest.

(c) Calculated using the effective tax rates, which were 22.9 percent and 22.4 percent for the trailing twelve months ended August 2, 2025, and August 3, 2024, respectively.

For the trailing twelve months ended August 2, 2025, and August 3, 2024, includes tax effect of $1.3 billion and $1.4 billion, respectively, related to EBIT and $38 million and $33 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.

(f) For the trailing twelve months ended May 3, 2025, includes the impact of after-tax net gains on interchange fee settlements, which increased after-tax ROIC by 1.4 percentage points.

(f) For the trailing twelve months ended August 2, 2025, includes the impact of after-tax net gains on interchange fee settlements, which increased after-tax ROIC by 1.4 percentage points.

Note 3 to the Financial Statements provides additional information.

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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 cash and cash equivalents balance was $2.9 billion, $4.8 billion, and $3.6 billion as of May 3, 2025, February 1, 2025, and May 4, 2024, respectively.

Our cash and cash equivalents balance includes short-term investments of $2.0 billion, $3.9 billion, and $2.7 billion as of May 3, 2025, February 1, 2025, and May 4, 2024, respectively.

Our cash and cash equivalents balance was $4.3 billion, $4.8 billion, and $3.5 billion as of August 2, 2025, February 1, 2025, and August 3, 2024, respectively.

Our cash and cash equivalents balance includes short-term investments of $3.3 billion, $3.9 billion, and $2.5 billion as of August 2, 2025, February 1, 2025, and August 3, 2024, respectively.

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

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Operating Cash Flows

Cash flows provided by operating activities were $0.3 billion and $1.1 billion for the three months ended May 3, 2025, and May 4, 2024, respectively.

The operating cash flows reflect the net earnings impact of gains on interchange fee settlements, offset by lower sales, as well as increased inventory levels and lower accounts payable leverage in the current year period.

Inventory was $13.0 billion as of May 3, 2025, compared with $12.7 billion and $11.7 billion as of February 1, 2025, and May 4, 2024, respectively.

The balance as of May 3, 2025, reflects the impact of lower-than-expected sales across all core merchandise categories, with the most significant impacts within Apparel & Accessories, Hardlines, and Home Furnishings & Décor.

Cash flows provided by operating activities were $2.4 billion and $3.3 billion for the six months ended August 2, 2025, and August 3, 2024, respectively.

The decrease reflects lower accounts payable leverage and the net earnings impact of lower sales, partially offset by gains on interchange fee settlements discussed in Note 3 to the Financial Statements.

Inventory was $12.9 billion as of August 2, 2025, compared with $12.7 billion and $12.6 billion as of February 1, 2025, and August 3, 2024, respectively.

The increase compared to August 3, 2024, reflects higher merchandise costs and continued investment in frequency categories.

Investing Cash Flows

Cash required for investing activities increased to $0.8 billion for the three months ended May 3, 2025, compared to $0.7 billion for the three months ended May 4, 2024, due to higher capital investments.

We paid dividends totaling $510 million ($1.12 per share) for the three months ended May 3, 2025, and $508 million ($1.10 per share) for the three months ended May 4, 2024, a per share increase of 1.8 percent.

We declared dividends totaling $515 million ($1.12 per share) during the first quarter of 2025 and $516 million ($1.10 per share) during the first quarter of 2024, a per share increase of 1.8 percent.

Cash required for investing activities increased to $1.9 billion for the six months ended August 2, 2025, compared to $1.3 billion for the six months ended August 3, 2024, due to higher capital expenditures.

We paid dividends totaling $509 million ($1.12 per share) and $1,019 million ($2.24 per share) for the three and six months ended August 2, 2025, respectively, and $509 million ($1.10 per share) and $1,017 million ($2.20 per share) for the three and six months ended August 3, 2024, respectively, a per share increase of 1.8 percent.

We declared dividends totaling $529 million ($1.14 per share) during the second quarter of 2025 and $527 million ($1.12 per share) during the second quarter of 2024, a per share increase of 1.8 percent.

We have paid dividends every quarter since our 1967 initial public offering, and it is our intent to continue to do so in the future.

Share Repurchase

We deployed $251 million to repurchase shares during the three months ended May 3, 2025.

We deployed $251 million to repurchase shares during the six months ended August 2, 2025.

See Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds of this Quarterly Report on Form 10-Q and Note 9 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 May 3, 2025, our credit ratings were as follows:

As of August 2, 2025, 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 March 2025, we issued $1.0 billion of debt, and in April 2025, we repaid $1.5 billion of debt.

We issued $1.0 billion of unsecured debt in both March and June 2025, and repaid $1.5 billion of unsecured debt in April 2025.

Note 7 to the Financial Statements provides additional information.

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No balances were outstanding under either credit facility at any time during 2025 or 2024.

There was no commercial paper outstanding as of either May 3, 2025, or May 4, 2024.

There was no commercial paper outstanding as of either August 2, 2025, or August 3, 2024.

Note 7 to the Financial Statements provides additional information.

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

Additionally, as of May 3, 2025, 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 August 2, 2025, no notes or debentures contained provisions requiring acceleration of payment upon a credit rating downgrade, except that certain outstanding notes allow the note holders to put the notes to us if within a matter of months of each other we experience both (i) a change in control and (ii) our long-term credit ratings are either reduced and the resulting rating is non-investment grade, or our long-term credit ratings are placed on watch for possible reduction and those ratings are subsequently reduced and the resulting rating is non-investment grade.

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

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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-Q

Item 2. Management’s Discussion and Analysis