TARGET CORP
10-Qs and 10-Ks
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended
May 4, 2019
Commission File Number 1-6049
TARGET CORPORATION
(Exact name of registrant as specified in its charter)
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Minnesota
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41-0215170
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1000 Nicollet Mall, Minneapolis, Minnesota
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55403
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code: 612/304-6073
Former name, former address and former fiscal year, if changed since last report: N/A
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
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Title of Each Class
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Trading Symbol(s)
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Name of Each Exchange on Which Registered
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Common Stock, par value $0.0833 per share
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TGT
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New York Stock Exchange
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
x
No
o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
x
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company (as defined in Rule 12b-2 of the Exchange Act).
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Large accelerated filer
x
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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Emerging growth company
o
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
Indicate the number of shares outstanding of each of registrant’s classes of common stock, as of the latest practicable date. Total shares of common stock, par value $0.0833, outstanding at
May 24, 2019
were 512,334,476.
TARGET CORPORATION
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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Consolidated Statements of Operations
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|||||
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Three Months Ended
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||||||
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(millions, except per share data) (unaudited)
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May 4,
2019 |
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May 5,
2018 |
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|||
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Sales
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$
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17,401
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$
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16,556
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Other revenue
|
226
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|
225
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|||
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Total revenue
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17,627
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16,781
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Cost of sales
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12,248
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11,625
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Selling, general and administrative expenses
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3,663
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3,545
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Depreciation and amortization (exclusive of depreciation included in cost of sales)
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581
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570
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Operating income
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1,135
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1,041
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Net interest expense
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126
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121
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|||
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Net other (income) / expense
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(12
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)
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(7
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)
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|||
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Earnings from continuing operations before income taxes
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1,021
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927
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Provision for income taxes
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229
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210
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Net earnings from continuing operations
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792
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717
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Discontinued operations, net of tax
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3
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1
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Net earnings
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$
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795
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$
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718
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Basic earnings per share
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|||||||
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Continuing operations
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$
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1.54
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$
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1.34
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Discontinued operations
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—
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—
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|||
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Net earnings per share
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$
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1.54
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$
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1.34
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Diluted earnings per share
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Continuing operations
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$
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1.53
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$
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1.33
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Discontinued operations
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—
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—
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|||
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Net earnings per share
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$
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1.53
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$
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1.33
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Weighted average common shares outstanding
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|||||||
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Basic
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515.7
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536.9
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|||
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Diluted
|
519.5
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541.0
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Antidilutive shares
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0.1
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2.2
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|||
Note: Per share amounts may not foot due to rounding.
See accompanying Notes to Consolidated Financial Statements.
1
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Consolidated Statements of Comprehensive Income
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||||||
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Three Months Ended
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||||||
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(millions) (unaudited)
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May 4,
2019 |
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May 5,
2018 |
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|||
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Net earnings
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$
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795
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$
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718
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Other comprehensive income
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|||
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Pension, net of tax
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10
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13
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Currency translation adjustment and cash flow hedges, net of tax
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3
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(3
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)
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|||
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Other comprehensive income
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13
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10
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|||
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Comprehensive income
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$
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808
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$
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728
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See accompanying Notes to Consolidated Financial Statements.
2
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Consolidated Statements of Financial Position
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|
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|||||
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(millions, except footnotes) (unaudited)
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May 4,
2019 |
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February 2,
2019 |
|
May 5,
2018 |
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|||||
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Assets
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|||||||||
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Cash and cash equivalents
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$
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1,173
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$
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1,556
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$
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1,060
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Inventory
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9,060
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9,497
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8,652
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Other current assets
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1,374
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1,466
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1,164
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|||||
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Total current assets
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11,607
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12,519
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10,876
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Property and equipment
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Land
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6,061
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6,064
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6,090
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Buildings and improvements
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29,573
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29,240
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28,363
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Fixtures and equipment
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5,401
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5,912
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5,135
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Computer hardware and software
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2,553
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2,544
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2,511
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Construction-in-progress
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574
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460
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639
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Accumulated depreciation
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(18,456
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)
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(18,687
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)
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(17,971
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)
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Property and equipment, net
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25,706
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25,533
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24,767
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Operating lease assets
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2,019
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1,965
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1,958
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Other noncurrent assets
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1,287
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1,273
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1,328
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Total assets
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$
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40,619
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$
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41,290
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$
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38,929
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Liabilities and shareholders’ investment
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Accounts payable
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$
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8,360
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$
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9,761
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$
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8,131
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Accrued and other current liabilities
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3,823
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4,201
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3,630
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|||||
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Current portion of long-term debt and other borrowings
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1,056
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1,052
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283
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|||||
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Total current liabilities
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13,239
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15,014
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12,044
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Long-term debt and other borrowings
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11,357
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10,223
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11,107
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Noncurrent operating lease liabilities
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2,064
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2,004
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2,007
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Deferred income taxes
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1,034
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972
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744
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Other noncurrent liabilities
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1,808
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1,780
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1,869
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Total noncurrent liabilities
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16,263
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14,979
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15,727
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Shareholders’ investment
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Common stock
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43
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43
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44
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Additional paid-in capital
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5,908
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6,042
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5,664
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|||||
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Retained earnings
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5,958
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6,017
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6,187
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|
|||||
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Accumulated other comprehensive loss
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(792
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)
|
(805
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)
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(737
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)
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|||||
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Total shareholders’ investment
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11,117
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11,297
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11,158
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|||||
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Total liabilities and shareholders’ investment
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$
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40,619
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$
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41,290
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$
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38,929
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Common Stock
Authorized
6,000,000,000
shares,
$0.0833
par value;
512,312,434
,
517,761,600
and
532,916,612
shares issued and outstanding at
May 4, 2019
,
February 2, 2019
and
May 5, 2018
, respectively.
Preferred Stock
Authorized
5,000,000
shares,
$0.01
par value;
no
shares were issued or outstanding during any period presented.
See accompanying Notes to Consolidated Financial Statements.
3
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Consolidated Statements of Cash Flows
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|
|
|||||
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Three Months Ended
|
||||||
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(millions) (unaudited)
|
May 4,
2019 |
|
May 5,
2018 |
|
|||
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Operating activities
|
|
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|
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Net earnings
|
$
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795
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|
$
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718
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|
|
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Earnings from discontinued operations, net of tax
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3
|
|
1
|
|
|||
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Net earnings from continuing operations
|
792
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717
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|
|||
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Adjustments to reconcile net earnings to cash provided by operations
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|
|
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|
|||
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Depreciation and amortization
|
644
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631
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|
|||
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Share-based compensation expense
|
46
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|
42
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|
|||
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Deferred income taxes
|
59
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|
48
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|
|||
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Noncash losses
/
(gains) and other, net
|
10
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|
40
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|
|||
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Changes in operating accounts
|
|
|
|||||
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Inventory
|
438
|
|
(55
|
)
|
|||
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Other assets
|
17
|
|
26
|
|
|||
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Accounts payable
|
(1,402
|
)
|
(604
|
)
|
|||
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Accrued and other liabilities
|
(281
|
)
|
(333
|
)
|
|||
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Cash provided by operating activities—continuing operations
|
323
|
|
512
|
|
|||
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Cash provided by
operating activities—discontinued operations
|
—
|
|
2
|
|
|||
|
Cash provided by operations
|
323
|
|
514
|
|
|||
|
Investing activities
|
|
|
|
|
|||
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Expenditures for property and equipment
|
(655
|
)
|
(827
|
)
|
|||
|
Proceeds from disposal of property and equipment
|
5
|
|
4
|
|
|||
|
Other investments
|
1
|
|
5
|
|
|||
|
Cash required for investing activities
|
(649
|
)
|
(818
|
)
|
|||
|
Financing activities
|
|
|
|
|
|||
|
Additions to long-term debt
|
994
|
|
—
|
|
|||
|
Reductions of long-term debt
|
(13
|
)
|
(12
|
)
|
|||
|
Dividends paid
|
(330
|
)
|
(334
|
)
|
|||
|
Repurchase of stock
|
(320
|
)
|
(524
|
)
|
|||
|
Accelerated share repurchase pending final settlement
|
(400
|
)
|
(425
|
)
|
|||
|
Stock option exercises
|
12
|
|
16
|
|
|||
|
Cash required for financing activities
|
(57
|
)
|
(1,279
|
)
|
|||
|
Net decrease in cash and cash equivalents
|
(383
|
)
|
(1,583
|
)
|
|||
|
Cash and cash equivalents at beginning of period
|
1,556
|
|
2,643
|
|
|||
|
Cash and cash equivalents at end of period
|
$
|
1,173
|
|
$
|
1,060
|
|
|
|
Supplemental information
|
|||||||
|
Leased assets obtained in exchange for new finance lease liabilities
|
$
|
126
|
|
$
|
5
|
|
|
|
Leased assets obtained in exchange for new operating lease liabilities
|
107
|
|
113
|
|
|||
See accompanying Notes to Consolidated Financial Statements.
4
|
Consolidated Statements of Shareholders’ Investment
|
||||||||||||||||||||||
|
|
Common
|
|
Stock
|
|
Additional
|
|
|
|
Accumulated Other
|
|
|
|
||||||||||
|
|
Stock
|
|
Par
|
|
Paid-in
|
|
Retained
|
|
Comprehensive
|
|
|
|
||||||||||
|
(millions) (unaudited)
|
Shares
|
|
Value
|
|
Capital
|
|
Earnings
|
|
(Loss)
/
Income
|
|
Total
|
|
||||||||||
|
February 3, 2018
|
541.7
|
|
$
|
45
|
|
$
|
5,858
|
|
$
|
6,495
|
|
$
|
(747
|
)
|
$
|
11,651
|
|
|||||
|
Net earnings
|
—
|
|
—
|
|
—
|
|
718
|
|
—
|
|
718
|
|
||||||||||
|
Other comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
10
|
|
10
|
|
||||||||||
|
Dividends declared
|
—
|
|
—
|
|
—
|
|
(333
|
)
|
—
|
|
(333
|
)
|
||||||||||
|
Repurchase of stock
|
(6.9
|
)
|
(1
|
)
|
—
|
|
(493
|
)
|
—
|
|
(494
|
)
|
||||||||||
|
Accelerated share repurchase pending final settlement
|
(2.9
|
)
|
—
|
|
(225
|
)
|
(200
|
)
|
—
|
|
(425
|
)
|
||||||||||
|
Stock options and awards
|
1.0
|
|
—
|
|
31
|
|
—
|
|
—
|
|
31
|
|
||||||||||
|
May 5, 2018
|
532.9
|
|
$
|
44
|
|
$
|
5,664
|
|
$
|
6,187
|
|
$
|
(737
|
)
|
$
|
11,158
|
|
|||||
|
Net earnings
|
—
|
|
—
|
|
—
|
|
799
|
|
—
|
|
799
|
|
||||||||||
|
Other comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
14
|
|
14
|
|
||||||||||
|
Dividends declared
|
—
|
|
—
|
|
—
|
|
(341
|
)
|
—
|
|
(341
|
)
|
||||||||||
|
Repurchase of stock
|
(2.9
|
)
|
—
|
|
225
|
|
(232
|
)
|
—
|
|
(7
|
)
|
||||||||||
|
Accelerated share repurchase pending final settlement
|
(4.6
|
)
|
—
|
|
(170
|
)
|
(355
|
)
|
—
|
|
(525
|
)
|
||||||||||
|
Stock options and awards
|
0.7
|
|
—
|
|
69
|
|
—
|
|
—
|
|
69
|
|
||||||||||
|
August 4, 2018
|
526.1
|
|
$
|
44
|
|
$
|
5,788
|
|
$
|
6,058
|
|
$
|
(723
|
)
|
$
|
11,167
|
|
|||||
|
Net earnings
|
—
|
|
—
|
|
—
|
|
622
|
|
—
|
|
622
|
|
||||||||||
|
Other comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
9
|
|
9
|
|
||||||||||
|
Dividends declared
|
—
|
|
—
|
|
—
|
|
(338
|
)
|
—
|
|
(338
|
)
|
||||||||||
|
Repurchase of stock
|
(1.7
|
)
|
(1
|
)
|
170
|
|
(171
|
)
|
—
|
|
(2
|
)
|
||||||||||
|
Accelerated share repurchase pending final settlement
|
(3.5
|
)
|
—
|
|
(163
|
)
|
(287
|
)
|
—
|
|
(450
|
)
|
||||||||||
|
Stock options and awards
|
0.9
|
|
—
|
|
72
|
|
—
|
|
—
|
|
72
|
|
||||||||||
|
November 3, 2018
|
521.8
|
|
$
|
43
|
|
$
|
5,867
|
|
$
|
5,884
|
|
$
|
(714
|
)
|
$
|
11,080
|
|
|||||
|
Net earnings
|
—
|
|
—
|
|
—
|
|
799
|
|
—
|
|
799
|
|
||||||||||
|
Other comprehensive loss
|
—
|
|
—
|
|
—
|
|
—
|
|
(91
|
)
|
(91
|
)
|
||||||||||
|
Dividends declared
|
—
|
|
—
|
|
—
|
|
(336
|
)
|
—
|
|
(336
|
)
|
||||||||||
|
Repurchase of stock
|
(4.7
|
)
|
—
|
|
163
|
|
(330
|
)
|
—
|
|
(167
|
)
|
||||||||||
|
Stock options and awards
|
0.7
|
|
—
|
|
12
|
|
—
|
|
—
|
|
12
|
|
||||||||||
|
February 2, 2019
|
517.8
|
|
$
|
43
|
|
$
|
6,042
|
|
$
|
6,017
|
|
$
|
(805
|
)
|
$
|
11,297
|
|
|||||
5
|
Consolidated Statements of Shareholders’ Investment
|
||||||||||||||||||||||
|
|
Common
|
|
Stock
|
|
Additional
|
|
|
|
Accumulated Other
|
|
|
|
||||||||||
|
|
Stock
|
|
Par
|
|
Paid-in
|
|
Retained
|
|
Comprehensive
|
|
|
|
||||||||||
|
(millions) (unaudited)
|
Shares
|
|
Value
|
|
Capital
|
|
Earnings
|
|
(Loss)
/
Income
|
|
Total
|
|
||||||||||
|
February 2, 2019
|
517.8
|
|
$
|
43
|
|
$
|
6,042
|
|
$
|
6,017
|
|
$
|
(805
|
)
|
$
|
11,297
|
|
|||||
|
Net earnings
|
—
|
|
—
|
|
—
|
|
795
|
|
—
|
|
795
|
|
||||||||||
|
Other comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
13
|
|
13
|
|
||||||||||
|
Dividends declared
|
—
|
|
—
|
|
—
|
|
(330
|
)
|
—
|
|
(330
|
)
|
||||||||||
|
Repurchase of stock
|
(3.6
|
)
|
—
|
|
—
|
|
(277
|
)
|
—
|
|
(277
|
)
|
||||||||||
|
Accelerated share repurchase pending final settlement
|
(3.0
|
)
|
—
|
|
(153
|
)
|
(247
|
)
|
—
|
|
(400
|
)
|
||||||||||
|
Stock options and awards
|
1.1
|
|
—
|
|
19
|
|
—
|
|
—
|
|
19
|
|
||||||||||
|
May 4, 2019
|
512.3
|
|
$
|
43
|
|
$
|
5,908
|
|
$
|
5,958
|
|
$
|
(792
|
)
|
$
|
11,117
|
|
|||||
We declared
$0.64
and
$0.62
dividends per share for the three months ended
May 4, 2019
, and
May 5, 2018
, respectively, and
$2.54
per share for the fiscal year ended
February 2, 2019
.
See accompanying Notes to Consolidated Financial Statements.
6
Notes to Consolidated Financial Statements (unaudited)
1. Accounting Policies
These unaudited condensed consolidated financial statements are prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC) applicable to interim financial statements. While these statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by United States (U.S.) generally accepted accounting principles (U.S. GAAP) for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the financial statement disclosures in our
2018
Form 10-K.
We use the same accounting policies in preparing quarterly and annual financial statements. Unless otherwise noted, amounts presented within the Notes to Consolidated Financial Statements refer to our continuing operations.
We operate as a single segment that includes all of our continuing operations, which are designed to enable guests to purchase products seamlessly in stores or through our digital channels. Nearly all of our revenues are generated in the U.S. The vast majority of our long-lived assets are located within the U.S.
Due to the seasonal nature of our business, quarterly revenues, expenses, earnings, and cash flows are not necessarily indicative of the results that may be expected for the full year.
2. Revenues
General merchandise sales represent the vast majority of our revenues. We also earn revenues from a variety of other sources, most notably credit card profit sharing income from our arrangement with TD Bank Group (TD).
|
Revenues
|
Three Months Ended
|
||||||
|
(millions)
|
May 4,
2019 |
|
May 5,
2018 |
|
|||
|
Apparel and accessories
(a)
|
$
|
3,290
|
|
$
|
3,113
|
|
|
|
Beauty and household essentials
(a)
|
4,971
|
|
4,617
|
|
|||
|
Food and beverage
|
3,722
|
|
3,587
|
|
|||
|
Hardlines
|
2,385
|
|
2,313
|
|
|||
|
Home furnishings and décor
|
3,001
|
|
2,903
|
|
|||
|
Other
|
32
|
|
23
|
|
|||
|
Sales
|
17,401
|
|
16,556
|
|
|||
|
Credit card profit sharing
|
160
|
|
167
|
|
|||
|
Other
|
66
|
|
58
|
|
|||
|
Other revenue
|
226
|
|
225
|
|
|||
|
Total revenue
|
$
|
17,627
|
|
$
|
16,781
|
|
|
|
(a)
|
For the three months ended May 4, 2019, and May 5, 2018, we reclassified certain non-apparel baby merchandise sales totaling
$456 million
and
$390 million
, respectively, from Apparel and Accessories to Beauty and Household Essentials.
|
We record almost all retail store revenues at the point of sale. Digitally originated sales may include shipping revenue and are recorded upon delivery to the guest or upon guest pickup at the store. Sales are recognized net of expected returns, which we estimate using historical return patterns and our expectation of future returns. As of
May 4, 2019
,
February 2, 2019
, and
May 5, 2018
, the accrual for estimated returns was
$124 million
,
$116 million
, and
$119 million
, respectively. We have not historically had material adjustments to our returns estimates.
Revenue from Target gift card sales is recognized upon gift card redemption, which is typically within one year of issuance.
7
|
(millions)
|
February 2,
2019 |
|
Gift Cards Issued During Current Period But Not Redeemed
(a)
|
|
Revenue Recognized From Beginning Liability
|
|
May 4,
2019 |
|
|||||||
|
Gift card liability
|
$
|
840
|
|
$
|
213
|
|
$
|
(322
|
)
|
$
|
731
|
|
|||
|
(a)
|
Net of estimated breakage.
|
Credit card profit sharing
– We receive payments under a credit card program agreement with TD. Under the agreement, we receive a percentage of the profits generated by the Target Credit Card and Target MasterCard receivables in exchange for performing account servicing and primary marketing functions. TD underwrites, funds, and owns Target Credit Card and Target MasterCard receivables, controls risk management policies, and oversees regulatory compliance.
3. Fair Value Measurements
Fair value measurements are reported in one of three levels reflecting the valuation techniques used to determine fair value.
|
Fair Value Measurements - Recurring Basis
|
Fair Value at
|
||||||||||||
|
(millions)
|
Classification
|
Pricing Category
|
May 4,
2019 |
|
February 2,
2019 |
|
May 5,
2018 |
|
|||||
|
Assets
|
|
|
|
|
|
|
|||||||
|
Short-term investments
|
Cash and Cash Equivalents
|
Level 1
|
$
|
419
|
|
$
|
769
|
|
$
|
311
|
|
||
|
Prepaid forward contracts
|
Other Current Assets
|
Level 1
|
21
|
|
19
|
|
21
|
|
|||||
|
Interest rate swaps
|
Other Noncurrent Assets
|
Level 2
|
23
|
|
10
|
|
—
|
|
|||||
|
Liabilities
|
|
|
|
|
|
|
|||||||
|
Interest rate swaps
|
Other Current Liabilities
|
Level 2
|
1
|
|
3
|
|
—
|
|
|||||
|
Interest rate swaps
|
Other Noncurrent Liabilities
|
Level 2
|
—
|
|
—
|
|
10
|
|
|||||
|
Significant Financial Instruments not Measured at Fair Value
(a)
(millions)
|
May 4, 2019
|
February 2, 2019
|
May 5, 2018
|
|||||||||||||||||
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
|||||||||
|
Long-term debt, including current portion
(b)
|
$
|
11,243
|
|
$
|
12,015
|
|
$
|
10,247
|
|
$
|
10,808
|
|
$
|
10,442
|
|
$
|
10,782
|
|
||
|
(a)
|
The carrying amounts of certain other current assets, commercial paper, accounts payable, and certain accrued and other current liabilities approximate fair value due to their short-term nature.
|
|
(b)
|
The fair value of debt is generally measured using a discounted cash flow analysis based on current market interest rates for the same or similar types of financial instruments and would be classified as Level 2. These amounts exclude commercial paper, unamortized swap valuation adjustments, and lease liabilities.
|
4. Commercial Paper and Long-Term Debt
During the
three
months ended
May 4, 2019
, we issued
$1,000 million
of
10
-year unsecured fixed rate debt at
3.375
percent, in advance of the June 2019 maturity of
$1,000 million
of
2.3
percent unsecured fixed rate debt.
We obtain short-term financing from time to time under our commercial paper program. For the three months ended
May 4, 2019
, the maximum amount outstanding was
$744 million
, and the average daily amount outstanding was
$140 million
at a weighted average annual interest rate of
2.4 percent
. For the three months ended May 5, 2018, the maximum amount outstanding was
$658 million
, and the average daily amount outstanding was
$127 million
at a weighted average annual interest rate of
1.8 percent
. As of
May 4, 2019
, and May 5, 2018,
no
balances were outstanding.
8
5. Derivative Financial Instruments
As required, we adopted Accounting Standards Update (ASU) No. 2017-12—
Targeted Improvements to Accounting for Hedging Activities (Topic 815)
, as of February 3, 2019. The new standard did not affect our consolidated net earnings, financial position, or cash flows.
Our derivative instruments consist of interest rate swaps used to mitigate interest rate risk. As a result, we have counterparty credit exposure to large global financial institutions, which we monitor on an ongoing basis. Note 3 provides the fair value and classification of these instruments.
In March 2019, we entered into interest rate swaps with a total notional amount of
$1,000 million
. With the addition of these swaps, as of May 4, 2019, we were party to
seven
interest rate swaps with notional amounts totaling
$2,500 million
, compared with
three
interest rate swaps with notional amounts totaling
$1,250 million
as of May 5, 2018. We pay a variable rate and receive a fixed rate under each of these agreements. All of the agreements are designated as fair value hedges, and all were perfectly effective during the three months ended May 4, 2019, and May 5, 2018. The gains and losses on the interest rate swaps and underlying debt recognized in Net Interest Expense were immaterial for each period presented.
The notional amounts of our interest rate swaps approximate the carrying amount of the associated debt primarily because the cumulative hedging adjustments included in the debt carrying amount were immaterial in each period presented.
6. Share Repurchase
We periodically repurchase shares of our common stock under a board-authorized repurchase program through a combination of open market transactions, accelerated share repurchase (ASR) arrangements and other privately negotiated transactions with financial institutions.
|
Three Months Ended
|
|||||||
|
(millions, except per share data)
|
May 4,
2019 |
|
May 5,
2018 |
|
|||
|
Total number of shares purchased
|
3.6
|
|
6.9
|
|
|||
|
Average price paid per share
|
$
|
76.98
|
|
$
|
71.24
|
|
|
|
Total investment
|
$
|
277
|
|
$
|
494
|
|
|
Note: Activity related to the first quarter 2019 and 2018 ASR arrangements described below is omitted because the transactions were not fully settled as of May 4, 2019, and May 5, 2018, respectively.
During the first quarter of 2019, we entered into an ASR to repurchase
$275
to
$400 million
of our common stock under the existing
$5 billion
share repurchase program. Under the agreement, we paid
$400 million
and received an initial delivery of
3.0 million
shares, which were retired, resulting in a
$247 million
reduction to Retained Earnings. As of May 4, 2019,
$153 million
is included as a reduction to Additional Paid-in Capital.
During the first quarter of 2018, we entered into an ASR to repurchase
$225
to
$425 million
of our common stock. Under the agreement, we paid
$425 million
and received an initial delivery of
2.9 million
shares, which were retired, resulting in a
$200 million
reduction to Retained Earnings. As of May 5, 2018,
$225 million
was included as a reduction to Additional Paid-in Capital. Upon settlement in the second quarter of 2018, we received an additional
0.2 million
shares, which were retired, and
$200 million
for the remaining amount not settled in shares. In total, we repurchased
3.1 million
shares under the ASR for a total cash investment of
$225 million
(
$73.06
per share).
9
7. Pension Benefits
We provide pension plan benefits to eligible team members.
|
Net Pension Benefits Expense
|
Three Months Ended
|
|||||||
|
(millions)
|
Classification
|
May 4,
2019 |
|
May 5,
2018 |
|
|||
|
Service cost benefits earned
|
SG&A Expenses
|
$
|
23
|
|
$
|
24
|
|
|
|
Interest cost on projected benefit obligation
|
Net Other (Income) / Expense
|
37
|
|
37
|
|
|||
|
Expected return on assets
|
Net Other (Income) / Expense
|
(62
|
)
|
(62
|
)
|
|||
|
Amortization of losses
|
Net Other (Income) / Expense
|
16
|
|
21
|
|
|||
|
Amortization of prior service cost
|
Net Other (Income) / Expense
|
(3
|
)
|
(3
|
)
|
|||
|
Total
|
$
|
11
|
|
$
|
17
|
|
||
8. Accumulated Other Comprehensive (Loss)
/ Income
|
(millions)
|
Cash Flow
Hedges
|
|
Currency
Translation
Adjustment
|
|
Pension
|
|
Total
|
|
|||||||
|
February 2, 2019
|
$
|
(13
|
)
|
$
|
(20
|
)
|
$
|
(772
|
)
|
$
|
(805
|
)
|
|||
|
Other comprehensive income before reclassifications, net of tax
|
—
|
|
3
|
|
—
|
|
3
|
|
|||||||
|
Amounts reclassified from AOCI, net of tax
|
—
|
|
—
|
|
10
|
|
10
|
|
|||||||
|
May 4, 2019
|
$
|
(13
|
)
|
$
|
(17
|
)
|
$
|
(762
|
)
|
$
|
(792
|
)
|
|||
10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
First
quarter
2019
includes the following notable items:
|
•
|
GAAP earnings per share from continuing operations and adjusted earnings per share were
$1.53
.
|
|
•
|
Total revenue increased
5.0 percent
, driven by a comparable sales increase and sales from new stores.
|
|
•
|
Comparable sales increased
4.8
percent, driven by a
4.3 percent
increase in traffic.
|
|
◦
|
Comparable store sales grew
2.7 percent
.
|
|
◦
|
Digital channel sales increased
42 percent
, contributing
2.1
percentage points to comparable sales growth.
|
|
•
|
Operating income of
$1,135 million
was
9.0 percent
higher than the comparable prior-year period.
|
Sales were
$17,401 million
for the three months ended
May 4, 2019
, an increase of
$845 million
, or
5.1
percent, from the same period in the prior year. Operating income for the three months ended May 4, 2019, increased by
$94 million
, or
9.0 percent
, from the same period in the prior year to
$1,135 million
. The Analysis of Results of Operations discussion provides more information. Operating cash flow provided by continuing operations was
$323 million
for the
three
months ended
May 4, 2019
, a
decrease
of
$189 million
, or
36.9 percent
, from
$512 million
for the
three
months ended
May 5, 2018
. Refer to the Operating Cash Flows discussion within the Liquidity and Capital Resources section of MD&A on page 17 for additional information.
|
Earnings Per Share from Continuing Operations
|
Three Months Ended
|
|
|
|||||||
|
May 4,
2019 |
|
May 5,
2018 |
|
Change
|
|
|||||
|
GAAP diluted earnings per share
|
$
|
1.53
|
|
$
|
1.33
|
|
15.1
|
%
|
||
|
Adjustments
|
—
|
|
(0.01
|
)
|
||||||
|
Adjusted diluted earnings per share
|
$
|
1.53
|
|
$
|
1.32
|
|
15.9
|
%
|
||
Note: Amounts may not foot due to rounding. Adjusted diluted earnings per share from continuing operations (Adjusted EPS), a non-GAAP metric, excludes the impact of certain items. Management believes that Adjusted EPS is useful in providing period-to-period comparisons of the results of our continuing operations. A reconciliation of non-GAAP financial measures to GAAP measures is provided on page 15.
For the trailing twelve months ended
May 4, 2019
, after-tax return on invested capital from continuing operations (ROIC) was
14.3
percent, compared with
15.2
percent for the trailing twelve months ended
May 5, 2018
. Excluding the discrete impacts of the Tax Cuts and Jobs Act of 2017 (Tax Act), ROIC was
14.1
percent and
13.5 percent
for the trailing twelve months ended
May 4, 2019
, and
May 5, 2018
, respectively. The calculation of ROIC is provided on page 16.
11
Analysis of Results of Operations
|
Three Months Ended
|
|
|
||||||||
|
(dollars in millions)
|
May 4,
2019 |
|
May 5,
2018 |
|
Change
|
|
||||
|
Sales
|
$
|
17,401
|
|
$
|
16,556
|
|
5.1
|
%
|
||
|
Other revenue
|
226
|
|
225
|
|
0.5
|
|
||||
|
Total revenue
|
17,627
|
|
16,781
|
|
5.0
|
|
||||
|
Cost of sales
|
12,248
|
|
11,625
|
|
5.4
|
|
||||
|
Selling, general and administrative expenses
|
3,663
|
|
3,545
|
|
3.3
|
|
||||
|
Depreciation and amortization (exclusive of depreciation included in cost of sales)
|
581
|
|
570
|
|
1.9
|
|
||||
|
Operating income
|
$
|
1,135
|
|
$
|
1,041
|
|
9.0
|
%
|
||
|
Rate Analysis
|
Three Months Ended
|
||||
|
May 4,
2019 |
|
May 5,
2018 |
|
||
|
Gross margin rate
|
29.6
|
%
|
29.8
|
%
|
|
|
SG&A expense rate
|
20.8
|
|
21.1
|
|
|
|
Depreciation and amortization (exclusive of depreciation included in cost of sales) expense rate
|
3.3
|
|
3.4
|
|
|
|
Operating income margin rate
|
6.4
|
|
6.2
|
|
|
Note: 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.
Sales
Sales include all merchandise sales, net of expected returns, and gift card breakage. Comparable sales is a measure that highlights the performance of our stores and digital channel 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. 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 pick-up or drive-up, and delivery via our wholly-owned subsidiary, Shipt. Digitally originated sales may also be fulfilled through our distribution centers, our vendors, or other third parties.
The increase in sales during the
three
months ended
May 4, 2019
, is due to a comparable sales increase of
4.8 percent
and the contribution from new stores.
|
Comparable Sales
|
Three Months Ended
|
||||
|
|
May 4,
2019 |
|
May 5,
2018 |
|
|
|
Comparable sales change
|
4.8
|
%
|
3.0
|
%
|
|
|
Drivers of change in comparable sales
|
|
|
|
|
|
|
Number of transactions
|
4.3
|
|
3.7
|
|
|
|
Average transaction amount
|
0.5
|
|
(0.6
|
)
|
|
Note: Amounts may not foot due to rounding.
12
|
Contribution to Comparable Sales Change
|
Three Months Ended
|
||||
|
|
May 4,
2019 |
|
May 5,
2018 |
|
|
|
Stores channel comparable sales change
|
2.7
|
%
|
1.9
|
%
|
|
|
Digital channel contribution to comparable sales change
|
2.1
|
|
1.1
|
|
|
|
Total comparable sales change
|
4.8
|
%
|
3.0
|
%
|
|
Note: Amounts may not foot due to rounding.
|
Sales by Channel
|
Three Months Ended
|
||||
|
|
May 4,
2019 |
|
May 5,
2018 |
|
|
|
Stores originated
|
92.9
|
%
|
94.8
|
%
|
|
|
Digitally originated
|
7.1
|
|
5.2
|
|
|
|
Total
|
100
|
%
|
100
|
%
|
|
Note 2 to the Consolidated Financial Statements provides sales by product category. 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.
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 the incremental purchases on REDcards are also incremental sales for Target. Guests receive a 5 percent discount on virtually all purchases when they use a REDcard at Target.
|
REDcard Penetration
|
Three Months Ended
|
||||
|
|
May 4,
2019 |
|
May 5,
2018 |
|
|
|
Target Debit Card
|
13.1
|
%
|
13.5
|
%
|
|
|
Target Credit Cards
|
10.4
|
|
10.6
|
|
|
|
Total REDcard Penetration
|
23.5
|
%
|
24.1
|
%
|
|
Note: Amounts may not foot due to rounding.
Gross Margin Rate
For the
three
months ended
May 4, 2019
, our gross margin rate was
29.6
percent compared with
29.8
percent in the comparable period last year. The decrease was primarily due to increased digital fulfillment and supply chain costs, partially offset by the benefit of merchandising strategies, including cost savings initiatives and efforts to improve pricing and promotions.
13
Selling, General, and Administrative Expense Rate
For the
three
months ended
May 4, 2019
, our SG&A expense rate was
20.8
percent compared with
21.1
percent in the comparable period last year. The decrease reflects technology-related cost savings and a year-over-year benefit due to timing of marketing campaigns, neither of which was individually significant. In addition, broad expense control, including store labor productivity, offset pressure from wage growth.
Depreciation and Amortization Expense Rate
For the
three
months ended
May 4, 2019
, our depreciation and amortization (exclusive of depreciation included in cost of sales) expense rate was
3.3
percent compared with
3.4
percent in the comparable period last year. The decrease was primarily due to the rate impact of higher sales in 2019.
Store Data
|
Change in Number of Stores
|
Three Months Ended
|
||||
|
|
May 4,
2019 |
|
May 5,
2018 |
|
|
|
Beginning store count
|
1,844
|
|
1,822
|
|
|
|
Opened
|
7
|
|
7
|
|
|
|
Closed
|
—
|
|
—
|
|
|
|
Ending store count
|
1,851
|
|
1,829
|
|
|
|
Number of Stores and
Retail Square Feet |
Number of Stores
|
Retail Square Feet
(a)
|
|||||||||||
|
May 4,
2019 |
|
February 2,
2019 |
|
May 5,
2018 |
|
May 4,
2019 |
|
February 2,
2019 |
|
May 5,
2018 |
|
||
|
170,000 or more sq. ft.
|
272
|
|
272
|
|
274
|
|
48,603
|
|
48,604
|
|
48,951
|
|
|
|
50,000 to 169,999 sq. ft.
|
1,501
|
|
1,501
|
|
1,502
|
|
188,918
|
|
188,900
|
|
189,258
|
|
|
|
49,999 or less sq. ft.
|
78
|
|
71
|
|
53
|
|
2,276
|
|
2,077
|
|
1,477
|
|
|
|
Total
|
1,851
|
|
1,844
|
|
1,829
|
|
239,797
|
|
239,581
|
|
239,686
|
|
|
(a)
In thousands, reflects total square feet, less office, distribution center, and vacant space.
Other Performance Factors
Net Interest Expense
Net interest expense from continuing operations was
$126 million
and
$121 million
for the
three
months ended
May 4, 2019
, and
May 5, 2018
, respectively. The increase is primarily due to a higher average debt balance during the three months ended May 4, 2019, as compared with the prior-year period.
14
Provision for Income Taxes
Our effective income tax rate from continuing operations for the
three
months ended
May 4, 2019
, was
22.4 percent
compared with
22.6
percent for the comparable period last year.
Reconciliation of Non-GAAP Financial Measures to GAAP Measures
To provide additional transparency, we have disclosed non-GAAP adjusted diluted earnings per share from continuing operations (Adjusted EPS). This metric excludes certain items presented below. We believe this information is useful in providing period-to-period comparisons of the results of our continuing operations. This measure is not in accordance with, or an alternative to, generally accepted accounting principles in the U.S. (GAAP). The most comparable GAAP measure is diluted earnings per share from continuing operations. Adjusted EPS should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP. Other companies may calculate Adjusted EPS differently, limiting the usefulness of the measure for comparisons with other companies.
|
Three Months Ended
|
||||||||||||||||||||
|
May 4, 2019
|
May 5, 2018
|
|||||||||||||||||||
|
(millions, except per share data)
|
Pretax
|
|
Net of Tax
|
|
Per Share Amounts
|
|
Pretax
|
|
Net of Tax
|
|
Per Share Amounts
|
|
||||||||
|
GAAP diluted earnings per share from continuing operations
|
$
|
1.53
|
|
$
|
1.33
|
|
||||||||||||||
|
Adjustments
|
||||||||||||||||||||
|
Income tax matters
(a)
|
—
|
|
—
|
|
—
|
|
—
|
|
(5
|
)
|
(0.01
|
)
|
||||||||
|
Adjusted diluted earnings per share from continuing operations
|
$
|
1.53
|
|
$
|
1.32
|
|
||||||||||||||
Note: Amounts may not foot due to rounding.
|
(a)
|
Represents certain income tax matters not related to current period operations.
|
Earnings from continuing operations before interest expense and income taxes (EBIT) and earnings before interest expense, income taxes, depreciation and amortization (EBITDA) are non-GAAP financial measures which we believe provide meaningful information about our operational efficiency compared with our competitors by excluding the impact of differences in tax jurisdictions and structures, debt levels, and for EBITDA, capital investment. These measures are not in accordance with, or an alternative to, GAAP. The most comparable GAAP measure is net earnings from continuing operations. EBIT and EBITDA should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP. Other companies may calculate EBIT and EBITDA differently, limiting the usefulness of the measure for comparisons with other companies.
|
EBIT and EBITDA
|
Three Months Ended
|
|
|||||||||
|
(dollars in millions) (unaudited)
|
May 4,
2019 |
May 5,
2018 |
Change
|
||||||||
|
Net earnings from continuing operations
|
$
|
792
|
|
$
|
717
|
|
10.5
|
%
|
|||
|
+ Provision for income taxes
|
229
|
|
210
|
|
9.2
|
|
|||||
|
+ Net interest expense
|
126
|
|
121
|
|
3.3
|
|
|||||
|
EBIT
|
$
|
1,147
|
|
$
|
1,048
|
|
9.4
|
%
|
|||
|
+ Total depreciation and amortization
(a)
|
644
|
|
631
|
|
2.0
|
|
|||||
|
EBITDA
|
$
|
1,791
|
|
$
|
1,679
|
|
6.6
|
%
|
|||
|
(a)
|
Represents total depreciation and amortization, including amounts classified within Depreciation and Amortization and within Cost of Sales.
|
15
We have also disclosed after-tax ROIC, which is a ratio based on GAAP information. We believe this metric is useful in assessing the effectiveness of our capital allocation over time. Other companies may calculate ROIC differently, limiting the usefulness of the measure for comparisons with other companies.
|
After-Tax Return on Invested Capital
|
||||||||||||
|
(dollars in millions)
|
||||||||||||
|
Trailing Twelve Months
|
||||||||||||
|
Numerator
|
May 4,
2019 |
|
May 5,
2018
(a)
|
|
||||||||
|
Operating income
|
$
|
4,204
|
|
$
|
4,110
|
|
||||||
|
+ Net other income / (expense)
|
33
|
|
51
|
|
||||||||
|
EBIT
|
4,237
|
|
4,161
|
|
||||||||
|
+ Operating lease interest
(b)
|
84
|
|
80
|
|
||||||||
|
- Income taxes
(c)(d)
|
878
|
|
692
|
|
||||||||
|
Net operating profit after taxes
|
$
|
3,443
|
|
$
|
3,549
|
|
||||||
|
Denominator
|
May 4,
2019 |
|
May 5,
2018 |
|
April 29,
2017 |
|
||||||
|
Current portion of long-term debt and other borrowings
|
$
|
1,056
|
|
$
|
283
|
|
$
|
1,729
|
|
|||
|
+ Noncurrent portion of long-term debt
|
11,357
|
|
11,107
|
|
10,916
|
|
||||||
|
+ Shareholders' equity
|
11,117
|
|
11,158
|
|
10,979
|
|
||||||
|
+ Operating lease liabilities
(e)
|
2,231
|
|
2,157
|
|
2,049
|
|
||||||
|
- Cash and cash equivalents
|
1,173
|
|
1,060
|
|
2,680
|
|
||||||
|
- Net assets of discontinued operations
(f)
|
—
|
|
—
|
|
17
|
|
||||||
|
Invested capital
|
$
|
24,588
|
|
$
|
23,645
|
|
$
|
22,976
|
|
|||
|
Average invested capital
(g)
|
$
|
24,116
|
|
$
|
23,310
|
|
||||||
|
After-tax return on invested capital
(d)
|
14.3
|
%
|
15.2
|
%
|
||||
|
After-tax return on invested capital excluding discrete impacts of Tax Act
(d)
|
14.1
|
%
|
13.5
|
%
|
||||
|
(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. 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 for continuing operations, which were
20.3 percent
and
16.3 percent
for the trailing twelve months ended
May 4, 2019
, and
May 5, 2018
, respectively. For the trailing twelve months ended
May 4, 2019
, and
May 5, 2018
, includes tax effect of
$861 million
and
$679 million
, respectively, related to EBIT, and
$17 million
and
$13 million
, respectively, related to operating lease interest.
|
|
(d)
|
The effective tax rate for the trailing twelve months ended
May 4, 2019
, and
May 5, 2018
, includes discrete tax benefits of $36 million and $343 million, respectively, related to the Tax Act.
|
|
(e)
|
Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities.
|
|
(f)
|
Included in Other Assets and Liabilities.
|
|
(g)
|
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.
|
Analysis of Financial Condition
Liquidity and Capital Resources
Our cash and cash equivalents balance was
$1,173 million
at
May 4, 2019
, compared with
$1,060 million
for the same period in
2018
. Our cash and cash equivalents balance includes short-term investments of $419 million, $769 million, and $311 million as of May 4, 2019, February 2, 2019, and May 5, 2018, respectively. Our investment policy is designed to preserve principal and liquidity of our short-term investments. This policy allows investments in large money market funds or in highly rated direct short-term instruments that mature in 60 days or less. We also place dollar limits on our investments in individual funds or instruments.
Capital Allocation
We follow a disciplined and balanced approach to capital allocation based on the following priorities, ranked in order of importance: first, we fully invest in opportunities to profitably grow our business, create sustainable long-term value, and maintain our current operations and assets; second, we maintain a competitive quarterly dividend and seek to grow it annually; and finally, we return any excess cash to shareholders by repurchasing shares within the limits of our credit rating goals.
Operating Cash Flows
Operating cash flow provided by continuing operations was
$323 million
for the
three
months ended
May 4, 2019
, compared with
$512 million
for the same period in
2018
. The operating cash flow
decrease
is primarily due to higher cash settlement of accounts payable during the three months ended May 4, 2019, compared with the comparable prior-year period, driven by elevated inventory and accounts payable levels as of February 2, 2019, partially offset by a decrease in inventory during the three months ended May 4, 2019.
Inventory
Inventory was
$9,060 million
as of
May 4, 2019
, compared with
$9,497 million
and
$8,652 million
at
February 2, 2019
, and
May 5, 2018
, respectively. The decrease from February 2, 2019, reflects a reduction from elevated year-end inventory levels. Inventory increased from May 5, 2018 to support current and expected sales and our efforts to improve in-stock levels, including market share opportunities in toys and baby-related merchandise.
Dividends
We paid dividends totaling
$330 million
(
$0.64
per share) and
$334 million
(
$0.62
per share) for the
three
months ended
May 4, 2019
, and
May 5, 2018
, respectively, a per share increase of
3.2
percent. We declared dividends totaling
$330 million
(
$0.64
per share) during the
first
quarter of
2019
, a per share increase of
3.2
percent over the
$333 million
(
$0.62
per share) of declared dividends during the
first
quarter of
2018
. 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 returned $277 million to shareholders through share repurchase during the three months ended
May 4, 2019
. See Part II, Item 2 of this Quarterly Report on Form 10-Q and Note 6 to the Consolidated Financial Statements for more information.
16
Financing
Our financing strategy is to ensure liquidity and access to capital markets, to maintain a balanced spectrum of debt maturities, and to manage our net exposure to floating interest rate volatility. Within these parameters, we seek to minimize our borrowing costs. Our ability to access the long-term debt and commercial paper markets has provided us with ample sources of liquidity. 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 4, 2019
, our credit ratings were as follows:
|
Credit Ratings
|
Moody’s
|
Standard and Poor’s
|
Fitch
|
|
Long-term debt
|
A2
|
A
|
A-
|
|
Commercial paper
|
P-1
|
A-1
|
F2
|
If our credit ratings were lowered, our ability to access the debt markets, our cost of funds, and other terms for new debt issuances could be adversely impacted. 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.
During the
three
months ended
May 4, 2019
, we issued $1.0 billion of debt in advance of the June 2019 maturity of $1.0 billion of debt. Notes 4 and 5 to the Consolidated Financial Statements provide additional information.
We have additional liquidity through a committed $2.5 billion revolving credit facility obtained through a group of banks. In October 2018, we extended this credit facility by one year to October 2023. No balances were outstanding at any time during
2019
or
2018
.
Most of our long-term debt obligations contain covenants related to secured debt levels. In addition to a secured debt level covenant, our credit facility also contains a debt leverage covenant. We are, and expect to remain, in compliance with these covenants. Additionally, as of
May 4, 2019
, 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 noninvestment 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 noninvestment grade.
We believe our sources of liquidity will continue to be adequate to maintain operations, finance anticipated expansion and strategic initiatives, fund debt maturities, pay dividends, and execute purchases under our share repurchase program for the foreseeable future. We continue to anticipate ample access to commercial paper and long-term financing.
Contractual Obligations and Commitments
As of the date of this report, other than the new borrowings discussed in Note 4 to the Consolidated Financial Statements, there were no material changes to our contractual obligations and commitments outside the ordinary course of business since
February 2, 2019
, as reported in our
2018
Form 10-K.
New Accounting Pronouncements
We do not expect any other recently issued accounting pronouncements to have a material effect on our financial statements.
17
Forward-Looking Statements
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 continued 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 return on plan assets, the expected outcome of, and adequacy of our reserves for, claims, litigation and the resolution of tax matters, the expected impact of changes in information technology systems, 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. Although we believe there is a reasonable basis for the forward-looking statements, our actual results could be materially different. The most important factors which could cause our actual results to differ from our forward-looking statements are set forth on our description of risk factors in Item 1A of our Form 10-K for the fiscal year ended
February 2, 2019
, which should be read in conjunction with the forward-looking statements in this report. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our primary risk exposures or management of market risks from those disclosed in our Form 10-K for the fiscal year ended
February 2, 2019
.
Item 4. Controls and Procedures
Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal quarter, the following change to our information technology systems materially affected, or is reasonably likely to materially affect, our internal control over financial reporting:
|
•
|
We are in the process of a broad multi-year migration of many mainframe-based systems and middleware products to a modern platform, including systems supporting inventory and supply chain-related transactions.
|
During the most recently completed fiscal quarter, no other change in our internal control over financial reporting materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report, we conducted an evaluation, under supervision and with the participation of management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (Exchange Act). Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level. Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-15(e) of the Exchange Act as controls and other procedures that are designed to ensure that information required to be disclosed by us in reports filed with the Securities and Exchange Commission (SEC) under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
No response is required under Item 103 of Regulation S-K, nor have there been any material developments for any previously reported legal proceedings.
Item 1A. Risk Factors
There have been no material changes to the risk factors described in our Annual Report on Form 10-K for the fiscal year ended
February 2, 2019
.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On September 20, 2016, our Board of Directors authorized a new $5 billion share repurchase program. We began repurchasing shares under this new authorization during the fourth quarter of
2016. There is no stated expiration for the share repurchase program. Under the program, we have repurchased 52.2 million shares of common stock through
May 4, 2019
, at an average price of $69.68, for a total investment of $3.6 billion, excluding the April 2019 ASR because the transaction was not fully settled as of May 4, 2019. The table below presents information with respect to Target common stock purchases made during the three months ended
May 4, 2019
, by Target or any "affiliated purchaser" of Target, as defined in Rule 10b-18(a)(3) under the Exchange Act.
|
Period
|
Total Number
of Shares
Purchased
|
|
Average
Price
Paid per
Share
|
|
Total Number of
Shares Purchased
as Part of Publicly Announced Programs
|
|
Dollar Value of
Shares that May
Yet Be Purchased
Under Publicly Announced Programs
|
|
|||||
|
February 3, 2019 through March 2, 2019
|
|||||||||||||
|
February 2019 ASR
|
1,500,000
|
|
$
|
74.23
|
|
1,500,000
|
|
$
|
1,417,349,966
|
|
|||
|
March 3, 2019 through April 6, 2019
|
|||||||||||||
|
Open market and privately negotiated purchases
|
1,315,000
|
|
78.53
|
|
1,315,000
|
|
1,314,080,887
|
|
|||||
|
April 7, 2019 through May 4, 2019
|
|||||||||||||
|
February 2019 ASR
|
183,903
|
|
74.23
|
|
183,903
|
|
1,414,080,887
|
|
|||||
|
Open market and privately negotiated purchases
|
604,720
|
|
81.27
|
|
604,720
|
|
1,364,936,694
|
|
|||||
|
April 2019 ASR
(a)
|
3,000,000
|
|
TBD
|
|
3,000,000
|
|
964,936,694
|
|
|||||
|
Total
|
6,603,623
|
|
TBD
|
|
6,603,623
|
|
$
|
964,936,694
|
|
||||
|
(a)
|
Refer to Note 6 of the Consolidated Financial Statements for further details about the ASR arrangements.
|
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
19
Item 6. Exhibits
|
(3)A
|
||
|
|
|
|
|
(3)B
|
||
|
(31)A
|
||
|
|
|
|
|
(31)B
|
||
|
(32)A
|
||
|
(32)B
|
||
|
|
|
|
|
101.INS
|
XBRL Instance Document
|
|
|
|
|
|
|
101.SCH
|
XBRL Taxonomy Extension Schema
|
|
|
|
|
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
|
|
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
|
|
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
|
|
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase
|
|
(1)
Incorporated by reference to Exhibit (3)A to the Registrant’s Form 8-K Report filed June 10, 2010.
(2)
Incorporated by reference to Exhibit (3)A to the Registrant’s Form 8-K Report filed November 12, 2015.
20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
TARGET CORPORATION
|
||
|
|
|
||
|
Dated: May 31, 2019
|
By:
|
/s/ Cathy R. Smith
|
|
|
|
|
Cathy R. Smith
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Executive Vice President and
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Chief Financial Officer
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(Duly Authorized Officer and
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Principal Financial Officer)
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/s/ Robert M. Harrison
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Robert M. Harrison
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Senior Vice President, Chief Accounting Officer
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and Controller
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TABLE OF CONTENTS
Part I. Financial InformationprintItem 1. Financial StatementsprintItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II. Other InformationprintItem 1. Legal ProceedingsprintItem 1A. Risk FactorsprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 3. Defaults Upon Senior SecuritiesprintItem 4. Mine Safety DisclosuresprintItem 5. Other InformationprintItem 6. Exhibitsprint