TARGET CORP
10-Qs and 10-Ks
PROXIES
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION |
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Washington, D.C. 20549
FORM
10-Q
(Mark One)
For the quarterly period ended
October 28, 2023
OR
For the transition period from ____ to ____
Commission File Number
1-6049
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(Address of principal executive offices)
(I.R.S. Employer Identification No.)
(Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
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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
☒ No ☐
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
☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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☒ | Accelerated filer | ☐ | |||||||||||||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company |
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| Emerging growth company |
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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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No ☒
Total shares of common stock, par value $0.0833, outstanding at
November 17, 2023
, were
461,661,800
.
TARGET CORPORATION
TABLE OF CONTENTS
| FINANCIAL STATEMENTS | ||||||||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
| Consolidated Statements of Operations | |||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (millions, except per share data) (unaudited) | October 28, 2023 | October 29, 2022 | October 28, 2023 | October 29, 2022 | |||||||||||||||||||
| Sales | $ |
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$ |
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$ |
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$ |
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| Other revenue |
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| Total revenue |
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| Cost of sales |
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| Selling, general and administrative expenses |
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| Depreciation and amortization (exclusive of depreciation included in cost of sales) |
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| Operating income |
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| Net interest expense |
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| Net other income |
(
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(
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(
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(
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| Earnings before income taxes |
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| Provision for income taxes |
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| Net earnings | $ |
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$ |
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$ |
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$ |
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| Basic earnings per share | $ |
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$ |
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$ |
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$ |
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| Diluted earnings per share | $ |
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$ |
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$ |
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$ |
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| Weighted average common shares outstanding | |||||||||||||||||||||||
| Basic |
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| Diluted |
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| Antidilutive shares |
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| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
1
|
||||||||
| FINANCIAL STATEMENTS | ||||||||
| Consolidated Statements of Comprehensive Income | |||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (millions) (unaudited) | October 28, 2023 | October 29, 2022 | October 28, 2023 | October 29, 2022 | |||||||||||||||||||
| Net earnings | $ |
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$ |
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$ |
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$ |
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| Other comprehensive income, net of tax | |||||||||||||||||||||||
| Pension benefit liabilities |
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| Cash flow hedges and currency translation adjustment |
(
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(
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| Other comprehensive income (loss) |
(
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(
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| Comprehensive income | $ |
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$ |
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$ |
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$ |
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| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
2
|
||||||||
| FINANCIAL STATEMENTS | ||||||||
| Consolidated Statements of Financial Position | |||||||||||||||||
| (millions, except footnotes) (unaudited) |
October 28,
2023 |
January 28,
2023 |
October 29,
2022 |
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| Assets | |||||||||||||||||
| Cash and cash equivalents | $ |
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$ |
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$ |
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| Inventory |
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| Other current assets |
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| Total current assets |
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| Property and equipment | |||||||||||||||||
| Land |
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| Buildings and improvements |
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| Fixtures and equipment |
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| Computer hardware and software |
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| Construction-in-progress |
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| Accumulated depreciation |
(
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(
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(
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| Property and equipment, net |
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| Operating lease assets |
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| Other noncurrent assets |
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| Total assets | $ |
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$ |
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$ |
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| Liabilities and shareholders’ investment | |||||||||||||||||
| Accounts payable | $ |
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$ |
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$ |
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| Accrued and other current liabilities |
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| Current portion of long-term debt and other borrowings |
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| Total current liabilities |
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| Long-term debt and other borrowings |
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| Noncurrent operating lease liabilities |
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| Deferred income taxes |
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| Other noncurrent liabilities |
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| Total noncurrent liabilities |
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| Shareholders’ investment | |||||||||||||||||
| Common stock |
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| Additional paid-in capital |
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| Retained earnings |
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| Accumulated other comprehensive loss |
(
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(
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(
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| Total shareholders’ investment |
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| Total liabilities and shareholders’ investment | $ |
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$ |
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$ |
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Common Stock
Authorized
6,000,000,000
shares, $
0.0833
par value;
461,651,176
,
460,346,947
, and
460,297,654
shares issued and outstanding as of October 28, 2023, January 28, 2023, and October 29, 2022, respectively.
Preferred Stock
Authorized
5,000,000
shares, $
0.01
par value;
no
shares were issued or outstanding during any period presented.
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
3
|
||||||||
| FINANCIAL STATEMENTS | ||||||||
| Consolidated Statements of Cash Flows | |||||||||||
| Nine Months Ended | |||||||||||
| (millions) (unaudited) | October 28, 2023 | October 29, 2022 | |||||||||
| Operating activities | |||||||||||
| Net earnings | $ |
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$ |
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| Adjustments to reconcile net earnings to cash provided by operating activities: | |||||||||||
| Depreciation and amortization |
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| Share-based compensation expense |
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| Deferred income taxes |
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Noncash losses
/
(gains) and other, net
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| Changes in operating accounts: | |||||||||||
| Inventory |
(
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(
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| Other assets |
(
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(
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| Accounts payable |
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(
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| Accrued and other liabilities |
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(
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Cash provided by operating activities
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| Investing activities | |||||||||||
| Expenditures for property and equipment |
(
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(
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| Proceeds from disposal of property and equipment |
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| Other investments |
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| Cash required for investing activities |
(
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(
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| Financing activities | |||||||||||
| Change in commercial paper, net |
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| Additions to long-term debt |
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| Reductions of long-term debt |
(
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(
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| Dividends paid |
(
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(
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| Repurchase of stock |
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(
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| Shares withheld for taxes on share-based compensation |
(
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(
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| Stock option exercises |
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| Cash required for financing activities |
(
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(
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| Net decrease in cash and cash equivalents |
(
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(
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| Cash and cash equivalents at beginning of period |
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| Cash and cash equivalents at end of period | $ |
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$ |
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| Supplemental information | |||||||||||
| Leased assets obtained in exchange for new finance lease liabilities | $ |
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$ |
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| Leased assets obtained in exchange for new operating lease liabilities |
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| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
4
|
||||||||
| FINANCIAL STATEMENTS | ||||||||
| Consolidated Statements of Shareholders’ Investment | |||||||||||||||||||||||||||||||||||
| Common | Stock | Additional | Accumulated Other | ||||||||||||||||||||||||||||||||
| Stock | Par | Paid-in | Retained | Comprehensive | |||||||||||||||||||||||||||||||
| (millions) (unaudited) | Shares | Value | Capital | Earnings |
(Loss)
/
Income
|
Total | |||||||||||||||||||||||||||||
| January 29, 2022 |
|
$ |
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$ |
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$ |
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$ |
(
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$ |
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| Net earnings | — | — | — |
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— |
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| Other comprehensive income | — | — | — | — |
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| Dividends declared | — | — | — |
(
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— |
(
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| Repurchase of stock |
(
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— | — |
(
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— |
(
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| Accelerated share repurchase pending final settlement |
(
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(
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(
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(
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— |
(
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| Stock options and awards |
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(
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— | — |
(
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| April 30, 2022 |
|
$ |
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$ |
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$ |
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$ |
(
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$ |
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| Net earnings | — | — | — |
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— |
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| Other comprehensive loss | — | — | — | — |
(
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(
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| Dividends declared | — | — | — |
(
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— |
(
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| Repurchase of stock |
(
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(
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(
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— |
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| Stock options and awards |
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— |
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— | — |
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| July 30, 2022 |
|
$ |
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$ |
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$ |
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$ |
(
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$ |
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| Net earnings | — | — | — |
|
— |
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| Other comprehensive income | — | — | — | — |
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| Dividends declared | — | — | — |
(
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— |
(
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| Stock options and awards |
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— |
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— | — |
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| October 29, 2022 |
|
$ |
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$ |
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$ |
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$ |
(
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$ |
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| Net earnings | — | — | — |
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— |
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| Other comprehensive loss | — | — | — | — |
(
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(
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| Dividends declared | — | — | — |
(
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— |
(
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| Stock options and awards | — | — |
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— | — |
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| January 28, 2023 |
|
$ |
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$ |
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$ |
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$ |
(
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$ |
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| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
5
|
||||||||
| FINANCIAL STATEMENTS | ||||||||
| Consolidated Statements of Shareholders’ Investment | |||||||||||||||||||||||||||||||||||
| Common | Stock | Additional | Accumulated Other | ||||||||||||||||||||||||||||||||
| Stock | Par | Paid-in | Retained | Comprehensive | |||||||||||||||||||||||||||||||
| (millions) (unaudited) | Shares | Value | Capital | Earnings |
(Loss)
/
Income
|
Total | |||||||||||||||||||||||||||||
| January 28, 2023 |
|
$ |
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$ |
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$ |
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$ |
(
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$ |
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| Net earnings | — | — | — |
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— |
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| Other comprehensive loss | — | — | — | — |
(
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(
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| Dividends declared | — | — | — |
(
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— |
(
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| Stock options and awards |
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— |
(
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— | — |
(
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| April 29, 2023 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
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| Net earnings | — | — | — |
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— |
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| Other comprehensive loss | — | — | — | — |
(
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(
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| Dividends declared | — | — | — |
(
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— |
(
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| Stock options and awards | — | — |
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— | — |
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| July 29, 2023 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
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| Net earnings | — | — | — |
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— |
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Other comprehensive loss
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— | — | — | — |
(
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(
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| Dividends declared | — | — | — |
(
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— |
(
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| Stock options and awards |
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— |
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— | — |
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| October 28, 2023 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
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We declared $
1.10
and $
1.08
dividends per share for the three months ended October 28, 2023 and October 29, 2022, respectively, and $
4.14
per share for the fiscal year ended January 28, 2023.
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
6
|
||||||||
| FINANCIAL STATEMENTS | ||||||||
| INDEX | ||||||||
| INDEX TO NOTES | |||||||||||
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
7
|
||||||||
| FINANCIAL STATEMENTS | ||||||||
| NOTES | ||||||||
Notes to Consolidated Financial Statements (unaudited)
1.
Accounting Policies
These unaudited condensed consolidated financial statements are prepared in accordance with the rules and regulations of the Securities and Exchange Commission applicable to interim financial statements. While these statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by United States generally accepted accounting principles (U.S. GAAP) for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the financial statement disclosures in our most recent Form 10-K.
We use the same accounting policies in preparing quarterly and annual financial statements.
We operate as a single segment that is designed to enable guests to purchase products seamlessly in stores or through our digital channels. Nearly all of our revenues are generated in the U.S. The vast majority of our long-lived assets are located within the U.S.
Due to the seasonal nature of our business, quarterly revenues, expenses, earnings, and cash flows are not necessarily indicative of the results that may be expected for the full year.
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
8
|
||||||||
| FINANCIAL STATEMENTS | ||||||||
| NOTES | ||||||||
2.
Revenue
Merchandise sales represent the vast majority of our revenues. We also earn revenues from a variety of other sources, most notably credit card profit-sharing income from our arrangement with TD Bank Group (TD).
| Revenue | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| (millions) | October 28, 2023 | October 29, 2022 | October 28, 2023 | October 29, 2022 | |||||||||||||||||||
|
Apparel & accessories
(a)
|
$ |
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$ |
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$ |
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$ |
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Beauty & household essentials
(b)
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Food & beverage
(c)
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Hardlines
(d)
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Home furnishings & décor
(e)
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| Other |
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| Sales |
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| Credit card profit sharing |
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| Other |
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| Other revenue |
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| Total revenue | $ |
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$ |
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$ |
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$ |
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(a)
Includes apparel for women, men, boys, girls, toddlers, infants and newborns, as well as jewelry, accessories, and shoes.
(b)
Includes beauty and personal care, baby gear, cleaning, paper products, and pet supplies.
(c)
Includes dry grocery, dairy, frozen food, beverages, candy, snacks, deli, bakery, meat, produce, and food service in our stores.
(d)
Includes electronics (including video game hardware and software), toys, entertainment, sporting goods, and luggage.
(e)
Includes furniture, lighting, storage, kitchenware, small appliances, home décor, bed and bath, home improvement, school/office supplies, greeting cards and party supplies, and other seasonal merchandise.
Revenue from Target gift card sales is recognized upon gift card redemption, which is typically within one year of issuance.
| Gift Card Liability Activity |
January 28,
2023 |
Gift Cards Issued During Current Period But Not Redeemed
(b)
|
Revenue Recognized From Beginning Liability |
October 28,
2023 |
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| (millions) | |||||||||||||||||||||||
|
Gift card liability
(a)
|
$ |
|
$ |
|
$ |
(
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$ |
|
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(a)
Included in Accrued and Other Current Liabilities.
(b)
Net of estimated breakage.
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
9
|
||||||||
| FINANCIAL STATEMENTS | ||||||||
| NOTES | ||||||||
Other Revenue
Credit card profit sharing
— We receive payments under a credit card program agreement with TD. Under the agreement, we receive a percentage of the profits generated by the Target Credit Card and Target MasterCard receivables in exchange for performing account servicing and primary marketing functions. TD underwrites, funds, and owns Target Credit Card and Target MasterCard receivables, controls risk management policies, and oversees regulatory compliance.
Other
— Includes advertising revenue, Shipt membership and service revenues, commissions earned on third-party sales through Target.com, rental income, and other miscellaneous revenues.
3.
Fair Value Measurements
Fair value measurements are reported in one of three levels reflecting the significant inputs used to determine fair value.
| Financial Instruments Measured On a Recurring Basis | Fair Value | ||||||||||||||||||||||
| (millions) | Classification | Measurement Level | October 28, 2023 | January 28, 2023 | October 29, 2022 | ||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Short-term investments | Cash and Cash Equivalents | Level 1 | $ |
|
$ |
|
$ |
|
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| Prepaid forward contracts | Other Current Assets | Level 1 |
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| Interest rate swaps | Other Current Assets | Level 2 |
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| Interest rate swaps | Other Noncurrent Assets | Level 2 |
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|
||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Interest rate swaps | Other Current Liabilities | Level 2 |
|
|
|
||||||||||||||||||
| Interest rate swaps | Other Noncurrent Liabilities | Level 2 |
|
|
|
||||||||||||||||||
|
Significant Financial Instruments Not Measured at Fair Value
(a)
(millions)
|
October 28, 2023 | January 28, 2023 | October 29, 2022 | |||||||||||||||||||||||
|
Carrying
Amount |
Fair
Value |
Carrying
Amount |
Fair
Value |
Carrying
Amount |
Fair
Value |
|||||||||||||||||||||
|
Long-term debt, including current portion
(b)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||
(a)
The carrying amounts of certain other current assets, commercial paper, accounts payable, and certain accrued and other current liabilities approximate fair value due to their short-term nature.
(b)
The fair value of debt is generally measured using a discounted cash flow analysis based on current market interest rates for the same or similar types of financial instruments and would be classified as Level 2. These amounts exclude commercial paper, fair value hedge adjustments, and lease liabilities.
4.
Supplier Finance Programs
We have arrangements with several financial institutions to act as our paying agents to certain vendors. The arrangements also permit the financial institutions to provide vendors with an option, at our vendors' sole discretion, to sell their receivables from Target to the financial institutions. A vendor’s election to receive early payment at a discounted amount from the financial institutions does not change the amount that we must remit to the financial institutions or our payment date, which is up to
120
days from the invoice date.
We do not pay any fees or pledge any security to these financial institutions under these arrangements. The arrangements can be terminated by either party with notice ranging up to
120
days.
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
10
|
||||||||
| FINANCIAL STATEMENTS | ||||||||
| NOTES | ||||||||
5.
Property and Equipment
6.
Commercial Paper and Long-Term Debt
We obtain short-term financing from time to time
under our commercial paper program. For the three months ended October 28, 2023, there were
no
commercial paper amounts outstanding. For the three months ended October 29, 2022, the maximum amount outstanding was $
2.1
billion and the average daily amount outstanding was $
1.1
billion, at a weighted average annual interest rate of
2.8
percent.
For the nine months ended October 28, 2023 and October 29, 2022, the maximum amounts outstanding were $
90
million and $
2.1
billion, respectively, and the average daily amounts outstanding were $
1
million and $
713
million, respectively, at a weighted average annual interest rate of
4.8
percent and
1.9
percent, respectively.
In October 2023, we obtained a new committed $
1.0
billion
364
-day unsecured revolving credit facility that will expire in October 2024 and terminated our prior
364
-day credit facility. We also exercised our option to extend our existing
five-year
unsecured revolving credit facility, which has a maximum committed capacity of $
3.0
billion and now expires in October 2028.
No
balances were outstanding under either credit facility at any time during 2023 or 2022.
7.
Derivative Financial Instruments
Our derivative instruments consist of interest rate swaps used to mitigate interest rate risk. As a result, we have counterparty credit exposure to large global financial institutions, which we monitor on an ongoing basis.
Note 3
to the Consolidated Financial Statements provides the fair value and classification of these instruments.
We were party to interest rate swaps with notional amounts totaling $
2.45
billion as of October 28, 2023, January 28, 2023, and October 29, 2022. We pay a floating rate and receive a fixed rate under each of these agreements. All of the agreements are designated as fair value hedges, and all were considered to be perfectly effective under the shortcut method during the three and nine months ended October 28, 2023 and October 29, 2022.
During 2023, we amended interest rate swaps with notional amounts totaling $
1.5
billion to replace the London Interbank Offered Rate (LIBOR) with the daily Secured Overnight Financing Rate (SOFR) as part of our planned reference rate reform activities. These amendments did not result in any change to our application of hedge accounting or any impact to our consolidated financial statements.
We were party to forward-starting interest rate swaps with notional amounts totaling $
1.45
billion as of October 29, 2022. During 2022, we terminated all remaining forward-starting interest rate swap agreements. The resulting gains upon termination were recorded in Accumulated Other Comprehensive Loss and will be recognized as a reduction to Net Interest Expense over the respective term of the debt.
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
11
|
||||||||
| FINANCIAL STATEMENTS | ||||||||
| NOTES | ||||||||
|
Effect of Hedges on Debt
(millions)
|
October 28, 2023 | January 28, 2023 | October 29, 2022 | |||||||||||||||||
| Long-term debt and other borrowings | ||||||||||||||||||||
| $ |
|
$ |
|
$ |
|
|||||||||||||||
| Cumulative hedging adjustments, included in carrying amount |
(
|
(
|
(
|
|||||||||||||||||
| Effect of Hedges on Net Interest Expense | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| (millions) | October 28, 2023 | October 29, 2022 | October 28, 2023 | October 29, 2022 | |||||||||||||||||||
| Gain (loss) on fair value hedges recognized in Net Interest Expense | |||||||||||||||||||||||
| Interest rate swaps designated as fair value hedges | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Hedged debt |
|
|
|
|
|||||||||||||||||||
| Gain on cash flow hedges recognized in Net Interest Expense |
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
8.
Share Repurchase
We periodically repurchase shares of our common stock under a board-authorized repurchase program through a combination of open market transactions, accelerated share repurchase (ASR) arrangements, and other privately negotiated transactions with financial institutions. We did
no
t repurchase any of our shares during the nine months ended October 28, 2023.
| Share Repurchase Activity | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| (millions, except per share data) | October 28, 2023 | October 29, 2022 | October 28, 2023 | October 29, 2022 | |||||||||||||||||||
| Number of shares purchased |
|
|
|
|
|||||||||||||||||||
| Average price paid per share | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Total investment | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
9.
Pension Benefits
We provide pension plan benefits to eligible team members.
| Net Pension Benefits Expense | Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||
| (millions) | Classification | October 28, 2023 | October 29, 2022 | October 28, 2023 | October 29, 2022 | |||||||||||||||||||||
| Service cost benefits earned | SG&A | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||
| Interest cost on projected benefit obligation | Net Other Income |
|
|
|
|
|||||||||||||||||||||
| Expected return on assets | Net Other Income |
(
|
(
|
(
|
(
|
|||||||||||||||||||||
| Amortization of losses | Net Other Income |
|
|
|
|
|||||||||||||||||||||
| Prior service cost | Net Other Income |
|
|
|
|
|||||||||||||||||||||
| Total | $ |
(
|
$ |
|
$ |
(
|
$ |
|
||||||||||||||||||
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
12
|
||||||||
| FINANCIAL STATEMENTS | ||||||||
| NOTES | ||||||||
10.
Accumulated Other Comprehensive Income (Loss)
| Change in Accumulated Other Comprehensive Income (Loss) | Cash Flow Hedges | Currency Translation Adjustment | Pension | Total | |||||||||||||||||||
| (millions) | |||||||||||||||||||||||
| January 28, 2023 | $ |
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Other comprehensive income (loss) before reclassifications, net of tax |
|
(
|
|
(
|
|||||||||||||||||||
| Amounts reclassified from AOCI, net of tax |
(
|
|
|
(
|
|||||||||||||||||||
| October 28, 2023 | $ |
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
13
|
||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||||
| FINANCIAL SUMMARY | ||||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Summary
Third quarter 2023 included the following notable items:
•
GAAP and Adjusted diluted earnings per share were $2.10.
•
Total revenue was $25.4 billion, a decrease of 4.2 percent, reflecting a total sales decrease of 4.3 percent and a 0.6 percent decrease in other revenue.
•
Comparable sales decreased 4.9 percent, reflecting a 4.1 percent decrease in traffic and a 0.8 percent decrease in average transaction amount.
◦
Comparable stores-originated sales declined 4.6 percent.
◦
Comparable digitally-originated sales declined 6.0 percent.
•
Operating income of $1.3 billion was 28.9 percent higher than the comparable prior-year period. See
Business Environment
below for additional information.
Cash flow provided by operating activities was $5.3 billion for the nine months ended October 28, 2023, compared with $552 million for the nine months ended October 29, 2022. The drivers of the operating cash flow increase are described on
page 21
.
| Earnings Per Share | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||
| October 28, 2023 | October 29, 2022 | Change | October 28, 2023 | October 29, 2022 | Change | ||||||||||||||||||||||||||||||
| GAAP diluted earnings per share | $ | 2.10 | $ | 1.54 | 36.3 | % | $ | 5.96 | $ | 4.09 | 45.6 | % | |||||||||||||||||||||||
| Adjustments | — | — | — | 0.03 | |||||||||||||||||||||||||||||||
| Adjusted diluted earnings per share | $ | 2.10 | $ | 1.54 | 36.3 | % | $ | 5.96 | $ | 4.12 | 44.4 | % | |||||||||||||||||||||||
Note: Adjusted diluted earnings per share (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 operations. A reconciliation of non-GAAP financial measures to GAAP measures is provid
ed
on
page 19
.
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 October 28, 2023, after-tax ROIC
was
13.9 percent
,
compared with 14.6 percent for the trailing twelve months ended October 29, 2022. The calculation of ROIC is
provided on
page 20
.
Business Environment
During the third quarter of 2023, we experienced sales declines across our business, primarily in each of our Discretionary categories (Apparel & Accessories, Hardlines, and Home Furnishings & Décor), partially offset by net growth in Frequency categories (Beauty & Household Essentials and Food & Beverage). The trend of decreased Discretionary category sales began in 2022. In response, during 2022, we took actions and employed strategies to align inventories with sales trends. These actions, as well as improvements in the supply chain, have resulted in decreased inventory as of October 28, 2023 compared with October 29, 2022. These actions and improvements have also resulted in a reduction in costs related to managing elevated inventory levels and reduced our working capital investment.
Along with supply chain improvements, we have experienced a significant decrease in freight costs due to a decline in freight rates compared to 2022. We have also experienced lower digital fulfillment costs due to a decrease in digital sales and an increased mix of digital sales fulfilled through lower-cost same-day services.
We continue to experience higher inventory shrink, as a percentage of sales, relative to historical levels — including significantly higher shrink rates at certain stores. We believe that this trend is pervasive across the retail industry. Increased shrink has had, and if current trends persist will continue to have, an adverse impact on our results of operations, including impairment of our long-lived assets.
Note
5
to the Financial Statements provides more information on impairment charges, including those related to store closures.
The
Gross Margin Rate
analysis on
page 17
and the
Inventory
section on
page 21
provide additional information.
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
14
|
||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||||
| FINANCIAL SUMMARY | ||||||||
Analysis of Results of Operations
| Summary of Operating Income | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||
| (dollars in millions) | October 28, 2023 | October 29, 2022 | Change | October 28, 2023 | October 29, 2022 | Change | |||||||||||||||||||||||||||||
| Sales | $ | 25,004 | $ | 26,122 | (4.3) | % | $ | 74,336 | $ | 76,605 | (3.0) | % | |||||||||||||||||||||||
| Other revenue | 394 | 396 | (0.6) | 1,157 | 1,120 | 3.3 | |||||||||||||||||||||||||||||
| Total revenue | 25,398 | 26,518 | (4.2) | 75,493 | 77,725 | (2.9) | |||||||||||||||||||||||||||||
| Cost of sales | 18,149 | 19,680 | (7.8) | 54,333 | 58,283 | (6.8) | |||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 5,316 | 5,219 | 1.8 | 15,525 | 14,983 | 3.6 | |||||||||||||||||||||||||||||
| Depreciation and amortization (exclusive of depreciation included in cost of sales) | 616 | 597 | 3.2 | 1,793 | 1,770 | 1.3 | |||||||||||||||||||||||||||||
| Operating income | $ | 1,317 | $ | 1,022 | 28.9 | % | $ | 3,842 | $ | 2,689 | 42.9 | % | |||||||||||||||||||||||
| Rate Analysis | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| October 28, 2023 | October 29, 2022 | October 28, 2023 | October 29, 2022 | ||||||||||||||||||||
| Gross margin rate | 27.4 | % | 24.7 | % | 26.9 | % | 23.9 | % | |||||||||||||||
| SG&A expense rate | 20.9 | 19.7 | 20.6 | 19.3 | |||||||||||||||||||
| Depreciation and amortization expense rate (exclusive of depreciation included in cost of sales) | 2.4 | 2.3 | 2.4 | 2.3 | |||||||||||||||||||
| Operating income margin rate | 5.2 | 3.9 | 5.1 | 3.5 | |||||||||||||||||||
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 our estimate of gift card breakage. We use comparable sales to evaluate the performance of our stores and digital channel sales by measuring the change in sales for a period over the comparable prior-year period of equivalent length. Comparable sales include all sales, except sales from stores open less than 13 months, digital acquisitions we have owned less than 13 months, stores that have been closed, and digital acquisitions that we no longer operate. Comparable sales measures vary across the retail industry. As a result, our comparable sales calculation is not necessarily comparable to similarly titled measures reported by other companies. Digitally originated sales include all sales initiated through mobile applications and our websites. Our stores fulfill the majority of digitally originated sales, including shipment from stores to guests, store Order Pickup or Drive Up, and delivery via Shipt. Digitally originated sales may also be fulfilled through our distribution centers, our vendors, or other third parties.
Sales growth—from both comparable sales and new stores—represents an important driver of our long-term profitability. We expect that comparable sales growth will drive the majority of our total sales growth. We believe that our ability to successfully differentiate our guests’ shopping experience through a careful combination of merchandise assortment, price, convenience, guest experience, and other factors will, over the long-term, drive both increasing shopping frequency (number of transactions, or "traffic") and the amount spent each visit (average transaction amount).
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
15
|
||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||||
| ANALYSIS OF RESULTS OF OPERATIONS | ||||||||
| Comparable Sales | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| October 28, 2023 | October 29, 2022 | October 28, 2023 | October 29, 2022 | ||||||||||||||||||||
| Comparable sales change | (4.9) | % | 2.7 | % | (3.5) | % | 2.9 | % | |||||||||||||||
| Drivers of change in comparable sales | |||||||||||||||||||||||
| Number of transactions (traffic) | (4.1) | 1.4 | (2.7) | 2.6 | |||||||||||||||||||
| Average transaction amount | (0.8) | 1.3 | (0.8) | 0.2 | |||||||||||||||||||
| Comparable Sales by Channel | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| October 28, 2023 | October 29, 2022 | October 28, 2023 | October 29, 2022 | ||||||||||||||||||||
| Stores originated comparable sales change | (4.6) | % | 3.2 | % | (2.8) | % | 2.6 | % | |||||||||||||||
| Digitally originated comparable sales change | (6.0) | 0.3 | (6.7) | 4.1 | |||||||||||||||||||
| Sales by Channel | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| October 28, 2023 | October 29, 2022 | October 28, 2023 | October 29, 2022 | ||||||||||||||||||||
| Stores originated | 83.2 | % | 82.9 | % | 82.9 | % | 82.3 | % | |||||||||||||||
| Digitally originated | 16.8 | 17.1 | 17.1 | 17.7 | |||||||||||||||||||
| Total | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||
| Sales by Fulfillment Channel | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| October 28, 2023 | October 29, 2022 | October 28, 2023 | October 29, 2022 | ||||||||||||||||||||
| Stores | 97.7 | % | 96.8 | % | 97.5 | % | 96.7 | % | |||||||||||||||
| Other | 2.3 | 3.2 | 2.5 | 3.3 | |||||||||||||||||||
| Total | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||
Note: Sales fulfilled by stores include in-store purchases and digitally originated sales fulfilled by shipping merchandise from stores to guests, Order Pickup, Drive Up, and Shipt.
| Sales by Product Category | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| October 28, 2023 | October 29, 2022 | October 28, 2023 | October 29, 2022 | ||||||||||||||||||||
| Apparel & accessories | 16 | % | 17 | % | 16 | % | 17 | % | |||||||||||||||
| Beauty & household essentials | 30 | 29 | 31 | 28 | |||||||||||||||||||
| Food & beverage | 23 | 22 | 23 | 22 | |||||||||||||||||||
| Hardlines | 13 | 14 | 13 | 15 | |||||||||||||||||||
| Home furnishings & décor | 18 | 18 | 17 | 18 | |||||||||||||||||||
| Total | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||
Note 2
to the Financial Statements provides additional product category sales information. The collective interaction of a broad array of macroeconomic, competitive, and consumer behavioral factors, as well as sales mix and the 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. For the three months ended October 28, 2023 and October 29, 2022, total RedCard Penetration was 18.3 percent and 19.6 percent, respectively. For the nine months ended October 28, 2023 and October 29, 2022, total RedCard Penetration was 18.6 percent and 20.0 percent, respectively.
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
16
|
||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||||
| ANALYSIS OF RESULTS OF OPERATIONS | ||||||||
Gross Margin Rate
Quarter-to-Date
For the three months ended October 28, 2023, our gross margin rate was 27.4 percent compared with 24.7 percent in the comparable prior-year period. The increase reflected the net impact of
•
merchandising benefit, including
◦
lower freight costs; and
◦
lower clearance and promotional markdown rates and other costs compared with the prior-year, which included the impact of inventory impairments and other actions;
•
lower digital fulfillment and supply chain costs due to
◦
a decrease in digital volume;
◦
an increased mix of digital sales fulfilled through lower-cost same-day services; and
◦
lower inventory levels;
•
favorable category mix; and
•
higher inventory shrink.
Year-to-Date
For the nine months ended October 28, 2023, our gross margin rate was 26.9 percent compared with 23.9 percent in the comparable prior-year period. The increase reflected the net impact of
•
merchandising benefit, including
◦
lower freight costs;
◦
lower clearance and promotional markdown rates and other costs compared with the prior-year, which included the impact of inventory impairments and other actions; and
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
17
|
||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||||
| ANALYSIS OF RESULTS OF OPERATIONS | ||||||||
◦
retail price increases;
•
lower digital fulfillment and supply chain costs due to
◦
a decrease in digital volume;
◦
an increased mix of digital sales fulfilled through lower-cost same-day services; and
◦
lower inventory levels;
•
favorable category mix; and
•
higher inventory shrink.
Business Environment
on page 14 provides additional information.
Selling, General, and Administrative Expense Rate
For the three months ended October 28, 2023, our SG&A expense rate was 20.9 percent compared with 19.7 percent for the comparable prior-year period. For the nine months ended October 28, 2023, our SG&A expense rate was 20.6 percent compared with 19.3 percent for the comparable prior-year period. The increase reflected the net impact of cost increases across our business, including investments in team member pay and benefits, and the deleveraging impact of lower sales.
Store Data
| Change in Number of Stores | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| October 28, 2023 | October 29, 2022 | October 28, 2023 | October 29, 2022 | ||||||||||||||||||||
| Beginning store count | 1,955 | 1,937 | 1,948 | 1,926 | |||||||||||||||||||
| Opened | 10 | 4 | 21 | 16 | |||||||||||||||||||
| Closed | (9) | — | (13) | (1) | |||||||||||||||||||
| Ending store count | 1,956 | 1,941 | 1,956 | 1,941 | |||||||||||||||||||
| Number of Stores and | Number of Stores |
Retail Square Feet
(a)
|
|||||||||||||||||||||
| Retail Square Feet | October 28, 2023 | January 28, 2023 | October 29, 2022 | October 28, 2023 | January 28, 2023 | October 29, 2022 | |||||||||||||||||
| 170,000 or more sq. ft. | 273 | 274 | 274 | 48,824 | 48,985 | 48,985 | |||||||||||||||||
| 50,000 to 169,999 sq. ft. | 1,542 | 1,527 | 1,522 | 192,877 | 191,241 | 190,739 | |||||||||||||||||
| 49,999 or less sq. ft. | 141 | 147 | 145 | 4,207 | 4,358 | 4,305 | |||||||||||||||||
| Total | 1,956 | 1,948 | 1,941 | 245,908 | 244,584 | 244,029 | |||||||||||||||||
(a)
In thousands; reflects total square feet less office, supply chain facilities, and vacant space.
Other Performance Factors
Net Interest Expense
For the three months ended
October 28, 2023
, n
et interest expense was $107 million compared with $125 million in the comparable prior-year period. The decrease in net interest expense was primarily due to an increase in interest income, partially offset by higher debt levels and the impact of higher floating interest rates on our interest rate swaps. For the nine months ended October 28, 2023, net interest expense was $395 million compared with $349 million in the respective comparable prior-year period. The increase in net interest expense was primarily due to higher average debt levels in addition to the net impact of higher floating interest rates.
Provision for Income Taxes
Our effective income tax rate for the three months ended October 28, 2023 was 21.3 percent, consistent with 21.6 percent for the comparable prior-year period. Our effective tax rate for the nine months ended October 28, 2023 was 21.5 percent, compared with 19.8 percent in the comparable prior-year period. For the nine month period, the increase reflects higher pretax earnings in the current year, resulting in a smaller tax rate benefit from ongoing and discrete tax items.
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
18
|
||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||||
| RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | ||||||||
Reconciliation of Non-GAAP Financial Measures to GAAP Measures
To provide additional transparency, we have disclosed non-GAAP adjusted diluted earnings per share (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 operations. This measure is not in accordance with, or an alternative to, U.S. GAAP. The most comparable GAAP measure is diluted earnings per share. Adjusted EPS should not be considered in isolation or as a substitution for analysis of our results as reported in accordance with GAAP. Other companies may calculate Adjusted EPS differently, limiting the usefulness of the measure for comparisons with other companies.
| Reconciliation of Non-GAAP Adjusted EPS | Three Months Ended | |||||||||||||||||||||||||||||||||||||
| October 28, 2023 | October 29, 2022 | |||||||||||||||||||||||||||||||||||||
| (millions, except per share data) | Pretax | Net of Tax | Per Share | Pretax | Net of Tax | Per Share | ||||||||||||||||||||||||||||||||
| GAAP and adjusted diluted earnings per share | $ | 2.10 | $ | 1.54 | ||||||||||||||||||||||||||||||||||
| Reconciliation of Non-GAAP Adjusted EPS | Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| October 28, 2023 | October 29, 2022 | |||||||||||||||||||||||||||||||||||||
| (millions, except per share data) | Pretax | Net of Tax | Per Share | Pretax | Net of Tax | Per Share | ||||||||||||||||||||||||||||||||
| GAAP diluted earnings per share | $ | 5.96 | $ | 4.09 | ||||||||||||||||||||||||||||||||||
| Adjustments | ||||||||||||||||||||||||||||||||||||||
|
Other
(a)
|
$ | — | $ | — | $ | — | $ | 20 | $ | 15 | $ | 0.03 | ||||||||||||||||||||||||||
| Adjusted diluted earnings per share | $ | 5.96 | $ | 4.12 | ||||||||||||||||||||||||||||||||||
(a)
Other items unrelated to current period operations, none of which were individually significant.
Earnings before interest expense and income taxes (EBIT) and earnings before interest expense, income taxes, depreciation, and amortization (EBITDA) are non-GAAP financial measures. We believe these measures 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. EBIT and EBITDA should not be considered in isolation or as a substitution for analysis of our results as reported in accordance with GAAP. 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 | Nine Months Ended | ||||||||||||||||||||||||||||||||||||
| (dollars in millions) | October 28, 2023 | October 29, 2022 | Change | October 28, 2023 | October 29, 2022 | Change | ||||||||||||||||||||||||||||||||
| Net earnings | $ | 971 | $ | 712 | 36.3 | % | $ | 2,756 | $ | 1,904 | 44.7 | % | ||||||||||||||||||||||||||
| + Provision for income taxes | 264 | 197 | 34.2 | 755 | 471 | 60.6 | ||||||||||||||||||||||||||||||||
| + Net interest expense | 107 | 125 | (14.1) | 395 | 349 | 13.4 | ||||||||||||||||||||||||||||||||
| EBIT | $ | 1,342 | $ | 1,034 | 29.8 | % | $ | 3,906 | $ | 2,724 | 43.5 | % | ||||||||||||||||||||||||||
|
+ Total depreciation and amortization
(a)
|
722 | 674 | 7.1 | 2,072 | 2,004 | 3.4 | ||||||||||||||||||||||||||||||||
| EBITDA | $ | 2,064 | $ | 1,708 | 20.9 | % | $ | 5,978 | $ | 4,728 | 26.5 | % | ||||||||||||||||||||||||||
(a)
Represents total depreciation and amortization, including amounts classified within Depreciation and Amortization and within Cost of Sales.
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
19
|
||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||||
| RECONCILIATION OF NON-GAAP FINANCIAL MEASURES | ||||||||
We have also disclosed after-tax ROIC, which is a ratio based on GAAP information, with the exception of the add-back of operating lease interest to operating income. 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 | October 28, 2023 | October 29, 2022 | ||||||||||||||||||||||||
| Operating income | $ | 5,001 | $ | 4,784 | ||||||||||||||||||||||
| + Net other income | 79 | 61 | ||||||||||||||||||||||||
| EBIT | 5,080 | 4,845 | ||||||||||||||||||||||||
|
+ Operating lease interest
(a)
|
106 | 89 | ||||||||||||||||||||||||
|
- Income taxes
(b)
|
1,050 | 1,059 | ||||||||||||||||||||||||
| Net operating profit after taxes | $ | 4,136 | $ | 3,875 | ||||||||||||||||||||||
| Denominator | October 28, 2023 | October 29, 2022 | October 30, 2021 | |||||||||||||||||
| Current portion of long-term debt and other borrowings | $ | 1,112 | $ | 2,207 | $ | 1,176 | ||||||||||||||
| + Noncurrent portion of long-term debt | 14,883 | 14,237 | 11,586 | |||||||||||||||||
| + Shareholders' investment | 12,514 | 11,019 | 13,803 | |||||||||||||||||
|
+ Operating lease liabilities
(c)
|
3,351 | 2,879 | 2,737 | |||||||||||||||||
| - Cash and cash equivalents | 1,910 | 954 | 5,753 | |||||||||||||||||
| Invested capital | $ | 29,950 | $ | 29,388 | $ | 23,549 | ||||||||||||||
|
Average invested capital
(d)
|
$ | 29,670 | $ | 26,469 | ||||||||||||||||
| After-tax return on invested capital | 13.9 | % | 14.6 | % | ||||||||||||||||
(a)
Represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases. Calculated using the discount rate for each lease and recorded as a component of rent expense within SG&A. Operating lease interest is added back to operating income in the ROIC calculation to control for differences in capital structure between us and our competitors.
(b)
Calculated using the effective tax rates, which were
20.3 percent
and 21.5 percent for the trailing twelve months ended October 28, 2023 and October 29, 2022, respectively. For the trailing twelve months ended October 28, 2023 and October 29, 2022, includes tax effect of $1.0 billion related to EBIT and $22 million and $19 million, respectively, related to operating lease interest.
(c)
Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities, respectively.
(d)
Average based on the invested capital at the end of the current period and the invested capital at the end of the comparable prior period.
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
20
|
||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||||
| ANALYSIS OF FINANCIAL CONDITION | ||||||||
Analysis of Financial Condition
Liquidity and Capital Resources
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.
Our cash and cash equivalents balance was $1.9 billion, $2.2 billion, and $954 million as of October 28, 2023, January 28, 2023, and October 29, 2022, respectively. Our cash and cash equivalents balance includes short-term investments of $1.0 billion and $1.3 billion as of October 28, 2023 and January 28, 2023, respectively. We had no short-term investments as of October 29, 2022. 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.
Operating Cash Flows
Cash flows provided by operating activities were $5.3 billion for the nine months ended October 28, 2023, compared with $552 million for the nine months ended October 29, 2022. For the nine months ended October 28, 2023, operating cash flows increased as a result of higher net earnings and an improvement in working capital, including lower inventory levels, compared with the nine months ended October 29, 2022.
Inventory
Inventory was $14.7 billion as of October 28, 2023, compared with $13.5 billion and $17.1 billion at January 28, 2023 and October 29, 2022, respectively. The increase from January 28, 2023, reflects the seasonal inventory build ahead of the November and December holiday sales period. The decrease from the balance as of October 29, 2022, primarily reflects actions taken to align inventory levels with sales trends and improvements in the supply chain, including reduced in-transit inventory, as well as cost decreases, primarily due to lower freight rates in 2023 compared to 2022.
Investing Cash Flows
Cash required for investing activities decreased to $3.9 billion for the nine months ended October 28, 2023, compared to $4.3 billion for the nine months ended October 29, 2022, due to capital investments.
Dividends
We paid dividends totaling $507 million ($1.10 per share) and $1.5 billion ($3.26 per share) for the three and nine months ended October 28, 2023, respectively, and $497 million ($1.08 per share) and $1.3 billion ($2.88 per share) for the three and nine months ended October 29, 2022, respectively, a per share increase of 1.9 percent for the three month period and 13.2 percent for the nine month period. We declared dividends totaling $513 million ($1.10 per share) during the third quarter of 2023 and $502 million ($1.08 per share) during the third quarter of 2022, a per share increase of 1.9 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 did not repurchase any shares during the nine months ended October 28, 2023. See
Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds
of this Quarterly Report on Form 10-Q and
Note 8
to the Financial Statements for more information.
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
21
|
||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS | ||||||||
| ANALYSIS OF FINANCIAL CONDITION | ||||||||
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 October 28, 2023, 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 | F1 | ||||||||
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.
We have the ability to obtain short-term financing from time to time under our commercial paper program and credit facilities. In October 2023, we obtained a new committed $1.0 billion 364-day unsecured revolving credit facility that will expire in October 2024 and terminated our prior 364-day credit facility. We also exercised our option to extend our existing five-year unsecured revolving credit facility, which has a maximum committed capacity of $3.0 billion and now expires in October 2028. Both credit facilities backstop our commercial paper program. No balances were outstanding under either credit facility at any time during 2023 or 2022. We did not have any balances outstanding under our commercial paper program as of October 28, 2023, and we had $2.1 billion outstanding as of October 29, 2022.
Note 6
to the Financial Statements provides additional information.
Most of our long-term debt obligations contain covenants related to secured debt levels. In addition to a secured debt level covenant, our credit facilities also contain a debt leverage covenant. We are, and expect to remain, in compliance with these covenants. Additionally, as of October 28, 2023, no notes or debentures contained provisions requiring acceleration of payment upon a credit rating downgrade, except that certain outstanding notes allow the note holders to put the notes to us if within a matter of months of each other we experience both (i) a change in control and (ii) our long-term credit ratings are either reduced and the resulting rating is non-investment grade, or our long-term credit ratings are placed on watch for possible reduction and those ratings are subsequently reduced and the resulting rating is non-investment grade.
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.
New Accounting Pronouncements
We do not expect any recently issued accounting pronouncements to have a material effect on our financial statements.
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
22
|
||||||||
| MANAGEMENT'S DISCUSSION AND ANALYSIS & SUPPLEMENTAL INFORMATION | ||||||||
| FORWARD LOOKING STATEMENTS & CONTROLS AND PROCEDURES | ||||||||
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 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, 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 in our description of risk factors included in
Part I, Item 1A, Risk Factors
of our
Form 10-K
for the fiscal year ended January 28, 2023, 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
Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk
of our
Form 10-K
for the fiscal year ended January 28, 2023.
Item 4. Controls and Procedures
Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal quarter, there were no changes which materially affected, or are 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 a 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 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.
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
23
|
||||||||
| SUPPLEMENTAL INFORMATION | ||||||||
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For the quarterly period ended October 28, 2023, 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
Part I, Item 1A, Risk Factors
of our
Form 10-K
for the fiscal year ended January 28, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 11, 2021, our Board of Directors authorized a $15 billion share repurchase program with no stated expiration. Under the program, we have repurchased 23.8 million shares of common stock at an average price of $223.52, for a total investment of $5.3 billion. As of October 28, 2023, the dollar value of shares that may yet be purchased under the program is $9.7 billion. There were no Target common stock purchases made during the three months ended October 28, 2023 by Target or any "affiliated purchaser" of Target, as defined in Rule 10b-18(a)(3) under the Exchange Act.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
24
|
||||||||
| SUPPLEMENTAL INFORMATION | ||||||||
Item 6. Exhibits
| 3.1 | ||||||||
| 3.2 | ||||||||
|
10.19.2
|
**
|
|||||||
|
10.20
|
** ‡
|
|||||||
| 31.1 | ** | |||||||
| 31.2 | ** | |||||||
| 32.1 | *** | |||||||
| 32.2 | *** | |||||||
| 101.INS | ** | Inline XBRL Instance Document | ||||||
| 101.SCH | ** | Inline XBRL Taxonomy Extension Schema Document | ||||||
| 101.CAL | ** | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||||
| 101.DEF | ** | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||||
| 101.LAB | ** | Inline XBRL Taxonomy Extension Label Linkbase Document | ||||||
| 101.PRE | ** | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||||
| 104 | ** | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||||
| ** |
Filed herewith.
|
||||
| *** |
Furnished herewith.
|
||||
| ‡ |
Certain schedules and attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. We agree to furnish a copy of such schedules and attachments to the Securities and Exchange Commission upon its request.
|
||||
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
25
|
||||||||
| SUPPLEMENTAL INFORMATION | ||||||||
SIGNATURES
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: November 22, 2023 | By: | /s/ Michael J. Fiddelke | |||||||||
| Michael J. Fiddelke | |||||||||||
| Executive Vice President and | |||||||||||
| Chief Financial Officer | |||||||||||
| (Duly Authorized Officer and | |||||||||||
| Principal Financial Officer) | |||||||||||
| /s/ Matthew A. Liegel | |||||||||||
| Matthew A. Liegel | |||||||||||
| Senior Vice President, Chief Accounting Officer | |||||||||||
| and Controller | |||||||||||
| TARGET CORPORATION |
|
Q3 2023 Form 10-Q |
26
|
||||||||
TABLE OF CONTENTS
Part I, Item 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