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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 3, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 1-6049
 
bullseyecroppedfromq1.jpg
TARGET CORPORATION
(Exact name of registrant as specified in its charter)

Minnesota
(State or other jurisdiction of incorporation or organization)

1000 Nicollet Mall, Minneapolis, Minnesota
(Address of principal executive offices)

 

41-0215170
(I.R.S. Employer Identification No.)

55403
(Zip Code)
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:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common stock, par value $0.0833 per share
 
TGT
 
New York Stock Exchange
 
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, smaller reporting company, or an emerging growth company (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer
  Accelerated filer
 Non-accelerated filer
Smaller reporting company
Emerging growth company

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 
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 August 26, 2019 were 510,928,517.
 





TARGET CORPORATION
 
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Statements of Operations
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
(millions, except per share data) (unaudited)
August 3,
2019

 
August 4,
2018

 
August 3,
2019

 
August 4,
2018

Sales
$
18,183

 
$
17,552

 
$
35,584

 
$
34,108

Other revenue
239

 
224

 
465

 
450

Total revenue
18,422

 
17,776

 
36,049

 
34,558

Cost of sales
12,625

 
12,239

 
24,874

 
23,865

Selling, general and administrative expenses
3,912

 
3,865

 
7,575

 
7,410

Depreciation and amortization (exclusive of depreciation included in cost of sales)
561

 
539

 
1,142

 
1,109

Operating income
1,324

 
1,133

 
2,458

 
2,174

Net interest expense
120

 
115

 
246

 
237

Net other (income) / expense
(13
)
 
(4
)
 
(27
)
 
(12
)
Earnings from continuing operations before income taxes
1,217

 
1,022

 
2,239

 
1,949

Provision for income taxes
279

 
223

 
509

 
433

Net earnings from continuing operations
938

 
799

 
1,730

 
1,516

Discontinued operations, net of tax

 

 
3

 
1

Net earnings
$
938

 
$
799

 
$
1,733

 
$
1,517

Basic earnings per share
 
 
 
 
 
 
 
Continuing operations
$
1.83

 
$
1.50

 
$
3.37

 
$
2.84

Discontinued operations

 

 
0.01

 

Net earnings per share
$
1.83

 
$
1.50

 
$
3.37

 
$
2.84

Diluted earnings per share
 
 
 
 
 
 
 
Continuing operations
$
1.82

 
$
1.49

 
$
3.34

 
$
2.81

Discontinued operations

 

 
0.01

 

Net earnings per share
$
1.82

 
$
1.49

 
$
3.35

 
$
2.82

Weighted average common shares outstanding
 
 
 
 
 
 
 
Basic
512.1

 
531.7

 
513.9

 
534.3

Diluted
516.1

 
536.3

 
517.8

 
538.6

Antidilutive shares

 

 

 


Note: Per share amounts may not foot due to rounding. 

See accompanying Notes to Consolidated Financial Statements.



1




Consolidated Statements of Comprehensive Income
 
 
 
 
Three Months Ended
 
Six Months Ended
(millions) (unaudited)
August 3,
2019

 
August 4,
2018

 
August 3,
2019

 
August 4,
2018

Net earnings
$
938

 
$
799

 
$
1,733

 
$
1,517

Other comprehensive income
 

 
 

 
 

 
 

Pension, net of tax
10

 
16

 
20

 
29

Currency translation adjustment and cash flow hedges, net of tax

 
(2
)
 
3

 
(5
)
Other comprehensive income
10

 
14

 
23

 
24

Comprehensive income
$
948

 
$
813

 
$
1,756

 
$
1,541

 
See accompanying Notes to Consolidated Financial Statements.




2




Consolidated Statements of Financial Position
 

 
 

 
 

(millions, except footnotes) (unaudited)
August 3,
2019

 
February 2,
2019

 
August 4,
2018

Assets
 
 
 

 
 
Cash and cash equivalents
$
1,656

 
$
1,556

 
$
1,180

Inventory
9,122

 
9,497

 
9,112

Other current assets
1,341

 
1,466

 
1,211

Total current assets
12,119

 
12,519

 
11,503

Property and equipment
 

 
 

 
 

Land
6,054

 
6,064

 
6,074

Buildings and improvements
29,908

 
29,240

 
28,629

Fixtures and equipment
5,622

 
5,912

 
5,356

Computer hardware and software
2,627

 
2,544

 
2,575

Construction-in-progress
667

 
460

 
685

Accumulated depreciation
(18,866
)
 
(18,687
)
 
(18,147
)
Property and equipment, net
26,012

 
25,533

 
25,172

Operating lease assets
2,062

 
1,965

 
1,976

Other noncurrent assets
1,373

 
1,273

 
1,345

Total assets
$
41,566

 
$
41,290

 
$
39,996

Liabilities and shareholders’ investment
 

 
 

 
 

Accounts payable
$
9,152

 
$
9,761

 
$
9,116

Accrued and other current liabilities
4,059

 
4,201

 
3,878

Current portion of long-term debt and other borrowings
1,153

 
1,052

 
1,044

Total current liabilities
14,364

 
15,014

 
14,038

Long-term debt and other borrowings
10,365

 
10,223

 
10,108

Noncurrent operating lease liabilities
2,111

 
2,004

 
2,028

Deferred income taxes
1,082

 
972

 
828

Other noncurrent liabilities
1,808

 
1,780

 
1,827

Total noncurrent liabilities
15,366

 
14,979

 
14,791

Shareholders’ investment
 

 
 

 
 

Common stock
43

 
43

 
44

Additional paid-in capital
6,114

 
6,042

 
5,788

Retained earnings
6,461

 
6,017

 
6,058

Accumulated other comprehensive loss
(782
)
 
(805
)
 
(723
)
Total shareholders’ investment
11,836

 
11,297

 
11,167

Total liabilities and shareholders’ investment
$
41,566

 
$
41,290

 
$
39,996

Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 511,335,375, 517,761,600 and 526,112,846 shares issued and outstanding at August 3, 2019, February 2, 2019, and August 4, 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




Consolidated Statements of Cash Flows
 
 
 
 
Six Months Ended
(millions) (unaudited)
August 3,
2019

 
August 4,
2018

Operating activities
 

 
 

Net earnings
$
1,733

 
$
1,517

Earnings from discontinued operations, net of tax
3

 
1

Net earnings from continuing operations
1,730

 
1,516

Adjustments to reconcile net earnings to cash provided by operations
 

 
 

Depreciation and amortization
1,267

 
1,234

Share-based compensation expense
86

 
71

Deferred income taxes
104

 
129

Noncash losses / (gains) and other, net
42

 
99

Changes in operating accounts
 

 
 
Inventory
375

 
(515
)
Other assets
64

 
1

Accounts payable
(731
)
 
342

Accrued and other liabilities
(127
)
 
(154
)
Cash provided by operating activities—continuing operations
2,810

 
2,723

Cash provided by operating activities—discontinued operations
2

 
1

Cash provided by operations
2,812

 
2,724

Investing activities
 

 
 

Expenditures for property and equipment
(1,394
)
 
(1,856
)
Proceeds from disposal of property and equipment
10

 
15

Other investments

 
3

Cash required for investing activities
(1,384
)
 
(1,838
)
Financing activities
 

 
 

Additions to long-term debt
994

 

Reductions of long-term debt
(1,026
)
 
(255
)
Dividends paid
(658
)
 
(665
)
Repurchase of stock
(662
)
 
(954
)
Accelerated share repurchase pending final settlement

 
(525
)
Stock option exercises
24

 
50

Cash required for financing activities
(1,328
)
 
(2,349
)
Net increase / (decrease) in cash and cash equivalents
100

 
(1,463
)
Cash and cash equivalents at beginning of period
1,556

 
2,643

Cash and cash equivalents at end of period
$
1,656

 
$
1,180

Supplemental information
 
 
 
Leased assets obtained in exchange for new finance lease liabilities
$
156

 
$
15

Leased assets obtained in exchange for new operating lease liabilities
195

 
169

 

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

Net earnings

 

 

 
938

 

 
938

Other comprehensive income

 

 

 

 
10

 
10

Dividends declared

 

 

 
(341
)
 

 
(341
)
Repurchase of stock
(1.3
)
 

 
153

 
(94
)
 

 
59

Stock options and awards
0.3

 

 
53

 

 

 
53

August 3, 2019
511.3

 
$
43

 
$
6,114

 
$
6,461

 
$
(782
)
 
$
11,836


We declared $0.66 and $0.64 dividends per share for the three months ended August 3, 2019, and August 4, 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
 
Six Months Ended
(millions)
August 3,
2019

 
August 4,
2018

 
August 3,
2019

 
August 4,
2018

Apparel and accessories (a)
$
3,656

 
$
3,470

 
$
6,946

 
$
6,584

Beauty and household essentials (a)
5,076

 
4,784

 
10,047

 
9,401

Food and beverage
3,460

 
3,372

 
7,182

 
6,959

Hardlines
2,503

 
2,501

 
4,889

 
4,814

Home furnishings and décor
3,457

 
3,402

 
6,458

 
6,304

Other
31

 
23

 
62

 
46

Sales
18,183

 
17,552

 
35,584

 
34,108

 
 
 
 
 
 
 
 
Credit card profit sharing
168

 
167

 
328

 
333

Other
71

 
57

 
137

 
117

Other revenue
239

 
224

 
465

 
450

 
 
 
 
 
 
 
 
Total revenue
$
18,422

 
$
17,776

 
$
36,049

 
$
34,558

(a) 
We reclassified certain non-apparel baby merchandise sales totaling $398 million and $854 million for the three and six months ended August 3, 2019, respectively, and $373 million and $763 million for the three and six months ended August 4, 2018, 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 August 3, 2019, February 2, 2019, and August 4, 2018, the accrual for estimated returns was $131 million, $116 million, and $114 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

 
August 3,
2019

Gift card liability
$
840

 
$
317

 
$
(465
)
 
$
692

(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
August 3,
2019

 
February 2,
2019

 
August 4,
2018

Assets
 
 
 

 
 

 
 

Short-term investments
Cash and Cash Equivalents
Level 1
$
796

 
$
769

 
$
353

Prepaid forward contracts
Other Current Assets
Level 1
20

 
19

 
22

Interest rate swaps
Other Noncurrent Assets
Level 2
108

 
10

 

Liabilities
 
 
 

 
 

 
 

Interest rate swaps
Other Current Liabilities
Level 2

 
3

 
7

Interest rate swaps
Other Noncurrent Liabilities
Level 2

 

 
2


 
Significant Financial Instruments not Measured at Fair Value (a)

(millions)
August 3, 2019
 
February 2, 2019
 
August 4, 2018
Carrying
Amount

Fair
Value

 
Carrying
Amount

Fair
Value

 
Carrying
Amount

Fair
Value

Long-term debt, including current portion (b)
$
10,244

$
11,635

 
$
10,247

$
10,808

 
$
10,243

$
10,682

(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. Property and Equipment

We review long-lived assets for impairment when store performance expectations, events, or changes in circumstances—such as a decision to relocate or close a store or distribution center, discontinue projects, or make significant software changes—indicate that the asset’s carrying value may not be recoverable. We recognized impairment charges of $10 million and $13 million during the three and six months ended August 3, 2019, respectively, primarily resulting from store impairments. We recognized impairment charges of $78 million and $85 million during the three and six months ended August 4, 2018, respectively, primarily resulting from planned store closures. The impairment charges are recorded in Selling, General and Administrative Expenses.

5. Commercial Paper and Long-Term Debt

In March 2019, we issued $1,000 million of 10-year unsecured fixed rate debt at 3.375 percent, and in June 2019, we repaid $1,000 million of 2.3 percent unsecured fixed rate debt at maturity.


8




Our commercial paper program provides a source of short-term financing. For the six months ended August 3, 2019, the maximum amount outstanding was $744 million, and the average daily amount outstanding was $74 million at a weighted average annual interest rate of 2.4 percent. For the six months ended August 4, 2018, the maximum amount outstanding was $658 million, and the average daily amount outstanding was $63 million at a weighted average annual interest rate of 1.8 percent. As of August 3, 2019, and August 4, 2018, no balances were outstanding.

6. 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 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, and in June 2019, interest rate swaps with a total notional amount of $1,000 million matured. As of August 3, 2019, we were party to interest rate swaps with notional amounts totaling $1,500 million, compared with $1,250 million as of August 4, 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 and six months ended August 3, 2019, and August 4, 2018.

Effect of Hedges on Debt
(millions)
 
August 3,
2019

 
February 2,
2019

 
August 4,
2018

Current portion of long-term debt and other borrowings
 
 
 
 
 
 
Carrying amount of hedged debt
 
$

 
$
996

 
$
992

Cumulative hedging adjustments, included in carrying amount
 

 
(3
)
 
(7
)
Long-term debt and other borrowings
 
 
 
 
 
 
Carrying amount of hedged debt
 
1,600

 
508

 
247

Cumulative hedging adjustments, included in carrying amount
 
108

 
10

 
(2
)

Effect of Hedges on Net Interest Expense
Three Months Ended
 
Six Months Ended
(millions)
August 3,
2019

 
August 4,
2018

 
August 3,
2019

 
August 4,
2018

Gain (loss) on fair value hedges recognized in Net Interest Expense
 
 
 
 
 
 
 
Interest rate swap designated as fair value hedges
$
86

 
$
1

 
$
101

 
$
(3
)
Hedged debt
(86
)
 
(1
)
 
(101
)
 
3

Total
$

 
$

 
$

 
$


7. 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.

9




 
Three Months Ended
Six Months Ended
(millions, except per share data)
August 3,
2019 (a)

 
August 4,
2018 (b)

August 3,
2019 (a)

 
August 4,
2018 (b)

Total number of shares purchased
4.3

 
5.8

7.9

 
12.7

Average price paid per share
$
80.02

 
$
74.31

$
78.63

 
$
72.64

Total investment
$
341

 
$
431

$
618

 
$
925


(a) 
Includes activity related to the ASR arrangement entered in first quarter 2019 because final settlement occurred in second quarter 2019. Under the ASR arrangement, we repurchased 4.2 million shares for a total cash investment of $340 million. We did not enter into any new ASR arrangements during second quarter 2019.
(b) 
Activity related to the second quarter 2018 ASR arrangement described below is omitted because final settlement had not occurred as of August 4, 2018.

During the second quarter of 2018, we entered into an ASR arrangement to repurchase $400 to $525 million of our common stock. Under the agreement, we paid $525 million and received an initial delivery of 4.6 million shares, which were retired, resulting in a $355 million reduction to Retained Earnings. As of August 4, 2018, $170 million was included as a reduction to Additional Paid-in Capital. Upon final settlement in the third quarter of 2018, we received an additional 0.2 million shares, which were retired, and $125 million for the remaining amount not settled in shares. In total, we repurchased 4.8 million shares under the ASR arrangement for a total cash investment of $400 million ($83.88 per share).

8. Pension Benefits
 
We provide pension plan benefits to eligible team members.

Net Pension Benefits Expense
 
Three Months Ended
 
Six Months Ended
(millions)
Classification
August 3,
2019

 
August 4,
2018

 
August 3,
2019

 
August 4,
2018

Service cost benefits earned
SG&A Expenses
$
23

 
$
25

 
$
46

 
$
49

Interest cost on projected benefit obligation
Net Other (Income) / Expense
37

 
37

 
74

 
73

Expected return on assets
Net Other (Income) / Expense
(62
)
 
(62
)
 
(124
)
 
(123
)
Amortization of losses
Net Other (Income) / Expense
16

 
20

 
31

 
41

Amortization of prior service cost
Net Other (Income) / Expense
(3
)
 
(3
)
 
(5
)
 
(6
)
Settlement charges
Net Other (Income) / Expense

 
3

 

 
3

Total
 
$
11

 
$
20

 
$
22

 
$
37


 
9. 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

 

 
20

 
20

August 3, 2019
$
(13
)
 
$
(17
)
 
$
(752
)
 
$
(782
)



10




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Executive Summary
 
Second quarter 2019 includes the following notable items:

GAAP earnings per share from continuing operations and adjusted earnings per share were $1.82.
Total revenue increased 3.6 percent, driven by a comparable sales increase and sales from new stores.
Comparable sales increased 3.4 percent, driven by a 2.4 percent increase in traffic.
Comparable store sales grew 1.5 percent.
Digital channel sales increased 34 percent, contributing 1.8 percentage points to comparable sales growth.
Operating income of $1,324 million was 16.9 percent higher than the comparable prior-year period.

Sales were $18,183 million for the three months ended August 3, 2019, an increase of $631 million, or 3.6 percent, from the same period in the prior year. Operating cash flow provided by continuing operations was $2,810 million for the six months ended August 3, 2019, an increase of $87 million, or 3.2 percent, from $2,723 million for the six months ended August 4, 2018
 
Earnings Per Share from Continuing Operations
Three Months Ended
 
 

 
Six Months Ended
 
 

August 3,
2019

 
August 4,
2018

 
Change

 
August 3,
2019

 
August 4,
2018

 
Change

GAAP diluted earnings per share
$
1.82

 
$
1.49

 
22.0
%
 
$
3.34

 
$
2.81

 
18.7
%
Adjustments

 
(0.02
)
 
 
 

 
(0.03
)
 
 

Adjusted diluted earnings per share
$
1.82

 
$
1.47

 
23.9
%
 
$
3.34

 
$
2.78

 
20.1
%
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 17.

For the trailing twelve months ended August 3, 2019, after-tax return on invested capital from continuing operations (ROIC) was 15.2 percent, compared with 16.0 percent for the trailing twelve months ended August 4, 2018. Excluding the discrete impacts of the Tax Cuts and Jobs Act of 2017 (Tax Act), ROIC was 15.0 percent and 14.2 percent for the trailing twelve months ended August 3, 2019, and August 4, 2018, respectively. The calculation of ROIC is provided on page 18.


11




Analysis of Results of Operations

 
Three Months Ended
 
 

 
Six Months Ended
 
 

(dollars in millions)
August 3,
2019

 
August 4,
2018

 
Change

 
August 3,
2019

 
August 4,
2018

 
Change

Sales
$
18,183

 
$
17,552

 
3.6
%
 
$
35,584

 
$
34,108

 
4.3
%
Other revenue
239

 
224

 
6.3

 
465

 
450

 
3.4

Total revenue
18,422

 
17,776

 
3.6

 
36,049