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 May 2, 2020

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

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 May 22, 2020 were 500,015,480.

TARGET CORPORATION

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Statements of Operations	1
	Consolidated Statements of Comprehensive Income	2
	Consolidated Statements of Financial Position	3
	Consolidated Statements of Cash Flows	4
	Consolidated Statements of Shareholders’ Investment	5
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	26
Signature		27

FINANCIAL STATEMENTS	Table of Contents
	Index to Notes

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Statements of Operations
	Three Months Ended
(millions, except per share data) (unaudited)	May 2, 2020		May 4, 2019
Sales	$	19,371	$	17,401
Other revenue	244		226
Total revenue	19,615		17,627
Cost of sales	14,510		12,248
Selling, general and administrative expenses	4,060		3,663
Depreciation and amortization (exclusive of depreciation included in cost of sales)	577		581
Operating income	468		1,135
Net interest expense	117		126
Net other (income) / expense	22		(12)
Earnings from continuing operations before income taxes	329		1,021
Provision for income taxes	45		229
Net earnings from continuing operations	284		792
Discontinued operations, net of tax	—		3
Net earnings	$	284	$	795
Basic earnings per share
Continuing operations	$	0.57	$	1.54
Discontinued operations	—		—
Net earnings per share	$	0.57	$	1.54
Diluted earnings per share
Continuing operations	$	0.56	$	1.53
Discontinued operations	—		—
Net earnings per share	$	0.56	$	1.53
Weighted average common shares outstanding
Basic	501.0		515.7
Diluted	505.8		519.5
Antidilutive shares	0.2		0.1

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

See accompanying Notes to Consolidated Financial Statements.

TARGET CORPORATION Q1 2020 Form 10-Q 1

FINANCIAL STATEMENTS	Table of Contents
	Index to Notes

Consolidated Statements of Comprehensive Income
	Three Months Ended
(millions) (unaudited)	May 2, 2020		May 4, 2019
Net earnings	$	284	$	795
Other comprehensive income
Pension, net of tax	22		10
Currency translation adjustment and cash flow hedges, net of tax	(8)		3
Other comprehensive income	14		13
Comprehensive income	$	298	$	808

See accompanying Notes to Consolidated Financial Statements.

TARGET CORPORATION Q1 2020 Form 10-Q 2

FINANCIAL STATEMENTS	Table of Contents
	Index to Notes

Consolidated Statements of Financial Position
(millions, except footnotes) (unaudited)	May 2, 2020		February 1, 2020		May 4, 2019
Assets
Cash and cash equivalents	$	4,566	$	2,577	$	1,173
Inventory	8,584		8,992		9,060
Other current assets	1,465		1,333		1,374
Total current assets	14,615		12,902		11,607
Property and equipment
Land	6,034		6,036		6,061
Buildings and improvements	30,756		30,603		29,573
Fixtures and equipment	5,486		6,083		5,401
Computer hardware and software	2,597		2,692		2,553
Construction-in-progress	803		533		574
Accumulated depreciation	(19,087)		(19,664)		(18,456)
Property and equipment, net	26,589		26,283		25,706
Operating lease assets	2,235		2,236		2,019
Other noncurrent assets	1,367		1,358		1,287
Total assets	$	44,806	$	42,779	$	40,619
Liabilities and shareholders’ investment
Accounts payable	$	9,625	$	9,920	$	8,360
Accrued and other current liabilities	4,619		4,406		3,823
Current portion of long-term debt and other borrowings	168		161		1,056
Total current liabilities	14,412		14,487		13,239
Long-term debt and other borrowings	14,073		11,338		11,357
Noncurrent operating lease liabilities	2,249		2,275		2,064
Deferred income taxes	1,122		1,122		1,034
Other noncurrent liabilities	1,781		1,724		1,808
Total noncurrent liabilities	19,225		16,459		16,263
Shareholders’ investment
Common stock	42		42		43
Additional paid-in capital	6,206		6,226		5,908
Retained earnings	5,775		6,433		5,958
Accumulated other comprehensive loss	(854)		(868)		(792)
Total shareholders’ investment	11,169		11,833		11,117
Total liabilities and shareholders’ investment	$	44,806	$	42,779	$	40,619

Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 499,919,691, 504,198,962 and 512,312,434 shares issued and outstanding at May 2, 2020, February 1, 2020, and May 4, 2019, 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.

TARGET CORPORATION Q1 2020 Form 10-Q 3

FINANCIAL STATEMENTS	Table of Contents
	Index to Notes

Consolidated Statements of Cash Flows
	Three Months Ended
(millions) (unaudited)	May 2, 2020		May 4, 2019
Operating activities
Net earnings	$	284	$	795
Earnings from discontinued operations, net of tax	—		3
Net earnings from continuing operations	284		792
Adjustments to reconcile net earnings to cash provided by operations
Depreciation and amortization	641		644
Share-based compensation expense	49		46
Deferred income taxes	(4)		59
Noncash losses / (gains) and other, net	5		10
Changes in operating accounts
Inventory	408		438
Other assets	11		17
Accounts payable	(280)		(1,402)
Accrued and other liabilities	170		(281)
Cash provided by operations	1,284		323
Investing activities
Expenditures for property and equipment	(751)		(655)
Proceeds from disposal of property and equipment	6		5
Other investments	1		1
Cash required for investing activities	(744)		(649)
Financing activities
Additions to long-term debt	2,480		994
Reductions of long-term debt	(17)		(13)
Dividends paid	(332)		(330)
Repurchase of stock	(686)		(320)
Accelerated share repurchase pending final settlement	—		(400)
Stock option exercises	4		12
Cash provided by / (required for) financing activities	1,449		(57)
Net increase / (decrease) in cash and cash equivalents	1,989		(383)
Cash and cash equivalents at beginning of period	2,577		1,556
Cash and cash equivalents at end of period	$	4,566	$	1,173
Supplemental information
Leased assets obtained in exchange for new finance lease liabilities	103		126
Leased assets obtained in exchange for new operating lease liabilities	97		107

See accompanying Notes to Consolidated Financial Statements.

TARGET CORPORATION Q1 2020 Form 10-Q 4

FINANCIAL STATEMENTS	Table of Contents
	Index to Notes

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
Net earnings	—	—		—		714		—		714
Other comprehensive income	—	—		—		—		9		9
Dividends declared	—	—		—		(338)		—		(338)
Repurchase of stock	(3.0)	(1)		—		(295)		—		(296)
Accelerated share repurchase pending final settlement	(2.5)	—		(178)		(272)		—		(450)
Stock options and awards	0.9	—		70		—		—		70
November 2, 2019	506.7	$	42	$	6,006	$	6,270	$	(773)	$	11,545
Net earnings	—	—		—		834		—		834
Other comprehensive loss	—	—		—		—		(95)		(95)
Dividends declared	—	—		—		(336)		—		(336)
Repurchase of stock	(2.6)	—		178		(335)		—		(157)
Stock options and awards	0.1	—		42		—		—		42
February 1, 2020	504.2	$	42	$	6,226	$	6,433	$	(868)	$	11,833

TARGET CORPORATION Q1 2020 Form 10-Q 5

FINANCIAL STATEMENTS	Table of Contents
	Index to Notes

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 1, 2020	504.2	$	42	$	6,226	$	6,433	$	(868)	$	11,833
Net earnings	—	—		—		284		—		284
Other comprehensive income	—	—		—		—		14		14
Dividends declared	—	—		—		(333)		—		(333)
Repurchase of stock	(5.7)	—		—		(609)		—		(609)
Stock options and awards	1.4	—		(20)		—		—		(20)
May 2, 2020	499.9	$	42	$	6,206	$	5,775	$	(854)	$	11,169

We declared $0.66 and $0.64 dividends per share for the three months ended May 2, 2020, and May 4, 2019, respectively, and $2.62 per share for the fiscal year ended February 1, 2020.

See accompanying Notes to Consolidated Financial Statements.

TARGET CORPORATION Q1 2020 Form 10-Q 6

FINANCIAL STATEMENTS	Table of Contents
INDEX	Index to Notes

INDEX TO NOTES
Notes to Consolidated Financial Statements		8
Note 1	Accounting Policies	8
Note 2	Impact of Coronavirus (COVID-19)	8
Note 3	Revenues	9
Note 4	Fair Value Measurements	10
Note 5	Property and Equipment	10
Note 6	Commercial Paper and Long-Term Debt	10
Note 7	Derivative Financial Instruments	10
Note 8	Income Taxes	11
Note 9	Share Repurchase	11
Note 10	Pension Benefits	12
Note 11	Accumulated Other Comprehensive Loss	12

TARGET CORPORATION Q1 2020 Form 10-Q 7

FINANCIAL STATEMENTS	Table of Contents
NOTES	Index to 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 (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 2019 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. Impact of Coronavirus (COVID-19)

On March 11, 2020 the World Health Organization declared the novel coronavirus disease (COVID-19) a pandemic, and on March 13, 2020 the United States declared a national emergency. States and cities have taken various measures in response to COVID-19, including mandating the closure of certain businesses and encouraging or requiring citizens to avoid large gatherings. To date all of our stores, digital channels, and distribution centers remain open.

Throughout the quarter, guest shopping patterns changed significantly in reaction to the COVID-19 pandemic. Across our core merchandise categories, sales have grown significantly in Beauty and Household Essentials, Food and Beverage, Hardlines, and Home Furnishings and Décor, while declining significantly in Apparel and Accessories. Note 3 provides sales by category. In response to these changes, we have taken many actions, including accelerating purchases of certain merchandise in our core categories and slowing or canceling certain purchase orders, primarily for Apparel and Accessories. As a result of these actions, during the quarter ended May 2, 2020, we recorded $216 million of purchase order cancellation fees in Cost of Sales.

From March 26, 2020, to April 26, 2020, we did not accept in-store merchandise returns and exchanges to protect our team members. We lengthened the return period for merchandise affected by this change. We continue to recognize sales net of expected returns. Our returns estimate for sales during the suspension period includes significant assumptions that, if actual results are substantially different, could result in material adjustments in future periods.

TARGET CORPORATION Q1 2020 Form 10-Q 8

FINANCIAL STATEMENTS	Table of Contents
NOTES	Index to Notes

3. Revenues

General merchandise sales represent the vast majority of our revenues. We also earn revenues from a variety of other sources, most notably credit card profit sharing income from our arrangement with TD Bank Group (TD).

Revenues	Three Months Ended
(millions)	May 2, 2020		May 4, 2019
Apparel and accessories (a)	$	2,619	$	3,290
Beauty and household essentials (b)	5,911		4,971
Food and beverage (c)	4,575		3,722
Hardlines (d)	2,974		2,385
Home furnishings and décor (e)	3,264		3,001
Other	28		32
Sales	19,371		17,401
Credit card profit sharing	166		160
Other	78		66
Other revenue	244		226
Total revenue	$	19,615	$	17,627

^(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.

Merchandise sales – We record almost all retail store revenues at the point of sale. Digitally originated sales may include shipping revenue and are recorded upon delivery to the guest or upon guest pickup at the store. Sales are recognized net of expected returns, which we estimate using historical return patterns and our expectation of future returns. As of May 2, 2020, February 1, 2020, and May 4, 2019, the accrual for estimated returns was $398 million, $117 million, and $124 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.

Gift Card Liability Activity	February 1, 2020		Gift Cards Issued During Current Period But Not Redeemed (b)		Revenue Recognized From Beginning Liability		May 2, 2020
(millions)
Gift card liability (a)	$	935	$	180	$	(335)	$	780

^(a)Included in Accrued and Other Current Liabilities.

^(b)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.

TARGET CORPORATION Q1 2020 Form 10-Q 9

FINANCIAL STATEMENTS	Table of Contents
NOTES	Index to Notes

4. Fair Value Measurements

Fair value measurements are reported in one of three levels reflecting the valuation techniques used to determine fair value.

Fair Value Measurements - Recurring Basis			Fair Value at
(millions)	Classification	Pricing Category	May 2, 2020		February 1, 2020		May 4, 2019
Assets
Short-term investments	Cash and Cash Equivalents	Level 1	$	3,605	$	1,810	$	419
Prepaid forward contracts	Other Current Assets	Level 1	23		23		21
Equity securities (a)	Other Current Assets	Level 1	18		39		80
Interest rate swaps	Other Noncurrent Assets	Level 2	228		137		23
Liabilities
Interest rate swaps	Other Current Liabilities	Level 2	—		—		1
Interest rate swaps	Other Noncurrent Liabilities	Level 2	10		—		—

^(a)Represents our investment in Casper Sleep Inc. common stock.

Significant Financial Instruments Not Measured at Fair Value (a) (millions)	May 2, 2020				February 1, 2020				May 4, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current portion (b)	$	12,474	$	14,781	$	9,992	$	11,864	$	11,243	$	12,015

^(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.

5. 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 $35 million and $4 million during the three months ended May 2, 2020, and May 4, 2019, respectively. The impairment charges are recorded in Selling, General and Administrative Expenses (SG&A).

6. Commercial Paper and Long-Term Debt

In March 2020, we issued unsecured fixed rate debt of $1.5 billion at 2.250 percent that matures in April 2025 and $1.0 billion at 2.650 percent that matures in September 2030.

We obtain short-term financing from time to time under our commercial paper program. No balances were outstanding at any time during the three months ended May 2, 2020. For the three months ended May 4, 2019, the maximum amount outstanding was $744 million, and the average daily amount outstanding was $140 million at a weighted average annual interest rate of 2.4 percent, with no balance outstanding as of May 4, 2019.

In April 2020, we obtained a committed $900 million 364-day unsecured revolving credit facility that expires in April 2021. This new facility is in addition to our $2.5 billion unsecured revolving credit facility that expires in October 2023. No balances were outstanding under either credit facility at any time during 2020 or 2019.

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 4 to the Consolidated Financial Statements provides the fair value and classification of these instruments.

TARGET CORPORATION Q1 2020 Form 10-Q 10

FINANCIAL STATEMENTS	Table of Contents
NOTES	Index to Notes

As of May 2, 2020, and May 4, 2019, we were party to interest rate swaps with notional amounts totaling $1.5 billion and$2.5 billion, respectively. We pay a variable rate and receive a fixed rate under each of these agreements. All of the agreements are designated as fair value hedges, and all were perfectly effective during the three months ended May 2, 2020, and May 4, 2019.

As of May 2, 2020, we were party to forward-starting interest rate swaps with notional amounts totaling $250 million to hedge the interest rate exposure of anticipated future debt issuances. We designated these derivative financial instruments as cash flow hedges. We assess, both at inception and on an ongoing basis, whether the derivative financial instrument is highly effective in offsetting changes in cash flows of the hedged item and whether it is probable that the hedged forecasted transaction will occur. As of May 2, 2020, a $10 million loss was recorded in Accumulated Other Comprehensive Loss and will be reclassified to Net Interest Expense when the forecasted transaction affects earnings.

Effect of Hedges on Debt
(millions)	May 2, 2020		February 1, 2020		May 4, 2019
Current portion of long-term debt and other borrowings
Carrying amount of hedged debt	$	—	$	—	$	999
Cumulative hedging adjustments, included in carrying amount	—		—		(1)
Long-term debt and other borrowings
Carrying amount of hedged debt	1,721		1,630		1,515
Cumulative hedging adjustments, included in carrying amount	228		137		23

Effect of Hedges on Net Interest Expense	Three Months Ended
(millions)	May 2, 2020		May 4, 2019
Gain (loss) on fair value hedges recognized in Net Interest Expense
Interest rate swap designated as fair value hedges	$	91	$	15
Hedged debt	(91)		(15)
Total	$	—	$	—

8. Income Taxes

For the three months ended May 2, 2020, our effective tax rate was 13.9 percent compared with 22.4 percent for the three months ended May 4, 2019, as lower pretax earnings in the current year period resulted in a larger tax-rate benefit from discrete items, primarily related to employee share-based compensation.

9. 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.

Share Repurchase Activity	Three Months Ended
(millions, except per share data)	May 2, 2020		May 4, 2019
Number of shares purchased	5.7		3.6
Average price paid per share	$	107.58	$	76.98	&