2020Q1DLPFINEXTRPT

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 1, 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 August 21, 2020 were 500,617,844.

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	24
Item 4.	Controls and Procedures	24
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
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				Six Months Ended
(millions, except per share data) (unaudited)	August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019
Sales	$	22,696	$	18,183	$	42,067	$	35,584
Other revenue	279		239		523		465
Total revenue	22,975		18,422		42,590		36,049
Cost of sales	15,673		12,625		30,183		24,874
Selling, general and administrative expenses	4,460		3,912		8,520		7,575
Depreciation and amortization (exclusive of depreciation included in cost of sales)	542		561		1,119		1,142
Operating income	2,300		1,324		2,768		2,458
Net interest expense	122		120		239		246
Net other (income) / expense	(11)		(13)		11		(27)
Earnings from continuing operations before income taxes	2,189		1,217		2,518		2,239
Provision for income taxes	499		279		544		509
Net earnings from continuing operations	1,690		938		1,974		1,730
Discontinued operations, net of tax	—		—		—		3
Net earnings	$	1,690	$	938	$	1,974	$	1,733
Basic earnings per share
Continuing operations	$	3.38	$	1.83	$	3.94	$	3.37
Discontinued operations	—		—		—		0.01
Net earnings per share	$	3.38	$	1.83	$	3.94	$	3.37
Diluted earnings per share
Continuing operations	$	3.35	$	1.82	$	3.91	$	3.34
Discontinued operations	—		—		—		0.01
Net earnings per share	$	3.35	$	1.82	$	3.91	$	3.35
Weighted average common shares outstanding
Basic	500.1		512.1		500.6		513.9
Diluted	504.4		516.1		505.1		517.8
Antidilutive shares	—		—		—		—

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

See accompanying Notes to Consolidated Financial Statements.

TARGET CORPORATION Q2 2020 Form 10-Q 1

FINANCIAL STATEMENTS	Table of Contents
	Index to Notes

Consolidated Statements of Comprehensive Income
	Three Months Ended				Six Months Ended
(millions) (unaudited)	August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019
Net earnings	$	1,690	$	938	$	1,974	$	1,733
Other comprehensive income
Pension, net of tax	22		10		44		20
Currency translation adjustment and cash flow hedges, net of tax	(1)		—		(9)		3
Other comprehensive income	21		10		35		23
Comprehensive income	$	1,711	$	948	$	2,009	$	1,756

See accompanying Notes to Consolidated Financial Statements.

TARGET CORPORATION Q2 2020 Form 10-Q 2

FINANCIAL STATEMENTS	Table of Contents
	Index to Notes

Consolidated Statements of Financial Position
(millions, except footnotes) (unaudited)	August 1, 2020		February 1, 2020		August 3, 2019
Assets
Cash and cash equivalents	$	7,284	$	2,577	$	1,656
Inventory	8,876		8,992		9,122
Other current assets	1,463		1,333		1,341
Total current assets	17,623		12,902		12,119
Property and equipment
Land	6,027		6,036		6,054
Buildings and improvements	30,946		30,603		29,908
Fixtures and equipment	5,665		6,083		5,622
Computer hardware and software	2,631		2,692		2,627
Construction-in-progress	811		533		667
Accumulated depreciation	(19,341)		(19,664)		(18,866)
Property and equipment, net	26,739		26,283		26,012
Operating lease assets	2,233		2,236		2,062
Other noncurrent assets	1,405		1,358		1,373
Total assets	$	48,000	$	42,779	$	41,566
Liabilities and shareholders’ investment
Accounts payable	$	10,726	$	9,920	$	9,152
Accrued and other current liabilities	5,057		4,406		4,059
Current portion of long-term debt and other borrowings	109		161		1,153
Total current liabilities	15,892		14,487		14,364
Long-term debt and other borrowings	14,188		11,338		10,365
Noncurrent operating lease liabilities	2,241		2,275		2,111
Deferred income taxes	1,121		1,122		1,082
Other noncurrent liabilities	1,980		1,724		1,808
Total noncurrent liabilities	19,530		16,459		15,366
Shareholders’ investment
Common stock	42		42		43
Additional paid-in capital	6,248		6,226		6,114
Retained earnings	7,121		6,433		6,461
Accumulated other comprehensive loss	(833)		(868)		(782)
Total shareholders’ investment	12,578		11,833		11,836
Total liabilities and shareholders’ investment	$	48,000	$	42,779	$	41,566

Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 500,252,831, 504,198,962 and 511,335,375 shares issued and outstanding at August 1, 2020, February 1, 2020, and August 3, 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 Q2 2020 Form 10-Q 3

FINANCIAL STATEMENTS	Table of Contents
	Index to Notes

Consolidated Statements of Cash Flows
	Six Months Ended
(millions) (unaudited)	August 1, 2020		August 3, 2019
Operating activities
Net earnings	$	1,974	$	1,733
Earnings from discontinued operations, net of tax	—		3
Net earnings from continuing operations	1,974		1,730
Adjustments to reconcile net earnings to cash provided by operations
Depreciation and amortization	1,245		1,267
Share-based compensation expense	104		86
Deferred income taxes	(12)		104
Noncash losses / (gains) and other, net	86		42
Changes in operating accounts
Inventory	116		375
Other assets	(14)		64
Accounts payable	795		(731)
Accrued and other liabilities	822		(127)
Cash provided by operating activities—continuing operations	5,116		2,810
Cash provided by operating activities—discontinued operations	—		2
Cash provided by operations	5,116		2,812
Investing activities
Expenditures for property and equipment	(1,414)		(1,394)
Proceeds from disposal of property and equipment	10		10
Other investments	2		—
Cash required for investing activities	(1,402)		(1,384)
Financing activities
Additions to long-term debt	2,480		994
Reductions of long-term debt	(126)		(1,026)
Dividends paid	(662)		(658)
Repurchase of stock	(706)		(662)
Stock option exercises	7		24
Cash provided by / (required for) financing activities	993		(1,328)
Net increase in cash and cash equivalents	4,707		100
Cash and cash equivalents at beginning of period	2,577		1,556
Cash and cash equivalents at end of period	$	7,284	$	1,656
Supplemental information
Leased assets obtained in exchange for new finance lease liabilities	$	246	$	156
Leased assets obtained in exchange for new operating lease liabilities	142		195

See accompanying Notes to Consolidated Financial Statements.

TARGET CORPORATION Q2 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 Q2 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
Net earnings	—	—		—		1,690		—		1,690
Other comprehensive income	—	—		—		—		21		21
Dividends declared	—	—		—		(344)		—		(344)
Stock options and awards	0.4	—		42		—		—		42
August 1, 2020	500.3	$	42	$	6,248	$	7,121	$	(833)	$	12,578

We declared $0.68 and $0.66 dividends per share for the three months ended August 1, 2020, and August 3, 2019, respectively, and $2.62 per share for the fiscal year ended February 1, 2020.

See accompanying Notes to Consolidated Financial Statements.

TARGET CORPORATION Q2 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	11
Note 8	Share Repurchase	11
Note 9	Pension Benefits	12
Note 10	Accumulated Other Comprehensive Loss	12

TARGET CORPORATION Q2 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 six months ended August 1, 2020, guest shopping patterns changed significantly and unpredictably in reaction to the COVID-19 pandemic. Four of our five core merchandise categories have experienced significant sales growth year-to-date; however, sales of Apparel and Accessories declined significantly in the first quarter before rebounding in the second quarter. 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 first quarter of 2020, we recorded $216 million of purchase order cancellation fees in Cost of Sales.

TARGET CORPORATION Q2 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				Six Months Ended
(millions)	August 1, 2020		August 3, 2019		August 1, 2020		August 3, 2019
Apparel and accessories (a)	$	4,084	$	3,656	$	6,703	$	6,946
Beauty and household essentials (b)	6,158		5,076		12,069		10,047
Food and beverage (c)	4,186		3,460		8,761		7,182
Hardlines (d)	3,608		2,503		6,582		4,889
Home furnishings and décor (e)	4,625		3,457		7,889		6,458
Other	35		31		63		62
Sales	22,696		18,183		42,067		35,584
Credit card profit sharing	158		168		324		328
Other	121		71		199		137
Other revenue	279		239		523		465
Total revenue	$	22,975	$	18,422	$	42,590	$	36,049

^(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 August 1, 2020, February 1, 2020, and August 3, 2019, the accrual for estimated returns was $201 million, $117 million, and $131 million, respectively. Other than as described below, we have not historically had notable adjustments to our returns estimates.

From March 26, 2020 to April 26, 2020, we did not accept in-store merchandise returns and exchanges to protect our team members from COVID-19. We lengthened the return period for merchandise affected by this change. Our returns estimate for sales during the suspension period included significant assumptions, including the impact of the lengthened return period, sales mix, and recent changes in guest returns behavior. At May 2, 2020, the returns reserve totaled $398 million. After resuming guest returns, we received fewer returns than originally expected. During the second quarter, we reduced our estimate of sales returns, which increased sales by $146 million and operating income by $110 million.

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		August 1, 2020
(millions)
Gift card liability (a)	$	935	$	315	$	(475)	$	775

^(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 Q2 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	August 1, 2020		February 1, 2020		August 3, 2019
Assets
Short-term investments	Cash and Cash Equivalents	Level 1	$	6,370	$	1,810	$	796
Prepaid forward contracts	Other Current Assets	Level 1	26