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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 May 1, 2021
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
 
tgt-20210501_g1.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 classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.0833 per shareTGTNew 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 companyEmerging 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 21, 2021, were 494,723,834.



TARGET CORPORATION

TABLE OF CONTENTS
 
 
 
 
 
 
 
 
   
 
   
 



FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


Consolidated Statements of Operations  
 Three Months Ended
(millions, except per share data) (unaudited)May 1, 2021May 2, 2020
Sales$23,879 $19,371 
Other revenue318 244 
Total revenue24,197 19,615 
Cost of sales 16,716 14,510 
Selling, general and administrative expenses4,509 4,060 
Depreciation and amortization (exclusive of depreciation included in cost of sales) 598 577 
Operating income2,374 468 
Net interest expense108 117 
Net other (income) / expense(343)22 
Earnings before income taxes2,609 329 
Provision for income taxes512 45 
Net earnings$2,097 $284 
Basic earnings per share$4.20 $0.57 
Diluted earnings per share$4.17 $0.56 
Weighted average common shares outstanding
Basic498.6 501.0 
Diluted503.4 505.8 
Antidilutive shares 0.2 
Note: Per share amounts may not foot due to rounding.

See accompanying Notes to Consolidated Financial Statements.
TARGET CORPORATION
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Q1 2021 Form 10-Q
1

FINANCIAL STATEMENTS

Consolidated Statements of Comprehensive Income 
 Three Months Ended
(millions) (unaudited)May 1, 2021May 2, 2020
Net earnings$2,097 $284 
Other comprehensive income / (loss), net of tax  
Pension benefit liabilities22 22 
Currency translation adjustment and cash flow hedges9 (8)
Other comprehensive income31 14 
Comprehensive income$2,128 $298 

See accompanying Notes to Consolidated Financial Statements.
TARGET CORPORATION
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Q1 2021 Form 10-Q
2

FINANCIAL STATEMENTS

Consolidated Statements of Financial Position   
(millions, except footnotes) (unaudited)May 1,
2021
January 30,
2021
May 2,
2020
Assets 
Cash and cash equivalents$7,816 $8,511 $4,566 
Inventory10,539 10,653 8,584 
Other current assets1,576 1,592 1,465 
Total current assets19,931 20,756 14,615 
Property and equipment
Land6,146 6,141 6,034 
Buildings and improvements31,710 31,557 30,756 
Fixtures and equipment5,496 5,914 5,486 
Computer hardware and software2,256 2,765 2,597 
Construction-in-progress973 780 803 
Accumulated depreciation(19,777)(20,278)(19,087)
Property and equipment, net26,804 26,879 26,589 
Operating lease assets2,362 2,227 2,235 
Other noncurrent assets1,374 1,386 1,367 
Total assets$50,471 $51,248 $44,806 
Liabilities and shareholders’ investment
Accounts payable$11,637 $12,859 $9,625 
Accrued and other current liabilities5,788 6,122 4,619 
Current portion of long-term debt and other borrowings1,173 1,144 168 
Total current liabilities18,598 20,125 14,412 
Long-term debt and other borrowings11,509 11,536 14,073 
Noncurrent operating lease liabilities2,337 2,218 2,249 
Deferred income taxes1,169 990 1,122 
Other noncurrent liabilities1,899 1,939 1,781 
Total noncurrent liabilities16,914 16,683 19,225 
Shareholders’ investment
Common stock41 42 42 
Additional paid-in capital6,271 6,329 6,206 
Retained earnings9,372 8,825 5,775 
Accumulated other comprehensive loss(725)(756)(854)
Total shareholders’ investment14,959 14,440 11,169 
Total liabilities and shareholders’ investment$50,471 $51,248 $44,806 
Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 496,093,160, 500,877,129 and 499,919,691 shares issued and outstanding as of May 1, 2021, January 30, 2021, and May 2, 2020, 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
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Q1 2021 Form 10-Q
3

FINANCIAL STATEMENTS

Consolidated Statements of Cash Flows  
 Three Months Ended
(millions) (unaudited)May 1, 2021May 2, 2020
Operating activities  
Net earnings$2,097 $284 
Adjustments to reconcile net earnings to cash provided by operating activities:  
Depreciation and amortization667 641 
Share-based compensation expense79 49 
Deferred income taxes170 (4)
Gain on Dermstore sale(335) 
Noncash losses / (gains) and other, net
(30)5 
Changes in operating accounts: 
Inventory114 408 
Other assets(5)11 
Accounts payable(1,205)(280)
Accrued and other liabilities(413)170 
Cash provided by operating activities1,139 1,284 
Investing activities  
Expenditures for property and equipment(540)(751)
Proceeds from disposal of property and equipment12 6 
Proceeds from Dermstore sale356  
Other investments7 1 
Cash required for investing activities(165)(744)
Financing activities  
Additions to long-term debt 2,480 
Reductions of long-term debt(21)(17)
Dividends paid(340)(332)
Repurchase of stock(1,310)(686)
Stock option exercises2 4 
Cash (required for) / provided by financing activities(1,669)1,449 
Net (decrease) / increase in cash and cash equivalents(695)1,989 
Cash and cash equivalents at beginning of period 8,511 2,577 
Cash and cash equivalents at end of period $7,816 $4,566 
Supplemental information
Leased assets obtained in exchange for new finance lease liabilities$69 $103 
Leased assets obtained in exchange for new operating lease liabilities189 97 
 
See accompanying Notes to Consolidated Financial Statements.
TARGET CORPORATION
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Q1 2021 Form 10-Q
4

FINANCIAL STATEMENTS

Consolidated Statements of Shareholders’ Investment
 CommonStockAdditional Accumulated Other 
 StockParPaid-inRetainedComprehensive 
(millions) (unaudited)SharesValueCapitalEarnings
(Loss) / Income
Total
February 1, 2020504.2 $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 awards1.4 — (20)— — (20)
May 2, 2020499.9 $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 awards0.4 — 42 — — 42 
August 1, 2020500.3 $42 $6,248 $7,121 $(833)$12,578 
Net earnings— — — 1,014 — 1,014 
Other comprehensive income— — — — 36 36 
Dividends declared— — — (346)— (346)
Stock options and awards0.5 — 37 — — 37 
October 31, 2020500.8 $42 $6,285 $7,789 $(797)$13,319 
Net earnings— — — 1,380 — 1,380 
Other comprehensive income— — — — 41 41 
Dividends declared— — — (344)— (344)
Stock options and awards0.1 — 44 — — 44 
January 30, 2021500.9 $42 $6,329 $8,825 $(756)$14,440 

TARGET CORPORATION
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Q1 2021 Form 10-Q
5

FINANCIAL STATEMENTS

Consolidated Statements of Shareholders’ Investment
 CommonStockAdditional Accumulated Other 
 StockParPaid-inRetainedComprehensive 
(millions) (unaudited)SharesValueCapitalEarnings
(Loss) / Income
Total
January 30, 2021500.9 $42 $6,329 $8,825 $(756)$14,440 
Net earnings— — — 2,097 — 2,097 
Other comprehensive income— — — — 31 31 
Dividends declared— — — (343)— (343)
Repurchase of stock(6.1)(1)— (1,207)— (1,208)
Stock options and awards1.3 — (58)— — (58)
May 1, 2021496.1 $41 $6,271 $9,372 $(725)$14,959 

We declared $0.68 and $0.66 dividends per share for the three months ended May 1, 2021, and May 2, 2020, respectively, and $2.70 per share for the fiscal year ended January 30, 2021.

See accompanying Notes to Consolidated Financial Statements.

TARGET CORPORATION
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Q1 2021 Form 10-Q
6

FINANCIAL STATEMENTS
INDEX


INDEX TO NOTES

TARGET CORPORATION
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Q1 2021 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 2020 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.

2. Coronavirus (COVID-19)

The novel coronavirus (COVID-19) pandemic continues to evolve. In 2020, states and cities took 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, virtually all of our stores, digital channels, and distribution centers have remained open.

As the COVID-19 pandemic has evolved, we have experienced significant volatility in our sales category mix. Note 4 presents sales by category. Since the pandemic started in March 2020, we took various actions, including accelerating purchases of certain merchandise in our core categories and slowing or canceling purchase orders, primarily for Apparel and Accessories. As a result, during the quarter ended May 2, 2020, we recorded $216 million of purchase order cancellation fees in Cost of Sales.

3. Dermstore Sale

In February 2021, we sold our wholly owned subsidiary Dermstore LLC (Dermstore) for $356 million in cash and recognized a $335 million pretax gain, which is included in Net Other (Income) / Expense. Dermstore has historically represented less than 1 percent of our consolidated revenues, operating income and net assets.
TARGET CORPORATION
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Q1 2021 Form 10-Q
8

FINANCIAL STATEMENTS
NOTES
4. 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).


RevenuesThree Months Ended
(millions)May 1, 2021May 2, 2020
Apparel and accessories (a)
$4,269 $2,619 
Beauty and household essentials (b)
6,364 5,911 
Food and beverage (c)
4,856 4,575 
Hardlines (d)
3,946 2,974 
Home furnishings and décor (e)
4,410 3,264 
Other34 28 
Sales23,879 19,371 
Credit card profit sharing171 166 
Other147 78 
Other revenue318 244 
Total revenue$24,197 $19,615 
(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 and 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. As of May 1, 2021, January 30, 2021, and May 2, 2020, the accrual for estimated returns was $196 million, $139 million, and $398 million, respectively. The accrual as of May 2, 2020, reflects the impact of the suspension of in-store merchandise returns and exchanges from March 26, 2020, to April 26, 2020, due to the COVID-19 pandemic.

Revenue from Target gift card sales is recognized upon gift card redemption, which is typically within one year of issuance.

Gift Card Liability ActivityJanuary 30,
2021
Gift Cards Issued During Current Period But Not Redeemed (b)
Revenue Recognized From Beginning LiabilityMay 1,
2021
(millions)
Gift card liability (a)
$1,035 $234 $(374)$895 
(a)Included in Accrued and Other Current Liabilities.
(b)Net of estimated breakage.

TARGET CORPORATION
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Q1 2021 Form 10-Q
9

FINANCIAL STATEMENTS
NOTES
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.

5. Fair Value Measurements

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

 
Financial Instruments Measured On a Recurring BasisFair Value
(millions)ClassificationPricing CategoryMay 1, 2021January 30, 2021May 2, 2020
Assets   
Short-term investmentsCash and Cash EquivalentsLevel 1$6,895 $7,644 $3,605 
Prepaid forward contracts Other Current AssetsLevel 137 38 23 
Equity securitiesOther Current AssetsLevel 1  18 
Interest rate swapsOther Noncurrent AssetsLevel 2149 188 228 
Liabilities   
Interest rate swapsOther Noncurrent LiabilitiesLevel 2  10 

Significant Financial Instruments Not Measured at Fair Value (a)

(millions)
May 1, 2021January 30, 2021May 2, 2020
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Long-term debt, including current portion (b)
$10,646 $12,335 $10,643 $12,787 $12,474 $14,781 
(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.

6. 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, office, or distribution center, discontinue a project, or make significant software changes—indicate that the asset’s carrying value may not be recoverable. We recognized impairment charges of $41 million and $35 million during the three months ended May 1, 2021, and May 2, 2020, respectively. These impairment charges are included in Selling, General and Administrative Expenses (SG&A).

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

As of May 1, 2021, January 30, 2021, and May 2, 2020, we were party to interest rate swaps with notional amounts totaling $1.5 billion. 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 months ended May 1, 2021, and May 2, 2020.

TARGET CORPORATION
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Q1 2021 Form 10-Q
10

FINANCIAL STATEMENTS
NOTES
As of May 1, 2021, January 30, 2021, and May 2, 2020, we were party to forward-starting interest rate swaps with notional amounts totaling $250 million. We use these derivative financial instruments, which have been designated as cash flow hedges, to hedge the interest rate exposure of anticipated future debt issuances. As of May 1, 2021, Accumulated Other Comprehensive Loss (AOCI) included $17 million that will be reclassified and reduce Net Interest Expense when the forecasted transaction affects earnings.

Effect of Hedges on Debt
(millions)
May 1, 2021January 30, 2021May 2, 2020
Long-term debt and other borrowings
Carrying amount of hedged debt$1,627 $1,677 $1,721 
Cumulative hedging adjustments, included in carrying amount132 183 228 

Effect of Hedges on Net Interest ExpenseThree Months Ended
(millions)May 1, 2021May 2, 2020
Gain (loss) on fair value hedges recognized in Net Interest Expense
Interest rate swap designated as fair value hedges$(51)$91 
Hedged debt51 (91)
Total$ $ 

8. Income Taxes

For the three months ended May 1, 2021, our effective tax rate was 19.6 percent compared with 13.9 percent for the three months ended May 2, 2020, as higher pretax earnings diluted the tax-rate benefit from fixed and discrete items, such as employee share-based compensation and the sale of Dermstore. Additionally, the favorable resolution of certain income tax matters resulted in a $44 million discrete tax benefit.

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 arrangements, and other privately negotiated transactions with financial institutions.

Share Repurchase ActivityThree Months Ended
(millions, except per share data)May 1, 2021May 2, 2020
Number of shares purchased6.1 5.7 
Average price paid per share$190.77 $107.58 
Total investment$1,165 $609 


TARGET CORPORATION
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Q1 2021 Form 10-Q
11

FINANCIAL STATEMENTS
NOTES
10. Pension Benefits

We provide pension plan benefits to eligible team members.

Net Pension Benefits ExpenseThree Months Ended
(millions)ClassificationMay 1, 2021May 2, 2020
Service cost benefits earnedSG&A $24 $26 
Interest cost on projected benefit obligationNet Other (Income) / Expense24 30 
Expected return on assetsNet Other (Income) / Expense(59)(61)
Amortization of lossesNet Other (Income) / Expense29 32 
Amortization of prior service costNet Other (Income) / Expense (3)
Total$18 $24 
 
11. Accumulated Other Comprehensive Loss

 
Change in Accumulated Other Comprehensive LossCash Flow
Hedges
Currency Translation AdjustmentPensionTotal
(millions)
January 30, 2021$(3)$(18)$(735)$(756)
Other comprehensive income before reclassifications, net of tax9   9 
Amounts reclassified from AOCI, net of tax  22 22 
May 1, 2021$6 $(18)$(713)$(725)

TARGET CORPORATION
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Q1 2021 Form 10-Q
12

MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL SUMMARY
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Financial Summary

First quarter 2021 included the following notable items:

GAAP diluted earnings per share was $4.17.
Adjusted diluted earnings per share was $3.69.
Total revenue increased 23.4 percent, driven by an increase in comparable sales.
Comparable sales increased 22.9 percent, driven by a 17.1 percent increase in traffic.
Comparable stores originated sales grew 18.0 percent.
Comparable digitally originated sales increased 50.2 percent.
Operating income of $2.4 billion was 407 percent higher than the comparable prior-year period.
We recognized a $335 million pretax gain on the sale of Dermstore.

Sales were $23.9 billion for the three months ended May 1, 2021, an increase of $4.5 billion, or 23.3 percent, from the comparable prior-year period. Cash flow provided by operating activities was $1.1 billion for the three months ended May 1, 2021, a decrease of $0.1 billion, or (11.3) percent, from $1.3 billion for the three months ended May 2, 2020.

Earnings Per Share Three Months Ended
May 1, 2021May 2, 2020Change
GAAP diluted earnings per share$4.17 $0.56 643.2 %
Adjustments(0.47)0.03 
Adjusted diluted earnings per share$3.69 $0.59 525.0 %

Note: Amounts may not foot due to rounding. 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 provided on page 18.

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 May 1, 2021, after-tax ROIC was 30.7 percent, compared with 13.4 percent for the trailing twelve months ended May 2, 2020. The calculation of ROIC is provided on page 19.

COVID-19

As the COVID-19 pandemic has evolved, we have experienced unusually strong sales, as guests rely on Target for essential items like food, medicine, cleaning products, and household stock-up items, as well as merchandise associated with guests spending more time at home. Underlying this trend, we have seen significant volatility in our sales category and channel mix, including same-day fulfillment options.

During the first quarter of 2021, strength in comparable sales growth continued across our multi-category portfolio, with significantly higher growth in our higher-margin Apparel & Accessories and Home Furnishings & Décor core merchandise categories. Comparable sales growth was strongest in Apparel & Accessories, which experienced a significant decline during the first quarter of 2020, Additionally, strength above the chain average continued in Hardlines. During the first quarter of 2020, comparable sales growth was strongest in our lower-margin Hardlines, Food & Beverage and Beauty & Household Essentials categories. Note 4 to the Financial Statements presents sales by category.


TARGET CORPORATION
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Q1 2021 Form 10-Q
13

MANAGEMENT'S DISCUSSION AND ANALYSIS
ANALYSIS OF OPERATIONS
Analysis of Results of Operations

Summary of Operating Income Three Months Ended 
(dollars in millions)May 1, 2021May 2, 2020Change
Sales$23,879 $19,371 23.3 %
Other revenue318 244 30.4 
Total revenue24,197 19,615 23.4 
Cost of sales16,716 14,510 15.2 
Selling, general and administrative expenses4,509 4,060 11.0 
Depreciation and amortization (exclusive of depreciation included in cost of sales)598 577 3.9 
Operating income$2,374 $468 407.0 %

Rate AnalysisThree Months Ended
May 1, 2021May 2, 2020
Gross margin rate30.0 %25.1 %
SG&A expense rate18.6 20.7 
Depreciation and amortization expense rate (exclusive of depreciation included in cost of sales)2.5 2.9 
Operating income margin rate9.8 2.4 
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 our wholly owned subsidiary, 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 (traffic) and the amount spent each visit (average transaction amount).
TARGET CORPORATION
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Q1 2021 Form 10-Q
14

MANAGEMENT'S DISCUSSION AND ANALYSIS
ANALYSIS OF OPERATIONS

The increase in sales during the three months ended May 1, 2021, is due to a comparable sales increase of 22.9 percent and the contribution from new stores. The COVID-19 pandemic has affected the amount and mix of sales across channels and categories.

Comparable SalesThree Months Ended
 May 1, 2021May 2, 2020
Comparable sales change22.9 %10.8 %
Drivers of change in comparable sales  
Number of transactions17.1 (1.5)
Average transaction amount5.0 12.5 

Comparable Sales by ChannelThree Months Ended
 May 1, 2021May 2, 2020
Stores originated comparable sales change18.0 %0.9 %
Digitally originated comparable sales change50.2 140.6 

Sales by ChannelThree Months Ended
 May 1, 2021May 2, 2020
Stores originated81.7 %84.7 %
Digitally originated18.3 15.3 
Total100 %100 %

Sales by Fulfillment ChannelThree Months Ended
 May 1,
2021
May 2,
2020
Stores 96.3 %96.7 %
Other3.7 3.3 
Total100 %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 CategoryThree Months Ended
May 1, 2021May 2, 2020
Apparel and accessories18 %14 %
Beauty and household essentials27 30 
Food and beverage20 24 
Hardlines17 15 
Home furnishings and décor18 17 
Total100 %100 %

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.

TARGET CORPORATION
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Q1 2021 Form 10-Q
15

MANAGEMENT'S DISCUSSION AND ANALYSIS
ANALYSIS OF OPERATIONS
We monitor the percentage of purchases that are paid for using RedCards (RedCard Penetration) because our internal analysis has indicated that a meaningful portion of the incremental purchases on RedCards are also incremental sales for Target. Guests receive a 5 percent discount on virtually all purchases when they use a RedCard at Target. RedCard sales increased for the three months ended May 1, 2021 and May 2, 2020; however, RedCard penetration declined as total Sales increased at a faster pace.

RedCard PenetrationThree Months Ended
 May 1, 2021May 2, 2020
Target Debit Card12.1 %12.7 %
Target Credit Cards8.4 9.7 
Total RedCard Penetration20.5 %22.4 %


Gross Margin Rate
tgt-20210501_g3.jpg
For the three months ended May 1, 2021, our gross margin rate was 30.0 percent compared with 25.1 percent in the comparable prior-year period. This increase reflected:
The benefit of merchandising actions, including exceptionally low promotional and clearance markdown rates, in this year’s results and purchase order cancellation fees and inventory impairments in last year’s results;
Favorable category mix driven by strength in higher margin categories including Apparel & Accessories and Home Furnishings & Décor; and
The net impact of other factors, most notably the margin impact of our returns estimate for sales during the temporary returns suspension period in the first quarter of 2020.

Selling, General, and Administrative Expense Rate

For the three months ended May 1, 2021, our SG&A expense rate was 18.6 percent compared with 20.7 percent in the comparable prior-year period. Incremental team member pay and benefits, including higher wages and bonus expense, represented the vast majority of the $449 million increase in SG&A expenses compared with the prior-year period. From a rate perspective, these increased costs were more than offset by leverage resulting from strong revenue growth.

TARGET CORPORATION
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Q1 2021 Form 10-Q
16

MANAGEMENT'S DISCUSSION AND ANALYSIS
ANALYSIS OF OPERATIONS
Store Data

Change in Number of StoresThree Months Ended
 May 1, 2021May 2, 2020
Beginning store count1,897 1,868 
Opened12 
Closed— — 
Ending store count1,909 1,871 

Number of Stores and
Retail Square Feet
Number of Stores
Retail Square Feet (a)
May 1, 2021January 30, 2021May 2, 2020May 1, 2021January 30, 2021May 2, 2020
170,000 or more sq. ft.273 273 272 48,798 48,798 48,613 
50,000 to 169,999 sq. ft.1,510 1,509 1,505 189,618 189,508 189,226 
49,999 or less sq. ft.126 115 94 3,690 3,342 2,745 
Total1,909 1,897 1,871 242,106 241,648 240,584 
(a)In thousands, reflects total square feet less office, distribution center, and vacant space.
 
Other Performance Factors

Net Interest Expense

Net interest expense was $108 million for the three months ended May 1, 2021, and $117 million for the three months ended May 2, 2020. The decrease in net interest expense was primarily due to a lower weighted-average interest rate on our long-term debt for the three months ended May 1, 2021, compared with the three months ended May 2, 2020.

Net Other (Income) / Expense

Net Other (Income) / Expense was $(343) million for the three months ended May 1, 2021, and $22 million for the three months ended May 2, 2020. The increase was due to the $335 million gain on the February 2021 sale of Dermstore. Note 3 to the Financial Statements provides additional information.

Provision for Income Taxes
 
Our effective income tax rate for the three months ended May 1, 2021, was 19.6 percent, compared with 13.9 percent in the comparable prior-year period. The increase reflects significantly higher earnings, partially offset by the impact of discrete tax benefits in the quarter, including a $44 million benefit resulting from the resolution of certain income tax matters.


TARGET CORPORATION
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Q1 2021 Form 10-Q
17

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 EPSThree Months Ended
May 1, 2021May 2, 2020
(millions, except per share data)PretaxNet of TaxPer Share AmountsPretaxNet of TaxPer Share Amounts
GAAP diluted earnings per share $4.17 $0.56 
Adjustments
Gain on Dermstore sale$(335)$(269)$(0.53)$— $— $— 
Loss on investment (a)
— — — 21 15 0.03 
Other (b)
41 30 0.06 — — — 
Adjusted diluted earnings per share $3.69 $0.59 
Note: Amounts may not foot due to rounding.
(a)Represented an unrealized loss on our investment in Casper Sleep Inc., which was not core to our operations. We sold this investment during the fourth quarter of 2020.
(b)Represents asset impairment charges resulting from the consolidation of our headquarters office space.

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 EBITDAThree Months Ended 

(dollars in millions)
May 1, 2021May 2, 2020Change
Net earnings$2,097 $284 639.8 %
+ Provision for income taxes512 45 1,017.1 
+ Net interest expense108 117 (7.6)
EBIT$2,717 $446 508.7 %
+ Total depreciation and amortization (a)
667 641 4.1 
EBITDA$3,384 $1,087 211.3 %
(a)Represents total depreciation and amortization, including amounts classified within Depreciation and Amortization and within Cost of Sales.

TARGET CORPORATION
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Q1 2021 Form 10-Q
18

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
NumeratorMay 1, 2021May 2, 2020
Operating income$8,444 $3,992 
 + Net other income / (expense)350 (26)
EBIT8,794 3,966 
 + Operating lease interest (a)
85 87 
  - Income taxes (b)
1,864 855 
Net operating profit after taxes$7,015 $3,198 

DenominatorMay 1, 2021May 2, 2020May 4, 2019
Current portion of long-term debt and other borrowings$1,173 $168 $1,056 
 + Noncurrent portion of long-term debt11,509 14,073 11,357 
 + Shareholders' investment14,959 11,169 11,117 
 + Operating lease liabilities (c)
2,563 2,448 2,231 
  - Cash and cash equivalents7,816 4,566 1,173 
Invested capital$22,388 $23,292 $24,588 
Average invested capital (d)
$22,840 $23,940 
After-tax return on invested capital30.7 %13.4 %
(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 21.0 percent and 21.1 percent for the trailing twelve months ended May 1, 2021, and May 2, 2020, respectively. For the trailing twelve months ended May 1, 2021, and May 2, 2020, includes tax effect of $1.8 billion and $837 million, respectively, related to EBIT, and $18 million 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
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Q1 2021 Form 10-Q
19

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 $7.8 billion, $8.5 billion, and $4.6 billion as of May 1, 2021, January 30, 2021, and May 2, 2020, respectively. Our cash and cash equivalents balance includes short-term investments of $6.9 billion, $7.6 billion, and $3.6 billion as of May 1, 2021, January 30, 2021, and May 2, 2020, respectively. Our investment policy is designed to preserve principal and liquidity of our short-term investments. This policy allows investments in large money market funds or in highly rated direct short-term instruments that mature in 60 days or less. We also place dollar limits on our investments in individual funds or instruments.

Operating Cash Flows
 
Cash flows provided by operating activities were $1.1 billion for the three months ended May 1, 2021, compared with $1.3 billion for the three months ended May 2, 2020. For the three months ended May 1, 2021, operating cash flows reflect stronger operating results, offset by higher net settlement of accounts payable and incentive compensation payments, compared with the three months ended May 2, 2020.

Inventory

Inventory was $10.5 billion as of May 1, 2021, compared with $10.7 billion and $8.6 billion at January 30, 2021, and May 2, 2020, respectively. The increase over the balance as of May 2, 2020, reflects efforts to align inventory with sales trends. Additionally, the lower inventory balance as of May 2, 2020, reflected the impact of elevated sell-through rates in high-demand merchandise categories and efforts to reduce inventory levels in certain discretionary categories to align with evolving sales trends early in the pandemic.

Investing Cash Flows

Investing cash flows included capital investments of $540 million and $751 million for the three months ended May 1, 2021, and May 2, 2020, respectively. We continue to expect full-year capital investments of approximately $4 billion, with the majority of those investments occurring in the second half of this year. For the three months ended May 1, 2021, investing cash flows includes $356 million of proceeds from the sale of Dermstore.

Dividends
 
We paid dividends totaling $340 million ($0.68 per share) for the three months ended May 1, 2021, and $332 million ($0.66 per share) for the three months ended May 2, 2020, a per share increase of 3.0 percent. We declared dividends totaling $343 million ($0.68 per share) during the first quarter of 2021 and $333 million ($0.66 per share) during the first quarter of 2020, a per share increase of 3.0 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 returned $1.2 billion to shareholders through share repurchase during the three months ended May 1, 2021. See Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds of this Quarterly Report on Form 10-Q and Note 9 to the Financial Statements for more information.

TARGET CORPORATION
tgt-20210501_g2.jpg
Q1 2021 Form 10-Q
20

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 May 1, 2021, our credit ratings were as follows:

Credit RatingsMoody’sStandard and Poor’sFitch
Long-term debtA2AA-
Commercial paperP-1A-1F1

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 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 1, 2021, and May 2, 2020. We have additional liquidity through a committed $2.5 billion revolving credit facility that expires in October 2023. No balances were outstanding at any time during 2021 or 2020.

Most of our long-term debt obligations contain covenants related to secured debt levels. In addition to a secured debt level covenant, our credit facility also contains a debt leverage covenant. We are, and expect to remain, in compliance with these covenants. Additionally, as of May 1, 2021, 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 will continue to be adequate to maintain operations, finance anticipated expansion and strategic initiatives, fund debt maturities, pay dividends, and execute purchases under our share repurchase program for the foreseeable future. We continue to anticipate ample access to commercial paper and long-term financing.

New Accounting Pronouncements

We do not expect any recently issued accounting pronouncements to have a material effect on our financial statements.

TARGET CORPORATION
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Q1 2021 Form 10-Q
21

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 continued execution of our share repurchase program, our expected capital expenditures and new lease commitments, the expected compliance with debt covenants, the expected impact of new accounting pronouncements, our intentions regarding future dividends, the expected return on plan assets, the expected outcome of, and adequacy of our reserves for, claims, litigation and the resolution of tax matters, the expected impact of changes in information technology systems, future responses to and effects of the COVID-19 pandemic, 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 30, 2021, 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 30, 2021.

Item 4. Controls and Procedures

Changes in Internal Control Over Financial Reporting

During the most recently completed fiscal quarter, the following changes materially affected, or are reasonably likely to materially affect, our internal control over financial reporting:

We are in the process of a broad multi-year migration of many mainframe-based systems and middleware products to a modern platform, including systems and processes supporting inventory, sales, and supply chain-related transactions.
During the first quarter of 2021, we resumed our normal practice of annual physical inventory counts at our stores and are no longer using the statistical sampling method implemented during 2020 due to the COVID-19 pandemic. We have recorded estimated losses related to shrink and markdowns based upon the results of the counts.

During the most recently completed fiscal quarter, no other changes in our internal control over financial reporting materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

TARGET CORPORATION
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Q1 2021 Form 10-Q
22

MANAGEMENT'S DISCUSSION AND ANALYSIS & SUPPLEMENTAL INFORMATION
FORWARD LOOKING STATEMENTS & CONTROLS AND PROCEDURES
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
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Q1 2021 Form 10-Q
23

SUPPLEMENTAL INFORMATION