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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 July 30, 2022
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-20220730_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)

612-304-6073
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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 ☒
Total shares of common stock, par value $0.0833, outstanding at August 19, 2022, were 460,262,630.

TARGET CORPORATION

TABLE OF CONTENTS
 
 
 
 
 
 
 
 
   
 
   
 


FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Statements of Operations    
 Three Months EndedSix Months Ended
(millions, except per share data) (unaudited)July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Sales$25,653 $24,826 $50,483 $48,705 
Other revenue384 334 724 652 
Total revenue26,037 25,160 51,207 49,357 
Cost of sales 20,142 17,280 38,603 33,996 
Selling, general and administrative expenses5,002 4,849 9,764 9,358 
Depreciation and amortization (exclusive of depreciation included in cost of sales) 572 564 1,173 1,162 
Operating income321 2,467 1,667 4,841 
Net interest expense112 104 224 212 
Net other (income) / expense(8)(7)(23)(350)
Earnings before income taxes217 2,370 1,466 4,979 
Provision for income taxes34 553 274 1,065 
Net earnings$183 $1,817 $1,192 $3,914 
Basic earnings per share$0.40 $3.68 $2.57 $7.89 
Diluted earnings per share$0.39 $3.65 $2.55 $7.82 
Weighted average common shares outstanding
Basic461.5 493.1 463.8 495.8 
Diluted463.6 497.5 466.8 500.4 
Antidilutive shares1.3 — 1.0 — 

See accompanying Notes to Consolidated Financial Statements.
TARGET CORPORATION
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Q2 2022 Form 10-Q
1
FINANCIAL STATEMENTS
Consolidated Statements of Comprehensive Income  
 Three Months EndedSix Months Ended
(millions) (unaudited)July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Net earnings$183 $1,817 $1,192 $3,914 
Other comprehensive income, net of tax    
Pension benefit liabilities11 20 22 42 
Cash flow hedges and currency translation adjustment(28)(8)162 1 
Other comprehensive income(17)12 184 43 
Comprehensive income$166 $1,829 $1,376 $3,957 

See accompanying Notes to Consolidated Financial Statements.
TARGET CORPORATION
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Q2 2022 Form 10-Q
2
FINANCIAL STATEMENTS
Consolidated Statements of Financial Position   
(millions, except footnotes) (unaudited)July 30,
2022		January 29,
2022		July 31,
2021
Assets 
Cash and cash equivalents$1,117 $5,911 $7,368 
Inventory15,320 13,902 11,259 
Other current assets2,016 1,760 1,604 
Total current assets18,453 21,573 20,231 
Property and equipment
Land6,161 6,164 6,148 
Buildings and improvements33,694 32,985 32,133 
Fixtures and equipment6,744 6,407 5,892 
Computer hardware and software2,684 2,505 2,260 
Construction-in-progress2,245 1,257 944 
Accumulated depreciation(21,708)(21,137)(20,133)
Property and equipment, net29,820 28,181 27,244 
Operating lease assets2,542 2,556 2,503 
Other noncurrent assets1,655 1,501 1,407 
Total assets$52,470 $53,811 $51,385 
Liabilities and shareholders’ investment
Accounts payable$14,891 $15,478 $12,632 
Accrued and other current liabilities5,905 6,098 5,600 
Current portion of long-term debt and other borrowings1,649 171 1,190 
Total current liabilities22,445 21,747 19,422 
Long-term debt and other borrowings13,453 13,549 11,589 
Noncurrent operating lease liabilities2,543 2,493 2,462 
Deferred income taxes1,862 1,566 1,146 
Other noncurrent liabilities1,575 1,629 1,906 
Total noncurrent liabilities19,433 19,237 17,103 
Shareholders’ investment
Common stock38 39 41 
Additional paid-in capital6,502 6,421 6,332 
Retained earnings4,421 6,920 9,200 
Accumulated other comprehensive loss(369)(553)(713)
Total shareholders’ investment10,592 12,827 14,860 
Total liabilities and shareholders’ investment$52,470 $53,811 $51,385 
Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 460,236,393, 471,274,073 and 489,651,196 shares issued and outstanding as of July 30, 2022, January 29, 2022, and July 31, 2021, 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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Q2 2022 Form 10-Q
3
FINANCIAL STATEMENTS
Consolidated Statements of Cash Flows  
 Six Months Ended
(millions) (unaudited)July 30, 2022July 31, 2021
Operating activities  
Net earnings$1,192 $3,914 
Adjustments to reconcile net earnings to cash (required for) provided by operating activities:  
Depreciation and amortization1,329 1,300 
Share-based compensation expense122 138 
Deferred income taxes227 143 
Gain on Dermstore sale— (335)
Noncash losses / (gains) and other, net
108 7 
Changes in operating accounts: 
Inventory(1,418)(606)
Other assets(179)3 
Accounts payable(784)(311)
Accrued and other liabilities(644)(831)
Cash (required for) provided by operating activities(47)3,422 
Investing activities  
Expenditures for property and equipment(2,523)(1,338)
Proceeds from disposal of property and equipment4 15 
Proceeds from Dermstore sale— 356 
Other investments1 (5)
Cash required for investing activities(2,518)(972)
Financing activities  
Change in commercial paper, net1,545 — 
Reductions of long-term debt(113)(72)
Dividends paid(842)(676)
Repurchase of stock(2,821)(2,850)
Stock option exercises2 5 
Cash required for financing activities(2,229)(3,593)
Net decrease in cash and cash equivalents(4,794)(1,143)
Cash and cash equivalents at beginning of period 5,911 8,511 
Cash and cash equivalents at end of period $1,117 $7,368 
Supplemental information
Leased assets obtained in exchange for new finance lease liabilities$107 $182 
Leased assets obtained in exchange for new operating lease liabilities97 386 
 
See accompanying Notes to Consolidated Financial Statements.
TARGET CORPORATION
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Q2 2022 Form 10-Q
4
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 
Net earnings— — — 1,817 — 1,817 
Other comprehensive income— — — — 12 12 
Dividends declared— — — (445)— (445)
Repurchase of stock(6.6)— — (1,544)— (1,544)
Stock options and awards0.2 — 61 — — 61 
July 31, 2021489.7 $41 $6,332 $9,200 $(713)$14,860 
Net earnings— — — 1,488 — 1,488 
Other comprehensive income— — — — 26 26 
Dividends declared— — — (439)— (439)
Repurchase of stock(8.8)(1)— (2,180)— (2,181)
Stock options and awards— — 49 — — 49 
October 30, 2021480.9 $40 $6,381 $8,069 $(687)$13,803 
Net earnings— — — 1,544 — 1,544 
Other comprehensive income— — — — 134 134 
Dividends declared— — — (428)— (428)
Repurchase of stock(9.8)(1)— (2,265)— (2,266)
Stock options and awards0.2 — 40 — — 40 
January 29, 2022471.3 $39 $6,421 $6,920 $(553)$12,827 

TARGET CORPORATION
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Q2 2022 Form 10-Q
5
FINANCIAL STATEMENTS
Consolidated Statements of Shareholders’ Investment
 CommonStockAdditional Accumulated Other 
 StockParPaid-inRetainedComprehensive 
(millions) (unaudited)SharesValueCapitalEarnings
(Loss) / Income
Total
January 29, 2022471.3 $39 $6,421 $6,920 $(553)$12,827 
Net earnings— — — 1,009 — 1,009 
Other comprehensive income— — — — 201 201 
Dividends declared— — — (426)— (426)
Repurchase of stock(0.1)— — (10)— (10)
Accelerated share repurchase pending final settlement(8.9)(1)(751)(1,998)— (2,750)
Stock options and awards1.4 1 (78)— — (77)
April 30, 2022463.7 $39 $5,592 $5,495 $(352)$10,774 
Net earnings— — — 183 — 183 
Other comprehensive income— — — — (17)(17)
Dividends declared— — — (502)— (502)
Repurchase of stock(3.6)(1)870 (755)— 114 
Stock options and awards0.1 — 40 — — 40 
July 31, 2022460.2 $38 $6,502 $4,421 $(369)$10,592 

We declared $1.08 and $0.90 dividends per share for the three months ended July 30, 2022, and July 31, 2021, and $3.38 per share for the fiscal year ended January 29, 2022.

See accompanying Notes to Consolidated Financial Statements.

TARGET CORPORATION
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Q2 2022 Form 10-Q
6
FINANCIAL STATEMENTS
INDEX

INDEX TO NOTES
TARGET CORPORATION
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Q2 2022 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 2021 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. 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 represented less than 1 percent of our consolidated revenues, operating income and net assets.

TARGET CORPORATION
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Q2 2022 Form 10-Q
8
FINANCIAL STATEMENTS
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).

RevenuesThree Months EndedSix Months Ended
(millions)July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Apparel and accessories (a)
$4,617 $4,751 $8,856 $9,020 
Beauty and household essentials (b)
7,208 6,726 14,261 13,090 
Food and beverage (c)
5,268 4,687 10,773 9,543 
Hardlines (d)
3,866 3,867 7,579 7,813 
Home furnishings and décor (e)
4,647 4,748 8,918 9,158 
Other47 47 96 81 
Sales25,653 24,826 50,483 48,705 
Credit card profit sharing181 172 366 343 
Other203 162 358 309 
Other revenue384 334 724 652 
Total revenue$26,037 $25,160 $51,207 $49,357 
(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 July 30, 2022, January 29, 2022, and July 31, 2021, the accrual for estimated returns was $175 million, $165 million, and $176 million, respectively.

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

Gift Card Liability ActivityJanuary 29,
2022
Gift Cards Issued During Current Period But Not Redeemed (b)
Revenue Recognized From Beginning LiabilityJuly 30,
2022
(millions)
Gift card liability (a)
$1,202 $423 $(660)$965 
(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
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Q2 2022 Form 10-Q
9
FINANCIAL STATEMENTS
NOTES
Other — Includes advertising, Shipt membership and service revenues, commissions earned on third-party sales through Target.com, rental income, and other miscellaneous revenues.


4. Fair Value Measurements

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

 
Financial Instruments Measured On a Recurring BasisFair Value
(millions)ClassificationMeasurement LevelJuly 30, 2022January 29, 2022July 31, 2021
Assets   
Short-term investmentsCash and Cash EquivalentsLevel 1$189 $4,985 $6,439 
Prepaid forward contracts Other Current AssetsLevel 126 35 44 
Interest rate swapsOther Current AssetsLevel 234 17 — 
Interest rate swapsOther Noncurrent AssetsLevel 2290 135 160 
Liabilities   
Interest rate swapsOther Noncurrent LiabilitiesLevel 26 — — 

Significant Financial Instruments Not Measured at Fair Value (a)

(millions)
July 30, 2022January 29, 2022July 31, 2021
Carrying
Amount		Fair
Value		Carrying
Amount		Fair
Value		Carrying
Amount		Fair
Value
Long-term debt, including current portion (b)
$11,511 $11,529 $11,568 $12,808 $10,620 $12,594 
(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, 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 $27 million and $50 million for the three and six months ended July 30, 2022, respectively. We recognized impairment charges of $39 million and $81 million for the three and six months ended July 31, 2021, respectively. These impairment charges are included in Selling, General and Administrative Expenses (SG&A).

6. Commercial Paper and Long-Term Debt

We obtain short-term financing from time to time under our commercial paper program. For the six months ended July 30, 2022, the maximum amount outstanding was $1.5 billion, and the average daily amount outstanding was $538 million, at a weighted average annual interest rate of 1.1 percent. As of July 30, 2022, $1.5 billion was outstanding and is classified within Current Portion of Long-Term Debt and Other Borrowings on our Consolidated Statement of Financial Position. No balances were outstanding at any time during 2021.

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
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Q2 2022 Form 10-Q
10
FINANCIAL STATEMENTS
NOTES
We were party to interest rate swaps with notional amounts totaling $2.25 billion as of July 30, 2022, and $1.5 billion as of January 29, 2022, and July 31, 2021. We pay a floating rate and receive a fixed rate under each of these agreements. All of the agreements are designated as fair value hedges, and all were considered to be perfectly effective under the shortcut method during the three and six months ended July 30, 2022, and July 31, 2021.

We were party to forward-starting interest rate swaps with notional amounts totaling $2.15 billion as of July 30, 2022, and January 29, 2022, and $250 million as of July 31, 2021. 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 during the next three years. Based on the fair value of these swaps as of July 30, 2022, Accumulated Other Comprehensive Loss (AOCI) included an unrealized gain of $296 million. Any unrealized gain or loss at the time of debt issuance will be reclassified and impact Net Interest Expense as we record interest expense on the associated debt.

Effect of Hedges on Debt
(millions)
July 30, 2022January 29, 2022July 31, 2021
Long-term debt and other borrowings
Carrying amount of hedged debt$2,263 $1,572 $1,649 
Cumulative hedging adjustments, included in carrying amount22 77 154 

Effect of Hedges on Net Interest ExpenseThree Months EndedSix Months Ended
(millions)July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Gain (loss) on fair value hedges recognized in Net Interest Expense
Interest rate swap designated as fair value hedges$49 $22 $(55)$(29)
Hedged debt(49)(22)55 29 
Total$— $— $— $— 

8. Income Taxes

For the three and six months ended July 30, 2022, our effective tax rate was 15.8 percent and 18.7 percent, respectively, compared with 23.4 percent and 21.4 percent for the three and six months ended July 31, 2021, respectively. For the three month period, the decrease reflects lower pretax earnings during the three months ended July 30, 2022, resulting in a larger tax rate benefit from ongoing and discrete tax items, compared with the prior year. For the six month period, the decrease reflects lower pretax earnings during the six months ended July 30, 2022, compared with the prior year, partially offset by the impacts of discrete tax benefits during the six months ended July 31, 2021, including the resolution of certain income tax matters.

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 ActivityThree Months EndedSix Months Ended
(millions, except per share data)
July 31, 2022 (a)
July 31, 2021
July 31, 2022 (a)
July 31, 2021
Number of shares purchased12.5 6.6 12.5 12.7 
Average price paid per share$211.58 $233.81 $211.57 $213.06 
Total investment$2,636 $1,535 $2,646 $2,700 
(a)    Includes activity related to the ASR arrangement entered in first quarter 2022 because final settlement occurred in second quarter 2022. Under the ASR arrangement, we repurchased 12.5 million shares for a total cash investment of $2.6 billion. We did not enter into any other ASR arrangements during the periods presented.
TARGET CORPORATION
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Q2 2022 Form 10-Q
11
FINANCIAL STATEMENTS
NOTES
10. Pension Benefits

We provide pension plan benefits to eligible team members.

Net Pension Benefits ExpenseThree Months EndedSix Months Ended
(millions)ClassificationJuly 30, 2022July 31, 2021July 30, 2022July 31, 2021
Service cost benefits earnedSG&A $23 $24 $46 $48 
Interest cost on projected benefit obligationNet Other (Income) / Expense30 24 59 48 
Expected return on assetsNet Other (Income) / Expense(58)(59)(117)(118)
Amortization of lossesNet Other (Income) / Expense15 28 30 57 
Amortization of prior service costNet Other (Income) / Expense10 (1)10 (1)
Total$20 $16 $28 $34 
 
11. Accumulated Other Comprehensive Income (Loss)

 
Change in Accumulated Other Comprehensive Income (Loss)Cash Flow
Hedges		Currency Translation AdjustmentPensionTotal
(millions)
January 29, 2022$49 $(19)$(583)$(553)
Other comprehensive income (loss) before reclassifications, net of tax163 (1)— 162 
Amounts reclassified from AOCI, net of tax— — 22 22 
July 30, 2022$212 $(20)$(561)$(369)


TARGET CORPORATION
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Q2 2022 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

Second quarter 2022 included the following notable items:

•GAAP diluted earnings per share were $0.39.
•Adjusted diluted earnings per share were $0.39.
•Total revenue increased 3.5 percent, reflecting total sales growth of 3.3 percent and a 14.8 percent increase in other revenue.
•Comparable sales increased 2.6 percent, driven by a 2.7 percent increase in traffic.
◦Comparable stores originated sales grew 1.3 percent.
◦Comparable digitally originated sales increased 9.0 percent.
•Operating income of $321 million was 87.0 percent lower than the comparable prior-year period, driven primarily by a decrease in gross margin, reflecting inventory actions taken as a result of lower-than-expected sales in our discretionary categories (Apparel and Accessories, Hardlines, and Home Furnishings and Décor) and supply chain disruptions, as well as increased freight and merchandise costs. See Business Environment below for additional information.

Sales were $25.7 billion for the three months ended July 30, 2022, an increase of $0.8 billion, or 3.3 percent, from the comparable prior-year period. Cash flow required for operating activities was $47 million for the six months ended July 30, 2022, compared with $3.4 billion cash flow provided by operating activities for the six months ended July 31, 2021. The drivers of the operating cash flow decrease are described on page 20.

Earnings Per Share Three Months EndedSix Months Ended
July 30, 2022July 31, 2021ChangeJuly 30, 2022July 31, 2021Change
GAAP diluted earnings per share$0.39 $3.65 (89.2)%$2.55 $7.82 (67.4)%
Adjustments— (0.01)0.03 (0.48)
Adjusted diluted earnings per share$0.39 $3.64 (89.2)%$2.59 $7.34 (64.8)%
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 July 30, 2022, after-tax ROIC was 18.4 percent, compared with 31.7 percent for the trailing twelve months ended July 31, 2021. The calculation of ROIC is provided on page 19.

Business Environment

During the first two quarters of 2022, we have seen a shift in consumer demand away from discretionary categories (Apparel and Accessories, Hardlines, and Home Furnishings and Décor), resulting in lower-than-expected sales and higher-than-expected inventories in these areas. In response to this shift in demand, we took several actions to address our inventory position and create additional flexibility in a rapidly changing environment, including increasing promotional and clearance markdowns, removing excess inventory, and cancelling purchase orders. These factors, net of pricing actions we have taken to address the impact of merchandise and freight cost inflation, have resulted in decreased profitability in the first half of 2022 compared to the prior-year period. Additionally, in response to continued disruption in our supply chain, we have ordered and are receiving merchandise earlier, and added incremental holding capacity near U.S. ports to add flexibility in the portions of the supply chain most affected by external volatility. We believe that the actions we have taken, including the reduction of orders for Fall merchandise in our discretionary categories, reduce our risks and provide additional flexibility to focus on serving guests in a rapidly changing environment. The Gross Margin Rate analysis on page 16 and the Inventory section on page 20 provide additional information.

TARGET CORPORATION
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Q2 2022 Form 10-Q
13
MANAGEMENT'S DISCUSSION AND ANALYSIS
ANALYSIS OF RESULTS OF OPERATIONS
Analysis of Results of Operations

Summary of Operating Income Three Months Ended Six Months Ended 
(dollars in millions)July 30, 2022July 31, 2021ChangeJuly 30, 2022July 31, 2021Change
Sales$25,653 $24,826 3.3 %$50,483 $48,705 3.7 %
Other revenue384 334 14.8 724 652 10.9 
Total revenue26,037 25,160 3.5 51,207 49,357 3.7 
Cost of sales20,142 17,280 16.6 38,603 33,996 13.6 
Selling, general and administrative expenses5,002 4,849 3.1 9,764 9,358 4.3 
Depreciation and amortization (exclusive of depreciation included in cost of sales)572 564 1.5 1,173 1,162 0.9 
Operating income$321 $2,467 (87.0)%$1,667 $4,841 (65.6)%

Rate AnalysisThree Months EndedSix Months Ended
July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Gross margin rate21.5 %30.4 %23.5 %30.2 %
SG&A expense rate19.2 19.3 19.1 19.0 
Depreciation and amortization expense rate (exclusive of depreciation included in cost of sales)2.2 2.2 2.3 2.4 
Operating income margin rate1.2 9.8 3.3 9.8 
Note: Gross margin rate is calculated as gross margin (sales less cost of sales) divided by sales. All other rates are calculated by dividing the applicable amount by total revenue.

Sales

Sales include all merchandise sales, net of expected returns, and our estimate of gift card breakage. We use comparable sales to evaluate the performance of our stores and digital channel sales by measuring the change in sales for a period over the comparable prior-year period of equivalent length. Comparable sales include all sales, except sales from stores open less than 13 months, digital acquisitions we have owned less than 13 months, stores that have been closed, and digital acquisitions that we no longer operate. Comparable sales measures vary across the retail industry. As a result, our comparable sales calculation is not necessarily comparable to similarly titled measures reported by other companies. Digitally originated sales include all sales initiated through mobile applications and our websites. Our stores fulfill the majority of digitally originated sales, including shipment from stores to guests, store Order Pickup or Drive Up, and delivery via Shipt. Digitally originated sales may also be fulfilled through our distribution centers, our vendors, or other third parties.

Sales growth—from both comparable sales and new stores—represents an important driver of our long-term profitability. We expect that comparable sales growth will drive the majority of our total sales growth. We believe that our ability to successfully differentiate our guests’ shopping experience through a careful combination of merchandise assortment, price, convenience, guest experience, and other factors will, over the long-term, drive both increasing shopping frequency (traffic) and the amount spent each visit (average transaction amount).

Comparable SalesThree Months EndedSix Months Ended
 July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Comparable sales change2.6 %8.9 %3.0 %15.3 %
Drivers of change in comparable sales    
Number of transactions (traffic)2.7 12.7 3.3 14.8 
Average transaction amount0.0 (3.4)(0.3)0.5 

TARGET CORPORATION
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Q2 2022 Form 10-Q
14
MANAGEMENT'S DISCUSSION AND ANALYSIS
ANALYSIS OF RESULTS OF OPERATIONS
Comparable Sales by ChannelThree Months EndedSix Months Ended
 July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Stores originated comparable sales change1.3 %8.7 %2.3 %13.0 %
Digitally originated comparable sales change9.0 9.9 6.1 27.3 

Sales by ChannelThree Months EndedSix Months Ended
 July 30, 2022July 31, 2021July 30, 2022July 31, 2021
Stores originated82.1 %83.0 %81.9 %82.3 %
Digitally originated17.9