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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
 
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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 August 21, 2020 were 500,617,844.



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)August 1,
2020
August 3,
2019
August 1,
2020
August 3,
2019
Sales$22,696 $18,183 $42,067 $35,584 
Other revenue279 239 523 465 
Total revenue22,975 18,422 42,590 36,049 
Cost of sales 15,673 12,625 30,183 24,874 
Selling, general and administrative expenses4,460 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 expense122 120 239 246 
Net other (income) / expense(11)(13)11 (27)
Earnings from continuing operations before income taxes2,189 1,217 2,518 2,239 
Provision for income taxes499 279 544 509 
Net earnings from continuing operations1,690 938 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
Basic500.1 512.1 500.6 513.9 
Diluted504.4 516.1 505.1 517.8 
Antidilutive shares    
Note: Per share amounts may not foot due to rounding.

See accompanying Notes to Consolidated Financial Statements.
TARGET CORPORATION
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Q2 2020 Form 10-Q
1

FINANCIAL STATEMENTS

Consolidated Statements of Comprehensive Income  
 Three Months EndedSix 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 tax22 10 44 20 
Currency translation adjustment and cash flow hedges, net of tax(1) (9)3 
Other comprehensive income21 10 35 23 
Comprehensive income$1,711 $948 $2,009 $1,756 

See accompanying Notes to Consolidated Financial Statements.
TARGET CORPORATION
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Q2 2020 Form 10-Q
2

FINANCIAL STATEMENTS

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 
Inventory8,876 8,992 9,122 
Other current assets1,463 1,333 1,341 
Total current assets17,623 12,902 12,119 
Property and equipment   
Land6,027 6,036 6,054 
Buildings and improvements30,946 30,603 29,908 
Fixtures and equipment5,665 6,083 5,622 
Computer hardware and software2,631 2,692 2,627 
Construction-in-progress811 533 667 
Accumulated depreciation(19,341)(19,664)(18,866)
Property and equipment, net26,739 26,283 26,012 
Operating lease assets2,233 2,236 2,062 
Other noncurrent assets1,405 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 liabilities5,057 4,406 4,059 
Current portion of long-term debt and other borrowings109 161 1,153 
Total current liabilities15,892 14,487 14,364 
Long-term debt and other borrowings14,188 11,338 10,365 
Noncurrent operating lease liabilities2,241 2,275 2,111 
Deferred income taxes1,121 1,122 1,082 
Other noncurrent liabilities1,980 1,724 1,808 
Total noncurrent liabilities19,530 16,459 15,366 
Shareholders’ investment   
Common stock42 42 43 
Additional paid-in capital6,248 6,226 6,114 
Retained earnings7,121 6,433 6,461 
Accumulated other comprehensive loss(833)(868)(782)
Total shareholders’ investment12,578 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
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Q2 2020 Form 10-Q
3

FINANCIAL STATEMENTS

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 operations1,974 1,730 
Adjustments to reconcile net earnings to cash provided by operations  
Depreciation and amortization1,245 1,267 
Share-based compensation expense104 86 
Deferred income taxes(12)104 
Noncash losses / (gains) and other, net
86 42 
Changes in operating accounts 
Inventory116 375 
Other assets(14)64 
Accounts payable795 (731)
Accrued and other liabilities822 (127)
Cash provided by operating activities—continuing operations5,116 2,810 
Cash provided by operating activities—discontinued operations
 2 
Cash provided by operations5,116 2,812 
Investing activities  
Expenditures for property and equipment(1,414)(1,394)
Proceeds from disposal of property and equipment10 10 
Other investments2  
Cash required for investing activities(1,402)(1,384)
Financing activities  
Additions to long-term debt2,480 994 
Reductions of long-term debt(126)(1,026)
Dividends paid(662)(658)
Repurchase of stock(706)(662)
Stock option exercises7 24 
Cash provided by / (required for) financing activities993 (1,328)
Net increase in cash and cash equivalents4,707 100 
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
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Q2 2020 Form 10-Q
4

FINANCIAL STATEMENTS

Consolidated Statements of Shareholders’ Investment
 CommonStockAdditional Accumulated Other 
 StockParPaid-inRetainedComprehensive 
(millions) (unaudited)SharesValueCapitalEarnings
(Loss) / Income
Total
February 2, 2019517.8 $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 awards1.1  19   19 
May 4, 2019512.3 $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 awards0.3  53   53 
August 3, 2019511.3 $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 awards0.9  70   70 
November 2, 2019506.7 $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 awards0.1  42   42 
February 1, 2020504.2 $42 $6,226 $6,433 $(868)$11,833 

TARGET CORPORATION
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Q2 2020 Form 10-Q
5

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 

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
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Q2 2020 Form 10-Q
6

FINANCIAL STATEMENTS
INDEX


INDEX TO NOTES

TARGET CORPORATION
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Q2 2020 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 (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
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Q2 2020 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)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 
Other35 31 63 62 
Sales22,696 18,183 42,067 35,584 
Credit card profit sharing158 168 324 328 
Other121 71 199 137 
Other revenue279 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 ActivityFebruary 1,
2020
Gift Cards Issued During Current Period But Not Redeemed (b)
Revenue Recognized From Beginning LiabilityAugust 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
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Q2 2020 Form 10-Q
9

FINANCIAL STATEMENTS
NOTES

4. Fair Value Measurements

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