TARGET CORP - Quarter Report: 2024 May (Form 10-Q)

See accompanying Notes to Consolidated Financial Statements.


TARGET CORPORATION						Q1 2024 Form 10-Q			4


			FINANCIAL STATEMENTS			Table of Contents
						Index to Notes

Consolidated Statements of Shareholders’ Investment

Common

Stock

Additional

Accumulated Other

Stock

Par

Paid-in

Retained

Comprehensive

(millions) (unaudited)

Value

Capital

Earnings

(Loss) / Income

Total

January 28, 2023

()

Net earnings

—

Other comprehensive loss

—

()

Dividends declared

—

()

—

()

Stock options and awards

—

()

—

()

April 29, 2023

()

Net earnings

—

Other comprehensive loss

—

()

Dividends declared

—

()

—

()

Stock options and awards

—

July 29, 2023

()

Net earnings

—

Other comprehensive loss

—

()

Dividends declared

—

()

—

()

Stock options and awards

—

October 28, 2023

()

Net earnings

—

Other comprehensive loss

—

()

Dividends declared

—

()

—

()

Stock options and awards

—

February 3, 2024

()


TARGET CORPORATION						Q1 2024 Form 10-Q			5


			FINANCIAL STATEMENTS			Table of Contents
						Index to Notes

Consolidated Statements of Shareholders’ Investment

Common

Stock

Additional

Accumulated Other

Stock

Par

Paid-in

Retained

Comprehensive

(millions) (unaudited)

Value

Capital

Earnings

(Loss) / Income

Total

February 3, 2024

()

Net earnings

—

Other comprehensive loss

—

()

Dividends declared

—

()

—

()

Stock options and awards

()

—

()

May 4, 2024

()

(a)Includes apparel for women, men, young adults, kids, toddlers, and babies, as well as jewelry, accessories, and shoes.

(b)Includes skin and bath care, cosmetics, hair care, oral care, deodorant, and shaving products.

(c)Includes dry and perishable grocery, including snacks, candy, beverages, deli, bakery, meat, produce and food service (primarily Starbucks) in our stores.

(d)Includes electronics, including video games and consoles, toys, sporting goods, entertainment, and luggage.

(e)Includes bed and bath, home décor, school/office supplies, storage, small appliances, kitchenware, greeting cards, party supplies, furniture, lighting, home improvement, and seasonal merchandise.

As of May 4, 2024, February 3, 2024, and April 29, 2023, the accrual for estimated returns was $ million, $ million, and $ million, respectively.

$ $()$

(a)Included in Accrued and Other Current Liabilities.

(b)Net of estimated breakage.


TARGET CORPORATION						Q1 2024 Form 10-Q			9


			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Notes

$ $ Prepaid forward contracts Other Current AssetsLevel 1 Interest rate swapsOther Noncurrent AssetsLevel 2 Liabilities Interest rate swapsOther Current LiabilitiesLevel 2 Interest rate swapsOther Noncurrent LiabilitiesLevel 2

$ $ $ $ $

(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, fair value hedge adjustments, and lease liabilities.

days from the invoice date.

We do not pay any fees or pledge any security to these financial institutions under these arrangements. The arrangements can be terminated by either party with notice ranging up to days.

billion, $ billion, and $ billion as of May 4, 2024, February 3, 2024, and April 29, 2023, respectively, and are included within Accounts Payable on our Consolidated Statements of Financial Position. Our outstanding vendor obligations do not represent actual receivables sold by our vendors to the financial institutions, which have historically been lower.


TARGET CORPORATION						Q1 2024 Form 10-Q			10


			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Notes

commercial paper outstanding at any time during the three months ended May 4, 2024, For the three months ended April 29, 2023, the maximum amount outstanding was $ million, and the average daily amount outstanding was $ million, at a weighted average annual interest rate of percent. As of April 29, 2023, $ million was outstanding and is classified within Current Portion of Long-Term Debt and Other Borrowings on our Consolidated Statements of Financial Position.

billion as of May 4, 2024, February 3, 2024, and April 29, 2023. 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 4, 2024 and April 29, 2023.


TARGET CORPORATION						Q1 2024 Form 10-Q			11


			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Notes

$()$()$()Amounts reclassified from AOCI, net of tax() ()May 4, 2024$ $()$()$()


TARGET CORPORATION						Q1 2024 Form 10-Q			12


			MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents
			FINANCIAL SUMMARY			Index to Notes

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Financial Summary

First quarter 2024 included the following notable items:

•GAAP and adjusted diluted earnings per share were $2.03.

•Total revenue was $24.5 billion, a decrease of 3.1 percent from the comparable prior-year period, reflecting a total sales decrease of 3.2 percent and a 3.9 percent increase in other revenue.

•Comparable sales decreased 3.7 percent, reflecting a 1.9 percent decrease in both traffic and average transaction amount.

◦Comparable stores-originated sales declined 4.8 percent.

◦Comparable digitally-originated sales increased 1.4 percent.

•Operating income of $1.3 billion was 2.4 percent lower than the comparable prior-year period.

Cash flow provided by operating activities was $1.1 billion for the three months ended May 4, 2024, compared with $1.3 billion for the three months ended April 29, 2023. The drivers of the operating cash flow decrease are described on page 20.


	May 4, 2024		April 29, 2023		Change


GAAP and adjusted diluted earnings per share	$	2.03	$	2.05	(1.0)	%

Note: Adjusted diluted earnings per share (Adjusted EPS), a non-GAAP metric, excludes the impact of certain items when applicable. However, there are no adjustments in either period presented. 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 4, 2024, after-tax ROIC was 15.4 percent, compared with 11.4 percent for the trailing twelve months ended April 29, 2023. The calculation of ROIC is provided on page 19.


TARGET CORPORATION						Q1 2024 Form 10-Q			13


			MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents
			ANALYSIS OF RESULTS OF OPERATIONS			Index to Notes

Analysis of Results of Operations


(dollars in millions)	May 4, 2024		April 29, 2023		Change
Sales	$	24,143	$	24,948	(3.2)	%
Other revenue	388		374		3.9
Total revenue	24,531		25,322		(3.1)
Cost of sales	17,449		18,386		(5.1)
SG&A expenses	5,168		5,025		2.8
Depreciation and amortization (exclusive of depreciation included in cost of sales)	618		583		6.2
Operating income	$	1,296	$	1,328	(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 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 (number of transactions, or "traffic") and the amount spent each visit (average transaction amount).

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.

Note 2 to the Financial Statements provides additional product category sales information. 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.

We monitor the percentage of purchases that are paid for using Target Circle Cards™ (Target Circle Card Penetration) because our internal analysis has indicated that a meaningful portion of the incremental purchases on Target Circle Cards are also incremental sales for Target. Target Circle Cards were formerly branded as RedCards and their sales penetration was referred to as RedCard Penetration. Guests receive a 5 percent discount on virtually all purchases when they use a Target Circle Card at Target. For the three months ended May 4, 2024 and April 29, 2023, total Target Circle Card Penetration was 18.0 percent and 19.0 percent, respectively.


TARGET CORPORATION						Q1 2024 Form 10-Q			15


			MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents
			ANALYSIS OF RESULTS OF OPERATIONS			Index to Notes

Gross Margin Rate

Quarter-to-Date

For the three months ended May 4, 2024, our gross margin rate was 27.7 percent compared with 26.3 percent in the comparable prior-year period. The increase reflected the net impact of merchandising activities, including cost improvements which more than offset higher promotional markdown rates. Our gross margin rate also benefited from favorable category mix and lower book to physical inventory adjustments compared to the prior-year period.

Selling, General, and Administrative Expense Rate

For the three months ended May 4, 2024, our SG&A expense rate was 21.1 percent compared with 19.8 percent for the comparable prior-year period. The increase reflected the combined impact of lower sales and the net impact of cost increases across our business, including investments in team member pay and benefits and increased marketing activities.

Store Data


Number of Stores and	Number of Stores			Retail Square Feet (a)
Retail Square Feet	May 4, 2024	February 3, 2024	April 29, 2023	May 4, 2024	February 3, 2024	April 29, 2023
170,000 or more sq. ft.	273	273	274	48,824	48,824	48,985
50,000 to 169,999 sq. ft.	1,547	1,542	1,530	193,529	192,908	191,543
49,999 or less sq. ft.	143	141	150	4,301	4,207	4,465
Total	1,963	1,956	1,954	246,654	245,939	244,993

(a)In thousands; reflects total square feet less office, supply chain facilities, and vacant space.


TARGET CORPORATION						Q1 2024 Form 10-Q			16


			MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents
			OTHER PERFORMANCE FACTORS			Index to Notes

Other Performance Factors

Net Interest Expense

For the three months ended May 4, 2024, net interest expense was $106 million compared with $147 million in the comparable prior-year period. The decrease in net interest expense was primarily due to an increase in interest income.

Provision for Income Taxes

Our effective tax rate for the three months ended May 4, 2024 was 22.7 percent, compared with 21.1 percent in the comparable prior-year period. The increase reflects higher discrete tax benefits in the prior-year period.


TARGET CORPORATION						Q1 2024 Form 10-Q			17


			MANAGEMENT'S DISCUSSION AND ANALYSIS			Table of Contents
			RECONCILIATION OF NON-GAAP FINANCIAL MEASURES			Index to Notes

Reconciliation of Non-GAAP Financial Measures to GAAP Measures

To provide additional transparency, we disclose non-GAAP adjusted diluted earnings per share (Adjusted EPS). When applicable, this metric excludes certain discretely managed items. 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 EPS	Three Months Ended
	May 4, 2024		April 29, 2023
GAAP and adjusted diluted earnings per share	$	2.03	$	2.05

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.


(dollars in millions)	May 4, 2024		April 29, 2023		Change
Net earnings	$	942	$	950	(0.8)	%
+ Provision for income taxes	277		254		9.0
+ Net interest expense	106		147		(27.8)
EBIT	$	1,325	$	1,351	(1.9)	%
+ Total depreciation and amortization (a)	718		667		7.7
EBITDA	$	2,043	$	2,018	1.3	%

/s/ Matthew A. LiegelMatthew A. LiegelSenior Vice President, Chief Accounting Officerand Controller


TARGET CORPORATION						Q1 2024 Form 10-Q			25

TARGET CORP - Quarter Report: 2024 May (Form 10-Q)

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