SEC Info - Target Corp. - ‘10-Q’ for 10/28/23

Operating activities

Net earnings

i 2,756

i 1,904

Adjustments to reconcile net earnings to cash provided by operating activities:

Depreciation and amortization

i 2,072

i 2,004

Share-based compensation expense

i 176

i 177

Deferred income taxes

i 252

i 548

Noncash losses / (gains) and other, net

i 101

i 141

Changes in operating accounts:

Inventory

( i 1,232)

( i 3,215)

Other assets

( i 208)

( i 205)

Accounts payable

i 887

( i 224)

Accrued and other liabilities

i 528

( i 578)

Cash provided by operating activities

i 5,332

i 552

Investing activities

Expenditures for property and equipment

( i 3,952)

( i 4,323)

Proceeds from disposal of property and equipment

i 24

i 4

Other investments

i 18

i 16

Cash required for investing activities

( i 3,910)

( i 4,303)

Financing activities

Change in commercial paper, net

i —

i 2,104

Additions to long-term debt

i —

i 991

Reductions of long-term debt

( i 114)

( i 139)

Dividends paid

( i 1,503)

( i 1,339)

Repurchase of stock

i —

( i 2,646)

Shares withheld for taxes on share-based compensation

( i 124)

( i 179)

Stock option exercises

i —

i 2

Cash required for financing activities

( i 1,741)

( i 1,206)

Net decrease in cash and cash equivalents

( i 319)

( i 4,957)

Cash and cash equivalents at beginning of period

i 2,229

i 5,911

Cash and cash equivalents at end of period

i 1,910

i 954

Supplemental information

Leased assets obtained in exchange for new finance lease liabilities

i 86

i 116

Leased assets obtained in exchange for new operating lease liabilities

i 679

i 203

See accompanying Notes to Consolidated Financial Statements.


TARGET CORPORATION						Q3 2023 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 29, 2022

i 471.3

i 39

i 6,421

i 6,920

( i 553)

i 12,827

Net earnings

—

i 1,009

—

i 1,009

Other comprehensive income

—

i 201

Dividends declared

—

( i 426)

—

( i 426)

Repurchase of stock

( i 0.1)

—

( i 10)

—

( i 10)

Accelerated share repurchase pending final settlement

( i 8.9)

( i 1)

( i 751)

( i 1,998)

—

( i 2,750)

Stock options and awards

i 1.4

i 1

( i 78)

—

( i 77)

April 30, 2022

i 463.7

i 39

i 5,592

i 5,495

( i 352)

i 10,774

Net earnings

—

i 183

—

i 183

Other comprehensive loss

—

( i 17)

Dividends declared

—

( i 502)

—

( i 502)

Repurchase of stock

( i 3.6)

( i 1)

i 870

( i 755)

—

i 114

Stock options and awards

i 0.1

—

i 40

—

i 40

July 30, 2022

i 460.2

i 38

i 6,502

i 4,421

( i 369)

i 10,592

Net earnings

—

i 712

—

i 712

Other comprehensive income

—

i 161

Dividends declared

—

( i 502)

—

( i 502)

Stock options and awards

i 0.1

—

i 56

—

i 56

i 460.3

i 38

i 6,558

i 4,631

( i 208)

i 11,019

Net earnings

—

i 876

—

i 876

Other comprehensive loss

—

( i 211)

Dividends declared

—

( i 502)

—

( i 502)

Stock options and awards

—

i 50

—

i 50

i 460.3

i 38

i 6,608

i 5,005

( i 419)

i 11,232


TARGET CORPORATION						Q3 2023 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

i 460.3

i 38

i 6,608

i 5,005

( i 419)

i 11,232

Net earnings

—

i 950

—

i 950

Other comprehensive loss

—

( i 3)

Dividends declared

—

( i 507)

—

( i 507)

Stock options and awards

i 1.3

—

( i 67)

—

( i 67)

April 29, 2023

i 461.6

i 38

i 6,541

i 5,448

( i 422)

i 11,605

Net earnings

—

i 835

—

i 835

Other comprehensive loss

—

( i 3)

Dividends declared

—

( i 516)

—

( i 516)

Stock options and awards

—

i 69

—

i 69

July 29, 2023

i 461.6

i 38

i 6,610

i 5,767

( i 425)

i 11,990

Net earnings

—

i 971

—

i 971

Other comprehensive loss

—

( i 5)

Dividends declared

—

( i 513)

—

( i 513)

Stock options and awards

i 0.1

—

i 71

—

i 71

i 461.7

i 38

i 6,681

i 6,225

( i 430)

i 12,514

We declared $ i 1.10 and $ i 1.08 dividends per share for the three months ended October 28, 2023 and October 29, 2022, respectively, and $ i 4.14 per share for the fiscal year ended January 28, 2023.

See accompanying Notes to Consolidated Financial Statements.


TARGET CORPORATION						Q3 2023 Form 10-Q			6


			FINANCIAL STATEMENTS			Table of Contents
			INDEX			Index to Notes


TARGET CORPORATION						Q3 2023 Form 10-Q			7


			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Notes

Notes to Consolidated Financial Statements (unaudited)

1. i 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 most recent 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.


TARGET CORPORATION						Q3 2023 Form 10-Q			8


			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Notes

2. i Revenue

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).

Revenue

Three Months Ended

Nine Months Ended

(millions)

Apparel & accessories (a)

i 4,007

i 4,367

i 12,075

i 13,223

Beauty & household essentials (b)

i 7,619

i 7,465

i 22,814

i 21,726

Food & beverage (c)

i 5,736

i 5,748

i 17,125

i 16,521

Hardlines (d)

i 3,192

i 3,665

i 9,966

i 11,244

Home furnishings & décor (e)

i 4,420

i 4,832

i 12,230

i 13,750

Other

i 30

i 45

i 126

i 141

Sales

i 25,004

i 26,122

i 74,336

i 76,605

Credit card profit sharing

i 165

i 184

i 508

i 550

Other

i 229

i 212

i 649

i 570

Other revenue

i 394

i 396

i 1,157

i 1,120

Total revenue

i 25,398

i 26,518

i 75,493

i 77,725

(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.

i 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 October 28, 2023, January 28, 2023, and October 29, 2022, the accrual for estimated returns was $ i 207 million, $ i 174 million, and $ i 209 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 Activity

January 28,
2023

Gift Cards Issued During Current Period But Not Redeemed (b)

Revenue Recognized From Beginning Liability

October 28,
2023

(millions)

Gift card liability (a)

i 1,240

i 466

( i 796)

i 910

(a)Included in Accrued and Other Current Liabilities.

(b)Net of estimated breakage.


TARGET CORPORATION						Q3 2023 Form 10-Q			9


			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Notes

Other Revenue

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.

Other — Includes advertising revenue, Shipt membership and service revenues, commissions earned on third-party sales through Target.com, rental income, and other miscellaneous revenues.

3. i 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 Basis

Fair Value

(millions)

Classification

Measurement Level

Assets

Short-term investments

Cash and Cash Equivalents

Level 1

i 1,004

i 1,343

i —

Prepaid forward contracts

Other Current Assets

Level 1

i 18

i 27

Interest rate swaps

Other Current Assets

Level 2

i —

i 53

Interest rate swaps

Other Noncurrent Assets

Level 2

i —

i 7

i 341

Liabilities

Interest rate swaps

Other Current Liabilities

Level 2

i 7

i —

Interest rate swaps

Other Noncurrent Liabilities

Level 2

i 190

i 81

i 147

Significant Financial Instruments Not Measured at Fair Value (a)

(millions)

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value

Long-term debt, including current portion (b)

i 14,149

i 12,485

i 14,141

i 13,688

i 12,505

i 11,291

(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.

4. i Supplier Finance Programs

We have arrangements with several financial institutions to act as our paying agents to certain vendors. The arrangements also permit the financial institutions to provide vendors with an option, at our vendors' sole discretion, to sell their receivables from Target to the financial institutions. A vendor’s election to receive early payment at a discounted amount from the financial institutions does not change the amount that we must remit to the financial institutions or our payment date, which is up to i 120 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 i 120 days.

Our outstanding vendor obligations eligible for early payment under these arrangements totaled $ i 4.5 billion, $ i 3.4 billion, and $ i 4.5 billion as of October 28, 2023, January 28, 2023, and October 29, 2022, 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 may be lower.


TARGET CORPORATION						Q3 2023 Form 10-Q			10


			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Notes

5. i 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 $ i 64 million and $ i 98 million for the three and nine months ended October 28, 2023, respectively. We recognized impairment charges of $ i 5 million and $ i 55 million for the three and nine months ended October 29, 2022, respectively. These impairment charges are included in Selling, General and Administrative Expenses (SG&A).

6. i Commercial Paper and Long-Term Debt

We obtain short-term financing from time to time under our commercial paper program. For the three months ended October 28, 2023, there were i no commercial paper amounts outstanding. For the three months ended October 29, 2022, the maximum amount outstanding was $ i 2.1 billion and the average daily amount outstanding was $ i 1.1 billion, at a weighted average annual interest rate of i 2.8 percent.

For the nine months ended October 28, 2023 and October 29, 2022, the maximum amounts outstanding were $ i 90 million and $ i 2.1 billion, respectively, and the average daily amounts outstanding were $ i 1 million and $ i 713 million, respectively, at a weighted average annual interest rate of i 4.8 percent and i 1.9 percent, respectively.

i No balances were outstanding as of October 28, 2023. As of October 29, 2022, $ i 2.1 billion was outstanding and is classified within Current Portion of Long-Term Debt and Other Borrowings on our Consolidated Statements of Financial Position.

In October 2023, we obtained a new committed $ i 1.0 billion i 364-day unsecured revolving credit facility that will expire in October 2024 and terminated our prior i 364-day credit facility. We also exercised our option to extend our existing i five-year unsecured revolving credit facility, which has a maximum committed capacity of $ i 3.0 billion and now expires in October 2028. i i No / balances were outstanding under either credit facility at any time during 2023 or 2022.

7. i 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 3 to the Consolidated Financial Statements provides the fair value and classification of these instruments.

We were party to interest rate swaps with notional amounts totaling $ i i i 2.45 / / billion as of October 28, 2023, January 28, 2023, and October 29, 2022. 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 nine months ended October 28, 2023 and October 29, 2022.

During 2023, we amended interest rate swaps with notional amounts totaling $ i 1.5 billion to replace the London Interbank Offered Rate (LIBOR) with the daily Secured Overnight Financing Rate (SOFR) as part of our planned reference rate reform activities. These amendments did not result in any change to our application of hedge accounting or any impact to our consolidated financial statements.

We were party to forward-starting interest rate swaps with notional amounts totaling $ i 1.45 billion as of October 29, 2022. During 2022, we terminated all remaining forward-starting interest rate swap agreements. The resulting gains upon termination were recorded in Accumulated Other Comprehensive Loss and will be recognized as a reduction to Net Interest Expense over the respective term of the debt.


TARGET CORPORATION						Q3 2023 Form 10-Q			11


			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Notes

Effect of Hedges on Debt

(millions)

Long-term debt and other borrowings

Carrying amount of hedged debt

i 2,245

i 2,366

i 2,294

Cumulative hedging adjustments, included in carrying amount

( i 197)

( i 74)

( i 146)

Effect of Hedges on Net Interest Expense

Three Months Ended

Nine Months Ended

(millions)

Gain (loss) on fair value hedges recognized in Net Interest Expense

Interest rate swaps designated as fair value hedges

( i 60)

( i 168)

( i 123)

( i 223)

Hedged debt

i 60

i 168

i 123

i 223

Gain on cash flow hedges recognized in Net Interest Expense

i 6

i —

i 18

i —

Total

i 6

i —

i 18

i —

8. i 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. We did i not repurchase any of our shares during the nine months ended October 28, 2023.

Share Repurchase Activity

Three Months Ended

Nine Months Ended

(millions, except per share data)

Number of shares purchased

i —

i 12.5

Average price paid per share

i —

i 211.57

Total investment

i —

i 2,646

9. i Pension Benefits

We provide pension plan benefits to eligible team members.

Net Pension Benefits Expense

Three Months Ended

Nine Months Ended

(millions)

Classification

Service cost benefits earned

SG&A

i 19

i 22

i 58

i 68

Interest cost on projected benefit obligation

Net Other Income

i 42

i 29

i 125

i 88

Expected return on assets

Net Other Income

( i 67)

( i 59)

( i 201)

( i 176)

Amortization of losses

Net Other Income

i —

i 16

i 1

i 46

Prior service cost

Net Other Income

i —

i 11

i 10

Total

( i 6)

i 8

( i 6)

i 36


TARGET CORPORATION						Q3 2023 Form 10-Q			12


			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Notes

10. i Accumulated Other Comprehensive Income (Loss)

Change in Accumulated Other Comprehensive Income (Loss)

Cash Flow Hedges

Currency Translation Adjustment

Pension

Total

(millions)

i 300

( i 23)

( i 696)

( i 419)

Other comprehensive income (loss) before reclassifications, net of tax

i —

( i 1)

i —

( i 1)

Amounts reclassified from AOCI, net of tax

( i 13)

i —

i 3

( i 10)

i 287

( i 24)

( i 693)

( i 430)


TARGET CORPORATION						Q3 2023 Form 10-Q			13


			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

Third quarter 2023 included the following notable items:

•GAAP and Adjusted diluted earnings per share were $2.10.

•Total revenue was $25.4 billion, a decrease of 4.2 percent, reflecting a total sales decrease of 4.3 percent and a 0.6 percent decrease in other revenue.

•Comparable sales decreased 4.9 percent, reflecting a 4.1 percent decrease in traffic and a 0.8 percent decrease in average transaction amount.

◦Comparable stores-originated sales declined 4.6 percent.

◦Comparable digitally-originated sales declined 6.0 percent.

•Operating income of $1.3 billion was 28.9 percent higher than the comparable prior-year period. See Business Environment below for additional information.

Cash flow provided by operating activities was $5.3 billion for the nine months ended October 28, 2023, compared with $552 million for the nine months ended October 29, 2022. The drivers of the operating cash flow increase are described on page 21.


Earnings Per Share	Three Months Ended						Nine Months Ended
	October 28, 2023		October 29, 2022		Change		October 28, 2023		October 29, 2022		Change
GAAP diluted earnings per share	$	2.10	$	1.54	36.3	%	$	5.96	$	4.09	45.6	%
Adjustments	—		—				—		0.03
Adjusted diluted earnings per share	$	2.10	$	1.54	36.3	%	$	5.96	$	4.12	44.4	%

Note: 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 19.

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 October 28, 2023, after-tax ROIC was 13.9 percent, compared with 14.6 percent for the trailing twelve months ended October 29, 2022. The calculation of ROIC is provided on page 20.

Business Environment

During the third quarter of 2023, we experienced sales declines across our business, primarily in each of our Discretionary categories (Apparel & Accessories, Hardlines, and Home Furnishings & Décor), partially offset by net growth in Frequency categories (Beauty & Household Essentials and Food & Beverage). The trend of decreased Discretionary category sales began in 2022. In response, during 2022, we took actions and employed strategies to align inventories with sales trends. These actions, as well as improvements in the supply chain, have resulted in decreased inventory as of October 28, 2023 compared with October 29, 2022. These actions and improvements have also resulted in a reduction in costs related to managing elevated inventory levels and reduced our working capital investment.

Along with supply chain improvements, we have experienced a significant decrease in freight costs due to a decline in freight rates compared to 2022. We have also experienced lower digital fulfillment costs due to a decrease in digital sales and an increased mix of digital sales fulfilled through lower-cost same-day services.

We continue to experience higher inventory shrink, as a percentage of sales, relative to historical levels — including significantly higher shrink rates at certain stores. We believe that this trend is pervasive across the retail industry. Increased shrink has had, and if current trends persist will continue to have, an adverse impact on our results of operations, including impairment of our long-lived assets. Note 5 to the Financial Statements provides more information on impairment charges, including those related to store closures.

The Gross Margin Rate analysis on page 17 and the Inventory section on page 21 provide additional information.


TARGET CORPORATION						Q3 2023 Form 10-Q			14


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

Analysis of Results of Operations


Summary of Operating Income	Three Months Ended						Nine Months Ended
(dollars in millions)	October 28, 2023		October 29, 2022		Change		October 28, 2023		October 29, 2022		Change
Sales	$	25,004	$	26,122	(4.3)	%	$	74,336	$	76,605	(3.0)	%
Other revenue	394		396		(0.6)		1,157		1,120		3.3
Total revenue	25,398		26,518		(4.2)		75,493		77,725		(2.9)
Cost of sales	18,149		19,680		(7.8)		54,333		58,283		(6.8)
Selling, general and administrative expenses	5,316		5,219		1.8		15,525		14,983		3.6
Depreciation and amortization (exclusive of depreciation included in cost of sales)	616		597		3.2		1,793		1,770		1.3
Operating income	$	1,317	$	1,022	28.9	%	$	3,842	$	2,689	42.9	%


Rate Analysis	Three Months Ended				Nine Months Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Gross margin rate	27.4	%	24.7	%	26.9	%	23.9	%
SG&A expense rate	20.9		19.7		20.6		19.3
Depreciation and amortization expense rate (exclusive of depreciation included in cost of sales)	2.4		2.3		2.4		2.3
Operating income margin rate	5.2		3.9		5.1		3.5

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).


TARGET CORPORATION						Q3 2023 Form 10-Q			15


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


Comparable Sales	Three Months Ended				Nine Months Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Comparable sales change	(4.9)	%	2.7	%	(3.5)	%	2.9	%
Drivers of change in comparable sales
Number of transactions (traffic)	(4.1)		1.4		(2.7)		2.6
Average transaction amount	(0.8)		1.3		(0.8)		0.2


Comparable Sales by Channel	Three Months Ended				Nine Months Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Stores originated comparable sales change	(4.6)	%	3.2	%	(2.8)	%	2.6	%
Digitally originated comparable sales change	(6.0)		0.3		(6.7)		4.1


Sales by Channel	Three Months Ended				Nine Months Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Stores originated	83.2	%	82.9	%	82.9	%	82.3	%
Digitally originated	16.8		17.1		17.1		17.7
Total	100	%	100	%	100	%	100	%


Sales by Fulfillment Channel	Three Months Ended				Nine Months Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Stores	97.7	%	96.8	%	97.5	%	96.7	%
Other	2.3		3.2		2.5		3.3
Total	100	%	100	%	100	%	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 Category	Three Months Ended				Nine Months Ended
	October 28, 2023		October 29, 2022		October 28, 2023		October 29, 2022
Apparel & accessories	16	%	17	%	16	%	17	%
Beauty & household essentials	30		29		31		28
Food & beverage	23		22		23		22
Hardlines	13		14		13		15
Home furnishings & décor	18		18		17		18
Total	100	%	100	%	100	%	100	%

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 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. For the three months ended October 28, 2023 and October 29, 2022, total RedCard Penetration was 18.3 percent and 19.6 percent, respectively. For the nine months ended October 28, 2023 and October 29, 2022, total RedCard Penetration was 18.6 percent and 20.0 percent, respectively.


TARGET CORPORATION						Q3 2023 Form 10-Q			16


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

Gross Margin Rate

Quarter-to-Date

For the three months ended October 28, 2023, our gross margin rate was 27.4 percent compared with 24.7 percent in the comparable prior-year period. The increase reflected the net impact of

•merchandising benefit, including

◦lower freight costs; and

◦lower clearance and promotional markdown rates and other costs compared with the prior-year, which included the impact of inventory impairments and other actions;

•lower digital fulfillment and supply chain costs due to

◦a decrease in digital volume;

◦an increased mix of digital sales fulfilled through lower-cost same-day services; and

◦lower inventory levels;

•favorable category mix; and

•higher inventory shrink.

Year-to-Date

For the nine months ended October 28, 2023, our gross margin rate was 26.9 percent compared with 23.9 percent in the comparable prior-year period. The increase reflected the net impact of

•merchandising benefit, including

◦lower freight costs;

◦lower clearance and promotional markdown rates and other costs compared with the prior-year, which included the impact of inventory impairments and other actions; and


TARGET CORPORATION						Q3 2023 Form 10-Q			17


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

◦retail price increases;

•lower digital fulfillment and supply chain costs due to

◦a decrease in digital volume;

◦an increased mix of digital sales fulfilled through lower-cost same-day services; and

◦lower inventory levels;

•favorable category mix; and

•higher inventory shrink.

Business Environment on page 14 provides additional information.

Selling, General, and Administrative Expense Rate

For the three months ended October 28, 2023, our SG&A expense rate was 20.9 percent compared with 19.7 percent for the comparable prior-year period. For the nine months ended October 28, 2023, our SG&A expense rate was 20.6 percent compared with 19.3 percent for the comparable prior-year period. The increase reflected the net impact of cost increases across our business, including investments in team member pay and benefits, and the deleveraging impact of lower sales.

Store Data


Change in Number of Stores	Three Months Ended		Nine Months Ended
	October 28, 2023	October 29, 2022	October 28, 2023	October 29, 2022
Beginning store count	1,955	1,937	1,948	1,926
Opened	10	4	21	16
Closed	(9)	—	(13)	(1)

Ending store count	1,956	1,941	1,956	1,941


Number of Stores and	Number of Stores			Retail Square Feet (a)
Retail Square Feet	October 28, 2023	January 28, 2023	October 29, 2022	October 28, 2023	January 28, 2023	October 29, 2022
170,000 or more sq. ft.	273	274	274	48,824	48,985	48,985
50,000 to 169,999 sq. ft.	1,542	1,527	1,522	192,877	191,241	190,739
49,999 or less sq. ft.	141	147	145	4,207	4,358	4,305
Total	1,956	1,948	1,941	245,908	244,584	244,029

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

Other Performance Factors

Net Interest Expense

For the three months ended October 28, 2023, net interest expense was $107 million compared with $125 million in the comparable prior-year period. The decrease in net interest expense was primarily due to an increase in interest income, partially offset by higher debt levels and the impact of higher floating interest rates on our interest rate swaps. For the nine months ended October 28, 2023, net interest expense was $395 million compared with $349 million in the respective comparable prior-year period. The increase in net interest expense was primarily due to higher average debt levels in addition to the net impact of higher floating interest rates.

Provision for Income Taxes

Our effective income tax rate for the three months ended October 28, 2023 was 21.3 percent, consistent with 21.6 percent for the comparable prior-year period. Our effective tax rate for the nine months ended October 28, 2023 was 21.5 percent, compared with 19.8 percent in the comparable prior-year period. For the nine month period, the increase reflects higher pretax earnings in the current year, resulting in a smaller tax rate benefit from ongoing and discrete tax items.


TARGET CORPORATION						Q3 2023 Form 10-Q			18


			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 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 EPS

Three Months Ended