Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 1.33M
2: EX-10.BB Material Contract HTML 67K
3: EX-10.EE Material Contract HTML 854K
4: EX-10.FF Material Contract HTML 561K
5: EX-10.JJ Material Contract HTML 31K
6: EX-31.A Certification -- §302 - SOA'02 HTML 21K
7: EX-31.B Certification -- §302 - SOA'02 HTML 21K
8: EX-32.A Certification -- §906 - SOA'02 HTML 18K
9: EX-32.B Certification -- §906 - SOA'02 HTML 18K
15: R1 Cover Page HTML 69K
16: R2 Consolidated Statements of Operations HTML 84K
17: R3 Consolidated Statements of Comprehensive Income HTML 43K
18: R4 Consolidated Statements of Financial Position HTML 121K
19: R5 Consolidated Statements of Financial Position HTML 35K
(Parenthetical)
20: R6 Consolidated Statements of Cash Flows HTML 98K
21: R7 Consolidated Statements of Shareholders' HTML 87K
Investment
22: R8 Consolidated Statements of Shareholders' HTML 19K
Investment (Parenthetical)
23: R9 Accounting Policies HTML 20K
24: R10 Dermstore Sale HTML 19K
25: R11 Revenues HTML 60K
26: R12 Fair Value Measurements HTML 46K
27: R13 Property and Equipment HTML 20K
28: R14 Commercial Paper and Long-Term Debt HTML 24K
29: R15 Derivative Financial Instruments HTML 41K
30: R16 Share Repurchase HTML 29K
31: R17 Pension Benefits HTML 40K
32: R18 Accumulated Other Comprehensive Income (Loss) HTML 32K
33: R19 Accounting Policies (Policies) HTML 22K
34: R20 Revenues (Tables) HTML 57K
35: R21 Fair Value Measurements (Tables) HTML 47K
36: R22 Derivative Financial Instruments (Tables) HTML 38K
37: R23 Share Repurchase (Tables) HTML 29K
38: R24 Pension Benefits (Tables) HTML 36K
39: R25 Accumulated Other Comprehensive Income (Loss) HTML 31K
(Tables)
40: R26 Dermstore Sale (Details) HTML 26K
41: R27 Revenues - Disaggregation of Revenue (Details) HTML 45K
42: R28 Revenues - Narrative (Details) HTML 18K
43: R29 Revenues - Gift Card Liability (Details) HTML 23K
44: R30 Fair Value Measurements - Schedule of Fair Value HTML 37K
Measurements - Recurring Basis (Details)
45: R31 Fair Value Measurements - Schedule of Significant HTML 24K
Financial Instruments not Measured at Fair Value
(Details)
46: R32 Property and Equipment (Details) HTML 19K
47: R33 Commercial Paper and Long-Term Debt (Details) HTML 51K
48: R34 Derivative Financial Instruments - Narrative HTML 40K
(Details)
49: R35 Derivative Financial Instruments - Effect of HTML 22K
Hedges on Debt (Details)
50: R36 Derivative Financial Instruments - Effect of HTML 23K
Hedges on Net Interest Expense (Details)
51: R37 Share Repurchase - Schedule of Activity (Details) HTML 24K
52: R38 Share Repurchase - Narrative (Details) HTML 24K
53: R39 Pension Benefits (Details) HTML 37K
54: R40 Accumulated Other Comprehensive Income (Loss) HTML 40K
(Details)
57: XML IDEA XML File -- Filing Summary XML 95K
55: XML XBRL Instance -- tgt-20221029_htm XML 1.05M
56: EXCEL IDEA Workbook of Financial Reports XLSX 71K
11: EX-101.CAL XBRL Calculations -- tgt-20221029_cal XML 115K
12: EX-101.DEF XBRL Definitions -- tgt-20221029_def XML 257K
13: EX-101.LAB XBRL Labels -- tgt-20221029_lab XML 867K
14: EX-101.PRE XBRL Presentations -- tgt-20221029_pre XML 483K
10: EX-101.SCH XBRL Schema -- tgt-20221029 XSD 79K
58: JSON XBRL Instance as JSON Data -- MetaLinks 259± 374K
59: ZIP XBRL Zipped Folder -- 0000027419-22-000037-xbrl Zip 548K
(Exact name of registrant as specified in its charter)
iMinnesota
(State or other jurisdiction of incorporation or organization)
i1000
Nicollet Mall, iMinneapolis, iMinnesota
(Address of principal executive offices)
i41-0215170
(I.R.S.
Employer Identification No.)
i55403
(Zip Code)
i612-i304-6073
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon
stock, par value $0.0833 per share
iTGT
iNew 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. iYes ☒ 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). iYes ☒ 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.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
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 i☐ No ☒
Total shares of common stock, par value $0.0833, outstanding at November 18, 2022, were i460,310,088.
Current
portion of long-term debt and other borrowings
i2,207
i171
i1,176
Total
current liabilities
i23,783
i21,747
i23,351
Long-term
debt and other borrowings
i14,237
i13,549
i11,586
Noncurrent
operating lease liabilities
i2,590
i2,493
i2,494
Deferred
income taxes
i2,240
i1,566
i1,246
Other
noncurrent liabilities
i1,746
i1,629
i1,931
Total
noncurrent liabilities
i20,813
i19,237
i17,257
Shareholders’
investment
Common stock
i38
i39
i40
Additional
paid-in capital
i6,558
i6,421
i6,381
Retained
earnings
i4,631
i6,920
i8,069
Accumulated
other comprehensive loss
(i208)
(i553)
(i687)
Total
shareholders’ investment
i11,019
i12,827
i13,803
Total
liabilities and shareholders’ investment
$
i55,615
$
i53,811
$
i54,411
Common
Stock Authorized iii6,000,000,000//
shares, $iii0.0833//
par value; ii460,297,654/, ii471,274,073/
and ii480,905,493/ shares issued and outstanding as of
October 29, 2022, January 29, 2022, and October 30, 2021, respectively.
Preferred Stock Authorized iii5,000,000//
shares, $iii0.01//
par value; iiiiiino/////
shares were issued or outstanding during any period presented.
Notes to Consolidated Financial Statements (unaudited)
1. iAccounting
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. iDermstore
Sale
In February 2021, we sold our wholly owned subsidiary Dermstore LLC (Dermstore) for $i356 million in cash and recognized a $i335 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.
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).
(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.
/
iMerchandise
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 29, 2022, January 29, 2022, and October 30, 2021, the accrual for estimated returns was $i209
million, $i165 million, and $i210 million, respectively.
Revenue
from Target gift card sales is recognized upon gift card redemption, which is typically within one year of issuance.
(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.
Other — Includes advertising, Shipt membership and service revenues, commissions earned on third-party sales through Target.com, rental income, and other miscellaneous revenues.
4. iFair Value Measurements
i
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
(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. iProperty
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 $i5 million and $i55
million for the three and nine months ended October 29, 2022, respectively. We recognized impairment charges of $i3 million and $i84
million for the three and nine months ended October 30, 2021, respectively. These impairment charges are included in Selling, General and Administrative Expenses (SG&A).
6. iCommercial Paper and Long-Term Debt
In September 2022, we issued unsecured fixed rate debt of $i1.0 billion
at i4.5 percent that matures in September 2032. In connection with this issuance, we terminated certain of our forward-starting interest rate swaps. Note 7 provides additional information.
We obtain short-term financing from time to time under our commercial paper program. For the nine months
ended October 29, 2022, the maximum amount outstanding was $i2.1 billion, and the average daily amount outstanding was $i713 million,
at a weighted average annual interest rate of i1.91 percent. As of October 29, 2022, $i2.1 billion
was outstanding and is classified within Current Portion of Long-Term Debt and Other Borrowings on our Consolidated Statement of Financial Position. iNo balances were outstanding at any time during 2021.
In October 2022, we obtained a new committed $i1.0 billion i364-day unsecured revolving credit
facility that will expire in October 2023. We also extended our existing committed $i3.0 billion unsecured revolving credit facility, which now expires in October 2027. iiNo/
balances were outstanding under either credit facility at any time during 2021 or 2022.
7. iDerivative 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.
We were party to interest rate swaps with notional amounts totaling $i2.45 billion as of October 29, 2022,
and $ii1.50/ billion as of January 29,
2022, and October 30, 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 nine months ended October 29, 2022, and October 30, 2021.
We were party to forward-starting interest rate swaps with notional amounts totaling $i1.45 billion
as of October 29, 2022, $i2.15 billion as of January 29, 2022, and $i1.25 billion as of October 30,
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 itwo years. In September 2022, we terminated forward-starting interest rate swap agreements that hedged $i700 million
of the $i1.0 billion debt issuance described in Note 6. The resulting gain of $i109 million
was recorded in Accumulated Other Comprehensive Loss (AOCI) and will be recognized as a reduction to Net Interest Expense over the term of the debt. Based on the fair value of our remaining forward-starting interest rate swaps as of October 29, 2022, AOCI included an unrealized gain of $i394 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.
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 not repurchase any of our shares during the three months ended October 29, 2022.
During
the first quarter of 2022, we entered into an ASR arrangement to repurchase up to $i2.75 billion of our common stock. Under the ASR arrangement, we repurchased i12.5 million
shares for a total cash investment of $i2.6 billion. We did not enter into any other ASR arrangements during the periods presented.
9. iPension
Benefits
We provide pension plan benefits to eligible team members.
•Operating income of $1.0 billion was 49.2 percent lower than the comparable prior-year period, driven primarily by a decrease in gross margin, reflecting higher clearance and promotional markdown rates,
inventory shrink, and higher freight and merchandise costs, partially offset by the benefit of retail price increases. See Business Environment and Gross Margin Rate sections below for additional information.
Sales were $26.1 billion for the three months ended October 29, 2022, an increase of $832 million, or 3.3 percent, from the comparable prior-year period. Cash flow provided by operating activities was $552 million for the nine months ended October 29, 2022, compared with $5.6 billion for the nine months ended October 30, 2021. The drivers of the operating cash flow decrease are described on page
21.
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 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 29, 2022, after-tax ROIC was 14.6 percent, compared with 31.3 percent for
the trailing twelve months ended October 30, 2021. The calculation of ROIC is provided onpage 20.
Business Environment
During the third quarter of 2022, we have continued to see soft trends in Discretionary categories (Apparel and Accessories, Hardlines, and Home Furnishings and Décor), which accelerated in October. We believe this is consistent with the broader industry trends. Our overall comparable sales increase reflects growth in our Frequency categories (Beauty and Household Essentials and Food and Beverage), partially offset by sales decreases in our Discretionary
categories. Our comparable sales performance also reflects the impact of retail price increases. Within the quarter, comparable sales grew 2.8 percent in August, 4.0 percent in September, and 0.9 percent in October. Notably, within October, we saw a significant change in the pace of sales, with an increase in comparable sales during the first week, followed by a decrease over the last three weeks of the month, driven by steeper declines in our Discretionary categories.
Throughout
the COVID-19 pandemic, the retail industry has experienced continued disruption and volatility in the global supply chain. In response, we have ordered import merchandise (which typically has longer lead times) 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. During the third quarter of 2022, port congestion, shipping container availability, and other supply chain pressures have improved. This has resulted in inventory arriving earlier than anticipated, which has resulted in increased costs of managing elevated inventory levels. These factors, net of pricing actions we have taken to address the impact of higher merchandise and freight costs, have resulted in decreased profitability in the three and nine months ended October 29, 2022, compared to the prior-year periods. We believe that the actions we have taken reduce
our risks and provide additional flexibility to focus on serving guests in a rapidly changing environment. The Gross Margin Rate analysis on page 17 and the Inventory section on page 21 provide additional information.
Depreciation and amortization expense rate (exclusive of depreciation included in cost of sales)
2.3
2.2
2.3
2.3
Operating
income margin rate
3.9
7.8
3.5
9.1
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).
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
3 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 29, 2022, our gross margin rate was 24.7 percent compared with 28.0 percent in the comparable prior-year period. The decrease reflected the net impact of
•merchandising
pressure, including
◦higher clearance and promotional markdown rates, which were primarily in our Discretionary categories;
◦higher merchandise and freight costs, partially offset by the benefit of retail price increases;
◦higher inventory shrink;
•supply chain pressure related to increased compensation and headcount in our distribution centers and costs of managing elevated inventory levels, including the impact of early receipts; and
•favorable mix in the relative growth rates of higher and lower margin categories.
For
the nine months ended October 29, 2022, our gross margin rate was 23.9 percent compared with 29.5 percent in the comparable prior-year period. The decrease reflected the net impact of
•merchandising pressure, including
◦higher clearance and promotional markdown rates, which were primarily the result of inventory impairments and other actions taken in our Discretionary categories;
◦higher merchandise and freight costs, partially offset by the benefit of retail price increases;
◦higher inventory shrink; and
•supply chain pressure
related to increased compensation and headcount in our distribution centers and costs of managing elevated inventory levels, including the impact of early receipts.
For the three months ended October 29, 2022, our SG&A expense rate was 19.7 percent compared with 18.9 percent for the comparable prior-year period. For the nine months ended October 29, 2022, our SG&A expense rate was 19.3 percent compared with 19.0 percent for the comparable prior-year period. For both the three and nine months ended October 29, 2022, the rates reflected the net impact of cost increases across our business, including investments in hourly team member wages, partially offset by lower incentive compensation expense, compared to the comparable prior-year periods.
(a)In
thousands; reflects total square feet less office, distribution center, and vacant space.
Other Performance Factors
Net Interest Expense
Net interest expense was $125 million and $349 million for the three and nine months ended October 29, 2022, respectively, compared with $105 million and $317 million in the comparable prior-year periods. The increase in net interest expense was primarily due to higher average debt and commercial paper levels for the three and nine months ended October 29,
2022, compared with the prior-year periods.
Net Other (Income) / Expense
Net Other (Income) / Expense was $(12) million and $(35) million for the three and nine months ended October 29, 2022, respectively, compared with $(6) million and $(356) million in the comparable prior-year periods. The nine months ended October 30, 2021, included the $335 million pretax gain on the February 2021 sale of Dermstore. Note 2 to the Financial Statements provides additional information.
Provision for
Income Taxes
Our effective income tax rate for the three and nine months ended October 29, 2022, was 21.6 percent and 19.8 percent, respectively, compared with 22.1 percent and 21.6 percent in the respective comparable prior-year periods. For the three and nine month periods, the decrease reflects lower pretax earnings resulting in a larger tax rate benefit from ongoing and discrete tax items in the current year, partially offset by the impacts of discrete tax benefits in the prior-year. Our effective tax rate is generally more volatile at lower amounts of pretax income because the impact of discrete, deductible, and nondeductible tax items and credits is greater.
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.
(a)Other items unrelated to current period operations, none of which were individually significant.
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.
We have also disclosed after-tax ROIC, which is a ratio based on GAAP information, with the exception of the add-back of operating lease interest to operating income. We believe this metric is useful in assessing the effectiveness of our capital allocation over time. Other companies may calculate ROIC differently, limiting the usefulness of the measure for comparisons with other
companies.
Current portion of long-term debt and other borrowings
$
2,207
$
1,176
$
131
+ Noncurrent portion of long-term debt
14,237
11,586
12,490
+
Shareholders' investment
11,019
13,803
13,319
+ Operating lease liabilities (c)
2,879
2,737
2,400
- Cash and cash equivalents
954
5,753
5,996
Invested
capital
$
29,388
$
23,549
$
22,344
Average invested capital (d)
$
26,469
$
22,947
After-tax
return on invested capital
14.6
%
31.3
%
(a)Represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases. Calculated using the discount rate for each lease and recorded as a component of rent expense within SG&A. Operating lease interest is added back to operating income in the ROIC calculation to control for differences in capital structure between us and our competitors.
(b)Calculated
using the effective tax rates, which were 21.5 percent and 21.3 percent for the trailing twelve months ended October 29, 2022, and October 30, 2021, respectively. For the trailing twelve months ended October 29, 2022, and October 30, 2021, includes tax effect of $1.0 billion and $1.9 billion related to EBIT, and $19 million and $18 million, respectively, related to operating lease interest.
(c)Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities, respectively.
(d)Average based on the invested
capital at the end of the current period and the invested capital at the end of the comparable prior period.
We follow a disciplined and balanced approach to capital allocation
based on the following priorities, ranked in order of importance: first, we fully invest in opportunities to profitably grow our business, create sustainable long-term value, and maintain our current operations and assets; second, we maintain a competitive quarterly dividend and seek to grow it annually; and finally, we return any excess cash to shareholders by repurchasing shares within the limits of our credit rating goals.
Our cash and cash equivalents balance was $954 million, $5.9 billion, and $5.8 billion as of October 29, 2022, January 29, 2022, and October 30, 2021, respectively. Our cash and cash equivalents balance includes short-term investments of $5.0 billion and $4.8 billion as of January 29,
2022 and October 30, 2021, respectively. We had no short-term investments as of October 29, 2022. Our investment policy is designed to preserve principal and liquidity of our short-term investments. This policy allows investments in large money market funds or in highly rated direct short-term instruments that mature in 60 days or less. We also place dollar limits on our investments in individual funds or instruments.
Operating Cash Flows
Cash flows provided by operating activities were $552 million for the nine months ended October 29, 2022, compared with $5.6 billion of cash flows provided by operating activities for the nine months ended October 30,
2021. For the nine months ended October 29, 2022, operating cash flows decreased as a result of lower earnings, increased inventory levels, and lower accounts payable leverage, compared with the nine months ended October 30, 2021.
•our
decision to move import merchandise receipt timing earlier due to expected supply chain volatility, coupled with recent decreases in shipping times, resulting in earlier-than-expected inventory receipts,
•investments in our inventory position in our frequency categories (Food and Beverage and Beauty and Household Essentials),
•lower-than-expected sales in our discretionary categories, partially offset by actions taken during the current year to reduce excess inventory in these categories, and
•increases in unit costs across all of our categories.
The increase was amplified by unintentionally low inventory levels last year resulting from supply chain disruptions and high sell-through rates.
The Business Environment section on page 13 provides additional information.
Investing Cash Flows
Investing cash flows included capital investments of $4.3 billion and $2.5 billion for the nine months ended October 29, 2022, and October 30, 2021, respectively. The increase primarily reflects an increase in store remodel activity, investment in supply chain, and the impact of inflation on these projects. For the nine months ended October 30,
2021, investing cash flows included $356 million of proceeds from the sale of Dermstore.
We paid dividends totaling $497 million ($1.08 per share) and $1.3 billion ($2.88 per share) for the three and nine months ended October 29, 2022, respectively, and $440 million ($0.90 per share) and $1.1 billion
($2.26 per share) for the three and nine months ended October 30, 2021, respectively, a per share increase of 20.0 percent for the three month period and 27.4 percent for the nine month period. We declared dividends totaling $502 million ($1.08 per share) during the third quarter of 2022 and $439 million ($0.90 per share) during the third quarter of 2021, a per share increase of 20.0 percent. We have paid dividends every quarter since our 1967 initial public offering, and it is our intent to continue to do so in the future.
Our financing strategy is to ensure liquidity and access to capital markets, to maintain a balanced spectrum of debt maturities, and to manage our net exposure to floating interest rate volatility. Within these parameters, we seek to minimize our borrowing costs. Our ability to access the long-term debt and commercial paper markets has provided us with ample sources of liquidity. Our continued access to these markets depends on multiple factors, including the condition
of debt capital markets, our operating performance, and maintaining strong credit ratings. As of October 29, 2022, our credit ratings were as follows:
Credit Ratings
Moody’s
Standard and Poor’s
Fitch
Long-term debt
A2
A
A
Commercial
paper
P-1
A-1
F1
If our credit ratings were lowered, our ability to access the debt markets, our cost of funds, and other terms for new debt issuances could be adversely impacted. Each of the credit rating agencies reviews its rating periodically, and there is no guarantee our current credit ratings will remain the same as described above.
We have the ability to obtain short-term financing from time to time under our commercial paper program and credit facility. In October 2022, we obtained a new committed $1.0 billion 364-day unsecured revolving credit facility that will expire in October 2023. We also extended our existing committed
$3.0 billion unsecured revolving credit facility, which now expires in October 2027. Both credit facilities backstop our commercial paper program. No balances were outstanding under either credit facility at any time during 2021 or 2022. As of October 29, 2022, we had $2.1 billion outstanding under our commercial paper program. We did not have any balances outstanding under our commercial paper program as of October 30, 2021. Note 6 to the Financial Statements provides additional information.
Most of our long-term debt obligations contain covenants related to secured debt levels. In addition to a secured debt level covenant, our credit facilities also
contain a debt leverage covenant. We are, and expect to remain, in compliance with these covenants. Additionally, as of October 29, 2022, no notes or debentures contained provisions requiring acceleration of payment upon a credit rating downgrade, except that certain outstanding notes allow the note holders to put the notes to us if within a matter of months of each other we experience both (i) a change in control and (ii) our long-term credit ratings are either reduced and the resulting rating is non-investment grade, or our long-term credit ratings are placed on watch for possible reduction and those ratings are subsequently reduced and the resulting rating is non-investment grade.
We believe our sources of liquidity, namely operating cash flows, credit facility capacity, and access to capital markets, will continue to be adequate to meet
our contractual obligations, working capital and planned capital expenditures, finance anticipated expansion and strategic initiatives, fund debt maturities, pay dividends, and execute purchases under our share repurchase program for the foreseeable future.
We do not expect any recently issued accounting pronouncements to have a material effect on our financial statements.
Forward-Looking
Statements
This report contains forward-looking statements, which are based on our current assumptions and expectations. These statements are typically accompanied by the words “expect,”“may,”“could,”“believe,”“would,”“might,”“anticipates,” or similar words. The principal forward-looking statements in this report include: our financial performance, statements regarding the adequacy of and costs associated with our sources of liquidity, the funding of debt maturities, the continued execution of our share repurchase program, our expected capital expenditures and new lease commitments, the expected compliance with debt covenants, the expected impact of new accounting pronouncements, our intentions regarding future dividends, the expected return on plan assets, the expected outcome of, and adequacy of our reserves for, claims, litigation
and the resolution of tax matters, and changes in our assumptions and expectations.
All such forward-looking statements are intended to enjoy the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, as amended. Although we believe there is a reasonable basis for the forward-looking statements, our actual results could be materially different. The most important factors which could cause our actual results to differ from our forward-looking statements are set forth in our description of risk factors included in Part I, Item 1A, Risk Factors of our Form 10-K
for the fiscal year ended January 29, 2022, which should be read in conjunction with the forward-looking statements in this report. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal quarter, there were no changes which materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report, we conducted an evaluation, under supervision and with the participation of management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (Exchange Act). Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at a reasonable assurance level. Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-15(e) of the
Exchange Act as controls and other procedures that are designed to ensure that information required to be disclosed by us in reports filed with the SEC under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On
August 11, 2021, our Board of Directors authorized a $15 billion share repurchase program with no stated expiration. Under the program, we have repurchased 23.8 million shares of common stock at an average price of $223.52, for a total investment of $5.3 billion. As of October 29, 2022, the dollar value of shares that may yet be purchased under the program is $9.7 billion. There were no Target common stock purchases made during the three months ended October 29, 2022 by Target or any "affiliated purchaser" of Target, as defined in Rule 10b-18(a)(3) under the Exchange Act.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.