Target - 10-Q quarterly report FY2020 Q3

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2020

☐ 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

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 class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.0833 per share

TGT

New 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 company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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 November 20, 2020 were 500,773,141.


						Table of Contents
						Index to Notes

TARGET CORPORATION

TABLE OF CONTENTS


			FINANCIAL STATEMENTS			Table of Contents
						Index to Notes

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


Consolidated Statements of Operations
	Three Months Ended				Nine Months Ended
(millions, except per share data) (unaudited)	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Sales	$	22,336	$	18,414	$	64,403	$	53,997
Other revenue	296		251		819		716
Total revenue	22,632		18,665		65,222		54,713
Cost of sales	15,509		12,935		45,692		37,808
Selling, general and administrative expenses	4,647		4,153		13,167		11,728
Depreciation and amortization (exclusive of depreciation included in cost of sales)	541		575		1,660		1,717
Operating income	1,935		1,002		4,703		3,460
Net interest expense	632		113		871		359
Net other (income) / expense	5		(12)		16		(38)
Earnings from continuing operations before income taxes	1,298		901		3,816		3,139
Provision for income taxes	284		195		828		703
Net earnings from continuing operations	1,014		706		2,988		2,436
Discontinued operations, net of tax	—		8		—		11
Net earnings	$	1,014	$	714	$	2,988	$	2,447
Basic earnings per share
Continuing operations	$	2.02	$	1.38	$	5.97	$	4.75
Discontinued operations	—		0.02		—		0.02
Net earnings per share	$	2.02	$	1.40	$	5.97	$	4.77
Diluted earnings per share
Continuing operations	$	2.01	$	1.37	$	5.91	$	4.71
Discontinued operations	—		0.02		—		0.02
Net earnings per share	$	2.01	$	1.39	$	5.91	$	4.74
Weighted average common shares outstanding
Basic	500.6		509.7		500.6		512.5
Diluted	505.4		514.8		505.2		516.8
Antidilutive shares	—		—		—		—

Note: Per share amounts may not foot due to rounding.

See accompanying Notes to Consolidated Financial Statements.


TARGET CORPORATION						Q3 2020 Form 10-Q			1


			FINANCIAL STATEMENTS			Table of Contents
						Index to Notes


Consolidated Statements of Comprehensive Income
	Three Months Ended				Nine Months Ended
(millions) (unaudited)	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Net earnings	$	1,014	$	714	$	2,988	$	2,447
Other comprehensive income
Pension, net of tax	22		10		66		30
Currency translation adjustment and cash flow hedges, net of tax	14		(1)		5		2
Other comprehensive income	36		9		71		32
Comprehensive income	$	1,050	$	723	$	3,059	$	2,479

See accompanying Notes to Consolidated Financial Statements.


TARGET CORPORATION						Q3 2020 Form 10-Q			2


			FINANCIAL STATEMENTS			Table of Contents
						Index to Notes


Consolidated Statements of Financial Position
(millions, except footnotes) (unaudited)	October 31, 2020		February 1, 2020		November 2, 2019
Assets
Cash and cash equivalents	$	5,996	$	2,577	$	969
Inventory	12,712		8,992		11,396
Other current assets	1,601		1,333		1,440
Total current assets	20,309		12,902		13,805
Property and equipment
Land	6,063		6,036		6,040
Buildings and improvements	31,398		30,603		30,467
Fixtures and equipment	5,843		6,083		6,032
Computer hardware and software	2,706		2,692		2,636
Construction-in-progress	518		533		298
Accumulated depreciation	(19,755)		(19,664)		(19,089)
Property and equipment, net	26,773		26,283		26,384
Operating lease assets	2,208		2,236		2,151
Other noncurrent assets	1,371		1,358		1,401
Total assets	$	50,661	$	42,779	$	43,741
Liabilities and shareholders’ investment
Accounts payable	$	14,203	$	9,920	$	11,258
Accrued and other current liabilities	5,023		4,406		4,191
Current portion of long-term debt and other borrowings	131		161		1,159
Total current liabilities	19,357		14,487		16,608
Long-term debt and other borrowings	12,490		11,338		10,513
Noncurrent operating lease liabilities	2,196		2,275		2,208
Deferred income taxes	1,171		1,122		1,215
Other noncurrent liabilities	2,128		1,724		1,652
Total noncurrent liabilities	17,985		16,459		15,588
Shareholders’ investment
Common stock	42		42		42
Additional paid-in capital	6,285		6,226		6,006
Retained earnings	7,789		6,433		6,270
Accumulated other comprehensive loss	(797)		(868)		(773)
Total shareholders’ investment	13,319		11,833		11,545
Total liabilities and shareholders’ investment	$	50,661	$	42,779	$	43,741

Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 500,754,729, 504,198,962 and 506,677,740 shares issued and outstanding as of October 31, 2020, February 1, 2020, and November 2, 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						Q3 2020 Form 10-Q			3


			FINANCIAL STATEMENTS			Table of Contents
						Index to Notes


Consolidated Statements of Cash Flows
	Nine Months Ended
(millions) (unaudited)	October 31, 2020		November 2, 2019
Operating activities
Net earnings	$	2,988	$	2,447
Earnings from discontinued operations, net of tax	—		11
Net earnings from continuing operations	2,988		2,436
Adjustments to reconcile net earnings to cash provided by operations
Depreciation and amortization	1,848		1,905
Share-based compensation expense	161		116
Deferred income taxes	26		235
Loss on debt extinguishment	512		—
Noncash losses / (gains) and other, net	124		6
Changes in operating accounts
Inventory	(3,720)		(1,899)
Other assets	(174)		(10)
Accounts payable	4,287		1,473
Accrued and other liabilities	992		(121)
Cash provided by operating activities—continuing operations	7,044		4,141
Cash provided by operating activities—discontinued operations	—		18
Cash provided by operations	7,044		4,159
Investing activities
Expenditures for property and equipment	(2,009)		(2,403)
Proceeds from disposal of property and equipment	27		29
Other investments	(3)		14
Cash required for investing activities	(1,985)		(2,360)
Financing activities
Additions to long-term debt	2,480		994
Reductions of long-term debt	(2,395)		(1,041)
Dividends paid	(1,002)		(995)
Repurchase of stock	(741)		(959)
Accelerated share repurchase pending final settlement	—		(450)
Stock option exercises	18		65
Cash required for financing activities	(1,640)		(2,386)
Net increase in cash and cash equivalents	3,419		(587)
Cash and cash equivalents at beginning of period	2,577		1,556
Cash and cash equivalents at end of period	$	5,996	$	969
Supplemental information
Leased assets obtained in exchange for new finance lease liabilities	$	344	$	301
Leased assets obtained in exchange for new operating lease liabilities	186		334

See accompanying Notes to Consolidated Financial Statements.


TARGET CORPORATION						Q3 2020 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)	Shares	Value		Capital		Earnings		(Loss) / Income		Total
February 2, 2019	517.8	$	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 awards	1.1	—		19		—		—		19
May 4, 2019	512.3	$	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 awards	0.3	—		53		—		—		53
August 3, 2019	511.3	$	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 awards	0.9	—		70		—		—		70
November 2, 2019	506.7	$	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 awards	0.1	—		42		—		—		42
February 1, 2020	504.2	$	42	$	6,226	$	6,433	$	(868)	$	11,833


TARGET CORPORATION						Q3 2020 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)	Shares	Value		Capital		Earnings		(Loss) / Income		Total
February 1, 2020	504.2	$	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 awards	1.4	—		(20)		—		—		(20)
May 2, 2020	499.9	$	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 awards	0.4	—		42		—		—		42
August 1, 2020	500.3	$	42	$	6,248	$	7,121	$	(833)	$	12,578
Net earnings	—	—		—		1,014		—		1,014
Other comprehensive income	—	—		—		—		36		36
Dividends declared	—	—		—		(346)		—		(346)
Stock options and awards	0.5	—		37		—		—		37
October 31, 2020	500.8	$	42	$	6,285	$	7,789	$	(797)	$	13,319

We declared $0.68 and $0.66 dividends per share for the three months ended October 31, 2020, and November 2, 2019, respectively, and $2.62 per share for the fiscal year ended February 1, 2020.

See accompanying Notes to Consolidated Financial Statements.


TARGET CORPORATION						Q3 2020 Form 10-Q			6


			FINANCIAL STATEMENTS			Table of Contents
			INDEX			Index to Notes


TARGET CORPORATION						Q3 2020 Form 10-Q			7


			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to 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. 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, virtually all of our stores, digital channels, and distribution centers have remained open.

Throughout the nine months ended October 31, 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 throughout the year; however, sales of Apparel and Accessories declined significantly in the first quarter before rebounding in the second and third quarters. 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						Q3 2020 Form 10-Q			8


			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to 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).


Revenues	Three Months Ended				Nine Months Ended
(millions)	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Apparel and accessories (a)	$	3,927	$	3,564	$	10,630	$	10,510
Beauty and household essentials (b)	6,103		5,125		18,172		15,172
Food and beverage (c)	4,397		3,717		13,158		10,899
Hardlines (d)	3,377		2,460		9,959		7,348
Home furnishings and décor (e)	4,506		3,527		12,395		9,985
Other	26		21		89		83
Sales	22,336		18,414		64,403		53,997
Credit card profit sharing	164		177		488		505
Other	132		74		331		211
Other revenue	296		251		819		716
Total revenue	$	22,632	$	18,665	$	65,222	$	54,713

(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 October 31, 2020, February 1, 2020, and November 2, 2019, the accrual for estimated returns was $182 million, $117 million, and $137 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	February 1, 2020		Gift Cards Issued During Current Period But Not Redeemed (b)		Revenue Recognized From Beginning Liability		October 31, 2020
(millions)
Gift card liability (a)	$	935	$	372	$	(549)	$	758

(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						Q3 2020 Form 10-Q			9


			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Notes

4. Fair Value Measurements

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


Fair Value Measurements - Recurring Basis			Fair Value at
(millions)	Classification	Pricing Category	October 31, 2020		February 1, 2020		November 2, 2019
Assets
Short-term investments	Cash and Cash Equivalents	Level 1	$	5,089	$	1,810	$	163
Prepaid forward contracts	Other Current Assets	Level 1	32		23		24
Equity securities (a)	Other Current Assets	Level 1	19		39		80
Interest rate swaps	Other Noncurrent Assets	Level 2	205		137		122
Liabilities


Interest rate swaps	Other Noncurrent Liabilities	Level 2	3		—		—

(a)Represents our investment in Casper Sleep Inc. common stock.


Significant Financial Instruments Not Measured at Fair Value (a) (millions)	October 31, 2020				February 1, 2020				November 2, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current portion (b)	$	10,641	$	12,787	$	9,992	$	11,864	$	10,246	$	11,870

(a)The carrying amounts of certain other current assets, commercial paper, accounts payable, and certain accrued and other current liabilities approximate fair value due to their short-term nature.

(b)The fair value of debt is generally measured using a discounted cash flow analysis based on current market interest rates for the same or similar types of financial instruments and would be classified as Level 2. These amounts exclude commercial paper, unamortized swap valuation adjustments, and lease liabilities.

5. Property and Equipment

We review long-lived assets for impairment when store performance expectations, events, or changes in circumstances—such as a decision to relocate or close a store or distribution center, discontinue projects, or make significant software changes—indicate that the asset’s carrying value may not be recoverable. We recognized impairment charges of $2 million and $62 million during the three and nine months ended October 31, 2020, respectively. We recognized impairment charges of $7 million and $21 million during the three and nine months ended November 2, 2019, respectively. These impairment charges are included in Selling, General and Administrative Expenses (SG&A).

6. Commercial Paper and Long-Term Debt

In March 2020, we issued unsecured fixed rate debt of $1.5 billion at 2.250 percent that matures in April 2025 and $1.0 billion at 2.650 percent that matures in September 2030. In October 2020, we repurchased $1.77 billion of debt before its maturity at a market value of $2.25 billion. We recognized a loss on early retirement of $512 million, which was recorded in Net Interest Expense.

We obtain short-term financing from time to time under our commercial paper program. No balances were outstanding at any time during the nine months ended October 31, 2020. For the nine months ended November 2, 2019, the maximum amount outstanding was $744 million, and the average daily amount outstanding was $55 million at a weighted average annual interest rate of 2.4 percent, with no balance outstanding as of November 2, 2019.

In April 2020, we obtained a committed $900 million 364-day unsecured revolving credit facility. This new facility was in addition to our $2.5 billion unsecured revolving credit facility that expires in October 2023. We terminated the 364-day facility in November 2020. No balances were outstanding under either credit facility at any time during 2020 or 2019.


TARGET CORPORATION						Q3 2020 Form 10-Q			10


			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Notes

7. Derivative Financial Instruments

Our derivative instruments consist of interest rate swaps used to mitigate interest rate risk. As a result, we have counterparty credit exposure to large global financial institutions, which we monitor on an ongoing basis. Note 4 to the Consolidated Financial Statements provides the fair value and classification of these instruments.

As of October 31, 2020, and November 2, 2019, we were party to interest rate swaps with notional amounts totaling $1.5 billion. We pay a variable rate and receive a fixed rate under each of these agreements. All of the agreements are designated as fair value hedges, and all were perfectly effective during the three and nine months ended October 31, 2020, and November 2, 2019.

As of October 31, 2020, we were party to forward-starting interest rate swaps with notional amounts totaling $250 million to hedge the interest rate exposure of anticipated future debt issuances. We designated these derivative financial instruments as cash flow hedges. We assess, both at inception and on an ongoing basis, whether the derivative financial instrument is highly effective in offsetting changes in cash flows of the hedged item and whether it is probable that the hedged forecasted transaction will occur. As of October 31, 2020, a $1 million loss was recorded in Accumulated Other Comprehensive Loss and will be reclassified to Net Interest Expense when the forecasted transaction affects earnings.


Effect of Hedges on Debt (millions)	October 31, 2020		February 1, 2020		November 2, 2019



Long-term debt and other borrowings
Carrying amount of hedged debt	$	1,696	$	1,630	$	1,614
Cumulative hedging adjustments, included in carrying amount	203		137		122


Effect of Hedges on Net Interest Expense	Three Months Ended				Nine Months Ended
(millions)	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019


Gain (loss) on fair value hedges recognized in Net Interest Expense
Interest rate swap designated as fair value hedges	$	(36)	$	14	$	66	$	115
Hedged debt	36		(14)		(66)		(115)
Total	$	—	$	—	$	—	$	—

8. Share Repurchase

We periodically repurchase shares of our common stock under a board-authorized repurchase program through a combination of open market transactions, accelerated share repurchase (ASR) arrangements, and other privately negotiated transactions with financial institutions.


Share Repurchase Activity	Three Months Ended				Nine Months Ended
(millions, except per share data)	October 31, 2020		November 2, 2019 (a)		October 31, 2020		November 2, 2019 (a)
Number of shares purchased	—		3.0		5.7		10.8
Average price paid per share	$	—	$	99.25	$	107.58	$	84.28
Total investment	$	—	$	294	$	609	$	912

(a)This table excludes activity related to the ASR arrangement described below because final settlement had not occurred as of November 2, 2019.

During the third quarter of 2019, we entered into an ASR arrangement to repurchase $300 to $450 million of our common stock. Under the agreement, we paid $450 million and received an initial delivery of 2.5 million shares, which were retired, resulting in a $272 million reduction to Retained Earnings. As of November 2, 2019, $178 million was included as a reduction to Additional Paid-in Capital. Upon final settlement in the fourth quarter of 2019, we received an additional 0.2 million shares, which were retired, and $127 million for the remaining amount not settled in shares. In total, we repurchased 2.7 million shares under the ASR arrangement for a total cash investment of $323 million ($117.64 per share).


TARGET CORPORATION						Q3 2020 Form 10-Q			11


			FINANCIAL STATEMENTS			Table of Contents
			NOTES			Index to Notes

9. Pension Benefits

We provide pension plan benefits to eligible team members.


Net Pension Benefits Expense		Three Months Ended				Nine Months Ended
(millions)	Classification	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Service cost benefits earned	SG&A Expenses	$	25	$	23	$	76	$	69
Interest cost on projected benefit obligation	Net Other (Income) / Expense	30		37		89		111
Expected return on assets	Net Other (Income) / Expense	(61)		(62)		(182)		(186)
Amortization of losses	Net Other (Income) / Expense	32		16		96		47
Amortization of prior service cost	Net Other (Income) / Expense	(3)		(3)		(9)		(8)
Settlement charges	Net Other (Income) / Expense	1		—		1		—
Total		$	24	$	11	$	71	$	33

10. Accumulated Other Comprehensive Loss


Change in Accumulated Other Comprehensive Loss	Cash Flow Hedges		Currency Translation Adjustment		Pension		Total
(millions)
February 1, 2020	$	(12)	$	(19)	$	(837)	$	(868)
Other comprehensive loss before reclassifications, net of tax	(1)		—		—		(1)
Amounts reclassified from AOCI, net of tax	6		—		66		72
October 31, 2020	$	(7)	$	(19)	$	(771)	$	(797)


TARGET CORPORATION						Q3 2020 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

Third quarter 2020 includes the following notable items:

•GAAP diluted earnings per share were $2.01.

•Adjusted diluted earnings per share were $2.79.

•Total revenue increased 21.3 percent, driven by an increase in comparable sales.

•Comparable sales increased 20.7 percent, driven by a 15.6 percent increase in average transaction amount.

◦Comparable store sales grew 9.9 percent.

◦Digital channel sales increased 155 percent, contributing 10.9 percentage points to comparable sales growth.

•Operating income of $1.9 billion was 93.1 percent higher than the comparable prior-year period.

•We repurchased $1.77 billion of debt before its maturity at a market value of $2.25 billion, resulting in a loss of $512 million.

Sales were $22.3 billion for the three months ended October 31, 2020, an increase of $3.9 billion, or 21.3 percent, from the same period in the prior year. Operating cash flow provided by continuing operations was $7.0 billion for the nine months ended October 31, 2020, an increase of $2.9 billion, or 70.1 percent, from $4.1 billion for the nine months ended November 2, 2019.


Earnings Per Share from Continuing Operations	Three Months Ended						Nine Months Ended
	October 31, 2020		November 2, 2019		Change		October 31, 2020		November 2, 2019		Change
GAAP diluted earnings per share	$	2.01	$	1.37	46.3	%	$	5.91	$	4.71	25.5	%
Adjustments	0.78		(0.01)				0.83		(0.01)
Adjusted diluted earnings per share	$	2.79	$	1.36	105.1	%	$	6.75	$	4.70	43.5	%

Note: Amounts may not foot due to rounding. Adjusted diluted earnings per share from continuing operations (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 continuing 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) from continuing operations because we believe ROIC provides a meaningful measure of our capital-allocation effectiveness over time. For the trailing twelve months ended October 31, 2020, after-tax ROIC was 19.9 percent, compared with 15.0 percent for the trailing twelve months ended November 2, 2019. The calculation of ROIC is provided on page 21.

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. The rapid development and fluidity of this situation limits our ability to predict the ultimate impact of COVID-19 on our business, financial condition and financial performance, which could be material. 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. We have implemented numerous safety measures to protect our guests and team members — such as mandating face masks for all team members and guests in our stores, more rigorous cleaning processes, providing disposable face masks, gloves and thermometers for team members, installing distancing markers, limiting guest levels within our stores, and installing partitions at all stores. To date, virtually all of our stores, digital channels, and distribution centers have remained open.

As the pandemic has evolved, we have experienced unusually strong sales, as guests rely on Target for essential items like food, medicine, cleaning products, and household stock-up items, as well as merchandise associated with guests spending more time at home. Underlying this trend, we saw significant volatility in our sales mix, including both category sales mix and the mix of sales in our stores and digital channels, including same-day fulfillment options.


TARGET CORPORATION						Q3 2020 Form 10-Q			13


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

•During the first quarter, comparable sales increased 10.8 percent, reflecting a 0.9 percent increase in store originated comparable sales and a 141 percent increase in digitally originated comparable sales. The quarter began with strength across our multi-category portfolio, followed by a shift to strong comparable sales growth in our Food and Beverage and Beauty and Household Essentials core merchandising categories and significant comparable sales declines in Apparel and Accessories. Comparable sales in Apparel and Accessories recovered notably beginning mid-April.

•During the second quarter, comparable sales increased 24.3 percent, reflecting a 10.9 percent increase in store originated comparable sales and a 195 percent increase in digitally originated comparable sales. Comparable sales growth was strong across our multi-category portfolio, with slightly higher growth in lower-margin categories.

•During the third quarter, comparable sales increased 20.7 percent, reflecting a 9.9 percent increase in store originated comparable sales and a 155 percent increase in digitally originated comparable sales. Comparable sales growth strength continued across our multi-category portfolio, with slightly higher growth in lower-margin categories.

For the nine months ended October 31, 2020, gross margin has been negatively impacted by changes in both our category and channel sales mix, as well as actions that we have taken to allow us to better fulfill guest demand for essentials. Additionally, gross margin reflects the portion of investments in pay and benefits classified within Cost of Sales. Exceptionally low clearance and promotional markdown rates partially offset these pressures.

Our SG&A expenses include significant incremental costs related to investments in pay and benefits for store team members, the spikes in merchandise volume in stores and the supply chain, incremental safety and cleaning supplies, and the impact of additional team member hours dedicated to more rigorous cleaning routines in our facilities. From an SG&A expense rate perspective, these incremental costs were more than offset by cost leverage resulting from exceptionally strong sales growth.

To support our team and minimize potential disruptions in their work to serve our guests, we have modified our plans for some of our strategic initiatives, including our previously announced remodel program. We have completed approximately 130 remodels in 2020, down from the previous expectation of approximately 300. Similarly, we opened 29 new small format stores in 2020, rather than the 36 previously announced.

During the first quarter 2020, we issued $2.5 billion of 5-year and 10-year notes in an effort to increase our cash on hand. Additionally, we entered into a $900 million 364-day credit facility, increasing our total undrawn committed credit facilities to $3.4 billion. Our operating performance during the second and third quarters of 2020 and current financial position allowed us to repurchase $1.77 billion of debt before its maturity at a market value of $2.25 billion in October 2020 and terminate the 364-day credit facility in November 2020. Note 6 to the Consolidated Financial Statements and the Liquidity and Capital Resources section provide additional information.


TARGET CORPORATION						Q3 2020 Form 10-Q			14


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

Analysis of Results of Operations


Summary of Operating Income	Three Months Ended						Nine Months Ended
(dollars in millions)	October 31, 2020		November 2, 2019		Change		October 31, 2020		November 2, 2019		Change
Sales	$	22,336	$	18,414	21.3	%	$	64,403	$	53,997	19.3	%
Other revenue	296		251		18.1		819		716		14.3
Total revenue	22,632		18,665		21.3		65,222		54,713		19.2
Cost of sales	15,509		12,935		19.9		45,692		37,808		20.9
Selling, general and administrative expenses	4,647		4,153		11.9		13,167		11,728		12.3
Depreciation and amortization (exclusive of depreciation included in cost of sales)	541		575		(5.8)		1,660		1,717		(3.3)
Operating income	$	1,935	$	1,002	93.1	%	$	4,703	$	3,460	35.9	%


Rate Analysis	Three Months Ended				Nine Months Ended
	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Gross margin rate	30.6	%	29.8	%	29.1	%	30.0	%
SG&A expense rate	20.5		22.3		20.2		21.4
Depreciation and amortization (exclusive of depreciation included in cost of sales) expense rate	2.4		3.1		2.5		3.1
Operating income margin rate	8.5		5.4		7.2		6.3

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 Pick Up or Drive Up, and delivery via our wholly owned subsidiary, 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).

The increase in sales during the three and nine months ended October 31, 2020, is due to a comparable sales increase of 20.7 percent and 18.7 percent, respectively, and the contribution from new stores.


Comparable Sales	Three Months Ended				Nine Months Ended
	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Comparable sales change	20.7	%	4.5	%	18.7	%	4.2	%
Drivers of change in comparable sales
Number of transactions	4.5		3.1		2.6		3.3
Average transaction amount	15.6		1.4		15.7		0.9


TARGET CORPORATION						Q3 2020 Form 10-Q			15


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


Contribution to Comparable Sales Change	Three Months Ended				Nine Months Ended
	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Stores originated channel comparable sales change	9.9	%	2.8	%	7.3	%	2.3	%
Contribution from digitally originated sales	10.9		1.7		11.4		1.9
Total comparable sales change	20.7	%	4.5	%	18.7	%	4.2	%

Note: Amounts may not foot due to rounding.


Sales by Channel	Three Months Ended				Nine Months Ended
	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Stores originated	84.3	%	92.5	%	83.9	%	92.7	%
Digitally originated	15.7		7.5		16.1		7.3
Total	100	%	100	%	100	%	100	%


Sales by Product Category	Three Months Ended				Nine Months Ended
	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Apparel and accessories	18	%	20	%	17	%	19	%
Beauty and household essentials	27		28		28		28
Food and beverage	20		20		20		20
Hardlines	15		13		16		14
Home furnishings and décor	20		19		19		19
Total	100	%	100	%	100	%	100	%

The collective interaction of a broad array of macroeconomic, competitive, and consumer behavioral factors, as well as sales mix, and transfer of sales to new stores makes further analysis of sales metrics infeasible. As previously discussed, we believe that COVID-19 has had a significant impact on the mix of sales amongst our sales channels and categories.

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.


RedCard Penetration	Three Months Ended				Nine Months Ended
	October 31, 2020		November 2, 2019		October 31, 2020		November 2, 2019
Target Debit Card	12.2	%	12.5	%	12.2	%	12.7	%
Target Credit Cards	9.3		10.7		9.2		10.6
Total RedCard Penetration	21.5	%	23.1	%	21.4	%	23.3	%

Note: Amounts may not foot due to rounding.


TARGET CORPORATION						Q3 2020 Form 10-Q			16


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

Gross Margin Rate

For the three months ended October 31, 2020, our gross margin rate was 30.6 percent compared with 29.8 percent in the comparable period last year. This increase reflected the net impact of merchandising actions, most notably the benefit of exceptionally low clearance and promotional markdown rates. The increase was partially offset by increased digital fulfillment and supply chain costs (stemming from unusually strong growth in digital volume and higher pay and benefit costs classified within Cost of Sales) and the impact of category sales mix, as sales growth was strongest in lower-margin categories.

For the nine months ended October 31, 2020, our gross margin rate was 29.1 percent compared with 30.0 percent in the comparable period last year. This decrease reflected increased digital fulfillment and supply chain costs (stemming from unusually strong growth in digital volume combined with the impact of higher pay and benefit costs classified within Cost of Sales) and the impact of category sales mix, as sales growth was strongest in lower-margin categories. The decrease was partially offset by the net impact of merchandising actions, most notably the benefit of exceptionally low clearance and promotional markdown rates.

Selling, General, and Administrative Expense Rate

For the three and nine months ended October 31, 2020, our SG&A expense rate was 20.5 percent and 20.2 percent, respectively, compared with 22.3 percent and 21.4 percent, respectively, in the comparable periods last year. Incremental team member pay and benefits and investments to protect the health and safety of guests represented approximately $300 million of the $494 million increase in SG&A expenses for the three months ended October 31, 2020, and approximately $900 million of the $1.4 billion increase for the nine months ended October 31, 2020, compared with the prior year periods. From a rate perspective, these increased costs were more than offset by leverage resulting from strong revenue growth.


TARGET CORPORATION						Q3 2020 Form 10-Q			17


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

Store Data


Change in Number of Stores	Three Months Ended		Nine Months Ended
	October 31, 2020	November 2, 2019	October 31, 2020	November 2, 2019
Beginning store count	1,871	1,853	1,868	1,844
Opened	27	9	30	20
Closed	(1)	—	(1)	(2)

Ending store count	1,897	1,862	1,897	1,862


Number of Stores and Retail Square Feet	Number of Stores			Retail Square Feet (a)
	October 31, 2020	February 1, 2020	November 2, 2019	October 31, 2020	February 1, 2020	November 2, 2019
170,000 or more sq. ft.	273	272	272	48,798	48,619	48,619
50,000 to 169,999 sq. ft.	1,509	1,505	1,504	189,508	189,227	189,164
49,999 or less sq. ft.	115	91	86	3,342	2,670	2,475
Total	1,897	1,868	1,862	241,648	240,516	240,258

(a)In thousands, reflects total square feet less office, distribution center, and vacant space.

Other Performance Factors

Net Interest Expense

Net interest expense was $632 million and $871 million for the three and nine months ended October 31, 2020, respectively, and $113 million and $359 million for the three and nine months ended November 2, 2019, respectively. Net interest expense for the three and nine months ended October 31, 2020, increased primarily due to a loss on early retirement of debt of $512 million.

Provision for Income Taxes

Our effective income tax rate from continuing operations for the three and nine months ended October 31, 2020, was 21.9 percent and 21.7 percent, respectively, compared with 21.7 percent and 22.4 percent, respectively, for the comparable periods last year. The effective tax rate for the nine months ended October 31, 2020, reflects a larger rate benefit from discrete items, primarily related to share-based payments, compared with the prior year.


TARGET CORPORATION						Q3 2020 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 from continuing operations (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 continuing operations. This measure is not in accordance with, or an alternative to, generally accepted accounting principles in the U.S. (GAAP). The most comparable GAAP measure is diluted earnings per share from continuing operations. 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
	October 31, 2020						November 2, 2019
(millions, except per share data)	Pretax		Net of Tax		Per Share Amounts		Pretax		Net of Tax		Per Share Amounts
GAAP diluted earnings per share from continuing operations					$	2.01					$	1.37
Adjustments
Loss on debt extinguishment	$	512	$	379	$	0.75	$	—	$	—	$	—
Loss on investment (a)	8		9		0.02		—		—		—

Other (b)	8		6		0.01		(9)		(6)		(0.01)
Adjusted diluted earnings per share from continuing operations					$	2.79					$	1.36


Reconciliation of Non-GAAP Adjusted EPS	Nine Months Ended
	October 31, 2020						November 2, 2019
(millions, except per share data)	Pretax		Net of Tax		Per Share Amounts		Pretax		Net of Tax		Per Share Amounts
GAAP diluted earnings per share from continuing operations					$	5.91					$	4.71
Adjustments
Loss on debt extinguishment	$	512	$	379	$	0.75	$	—	$	—	$	—
Loss on investment (a)	19		18		0.03		—		—		—

Other (b)	33		24		0.05		(9)		(6)		(0.01)
Adjusted diluted earnings per share from continuing operations					$	6.75					$	4.70

Note: Amounts may not foot due to rounding.

(a)Includes an unrealized loss on our investment in Casper Sleep Inc., which is not core to our continuing operations.

(b)For 2020, includes store damage and inventory losses related to civil unrest. For 2019, represents an insurance recovery related to the 2013 data breach.


TARGET CORPORATION						Q3 2020 Form 10-Q			19


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

Earnings from continuing operations before interest expense and income taxes (EBIT) and earnings from continuing operations 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 from continuing operations. 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.


EBIT and EBITDA	Three Months Ended						Nine Months Ended
(dollars in millions) (unaudited)	October 31, 2020		November 2, 2019		Change		October 31, 2020		November 2, 2019		Change
Net earnings from continuing operations	$	1,014	$	706	43.6	%	$	2,988	$	2,436	22.6	%
+ Provision for income taxes	284		195		45.7		828		703		17.8
+ Net interest expense	632		113		457.7		871		359		142.6
EBIT	$	1,930	$	1,014	90.2	%	$	4,687	$	3,498	34.0	%
+ Total depreciation and amortization (a)	603		637		(5.1)		1,848		1,905		(2.9)
EBITDA	$	2,533	$	1,651	53.5	%	$	6,535	$	5,403	21.0	%

(a)Represents total depreciation and amortization, including amounts classified within Depreciation and Amortization and within Cost of Sales.


TARGET CORPORATION						Q3 2020 Form 10-Q			20


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

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.


After-Tax Return on Invested Capital
(dollars in millions)
	Trailing Twelve Months
Numerator	October 31, 2020		November 2, 2019
Operating income	$	5,901	$	4,577
+ Net other income / (expense)	(46)		45
EBIT	5,855		4,622
+ Operating lease interest (a)	87		86
- Income taxes (b)	1,277		1,043
Net operating profit after taxes	$	4,665	$	3,665


Denominator	October 31, 2020			November 2, 2019			November 3, 2018
Current portion of long-term debt and other borrowings	$	131		$	1,159		$	1,535
+ Noncurrent portion of long-term debt	12,490			10,513			10,104
+ Shareholders' investment	13,319			11,545			11,080
+ Operating lease liabilities (c)	2,400			2,390			2,208
- Cash and cash equivalents	5,996			969			825
Invested capital	$	22,344		$	24,638		$	24,102
Average invested capital (d)	$	23,491		$	24,369

After-tax return on invested capital	19.9		%	15.0		%

(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 Expenses. 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 for continuing operations, which were 21.5 percent and 22.1 percent for the trailing twelve months ended October 31, 2020, and November 2, 2019, respectively. For the trailing twelve months ended October 31, 2020, and November 2, 2019, includes tax effect of $1.3 billion and $1.0 billion, respectively, related to EBIT, and $19 million and $19 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.

(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.


TARGET CORPORATION						Q3 2020 Form 10-Q			21


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

Analysis of Financial Condition

Liquidity and Capital Resources

Capital Allocation

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.

We believe our sources of liquidity will continue to be adequate to maintain operations, finance anticipated expansion and strategic initiatives, fund debt maturities, and pay dividends. In response to COVID-19, we suspended our share repurchase program in March 2020. In November 2020, we lifted the share repurchase suspension and announced that we expect to resume share repurchases in 2021. We continue to anticipate ample access to commercial paper and long-term financing.

Our cash and cash equivalents balance was $6.0 billion, $2.6 billion, and $1.0 billion as of October 31, 2020, February 1, 2020, and November 2, 2019, respectively. Our cash and cash equivalents balance includes short-term investments of $5.1 billion, $1.8 billion, and $163 million as of October 31, 2020, February 1, 2020, and November 2, 2019, respectively. 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

Operating cash flow provided by continuing operations was $7.0 billion for the nine months ended October 31, 2020, compared with $4.1 billion for the nine months ended November 2, 2019. The increase reflects stronger operating performance combined with higher payables leverage during the nine months ended October 31, 2020, due to increased inventory turnover driven by strong sales, compared with the nine months ended November 2, 2019. Additionally, operating cash flows for the nine months ended October 31, 2020, reflect increased payroll-related liabilities, including the deferral of employer social security tax payments.

Inventory

Inventory was $12.7 billion as of October 31, 2020, compared with $9.0 billion and $11.4 billion at February 1, 2020, and November 2, 2019, respectively. The increase reflects efforts to align inventory with sales trends.

Investing Cash Flows

Cash flow required for investing activities included capital expenditures of $2.0 billion and $2.4 billion for the nine months ended October 31, 2020, and November 2, 2019, respectively. During the nine months ended October 31, 2020, we completed new store and remodel projects that were in process as the COVID-19 crisis developed. However, in response to COVID-19, we have modified plans for some of our strategic initiatives including store remodels and new store openings. We expect full year 2020 capital expenditures to be $2.5 billion to $3.0 billion.

Dividends

We paid dividends totaling $340 million ($0.68 per share) and $1.0 billion ($2.00 per share) for the three and nine months ended October 31, 2020, respectively, and $337 million ($0.66 per share) and $995 million ($1.94 per share) for the three and nine months ended November 2, 2019, respectively, a per share increase of 3.0 percent and 3.1 percent, respectively. We declared dividends totaling $346 million ($0.68 per share) during the third quarter of 2020, a per share increase of 3.0 percent over the $338 million ($0.66 per share) of declared dividends during the third quarter of 2019. 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.


TARGET CORPORATION						Q3 2020 Form 10-Q			22


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

Share Repurchase

We returned $609 million to shareholders through share repurchase during the nine months ended October 31, 2020. We did not repurchase any shares during the three months ended October 31, 2020. See Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds of this Quarterly Report on Form 10-Q and Note 8 to the Consolidated Financial Statements for more information.

Financing

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 31, 2020, 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 additional liquidity through a committed $2.5 billion revolving credit facility obtained through a group of banks, which expires in October 2023. No balances were outstanding under any credit facility at any time during 2020 or 2019.

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 31, 2020, 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.

Contractual Obligations and Commitments

As of the date of this report, other than the new borrowings and payments discussed in Note 6 to the Consolidated Financial Statements, there were no material changes to our contractual obligations and commitments outside the ordinary course of business since February 1, 2020, as reported in our 2019 Form 10-K.

New Accounting Pronouncements

We do not expect any recently issued accounting pronouncements to have a material effect on our financial statements.


TARGET CORPORATION						Q3 2020 Form 10-Q			23


			MANAGEMENT'S DISCUSSION AND ANALYSIS & SUPPLEMENTAL INFORMATION			Table of Contents
			FORWARD LOOKING STATEMENTS & CONTROLS AND PROCEDURES			Index to Notes

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, the expected impact of changes in information technology systems, future responses to and effects of the COVID-19 pandemic, 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 February 1, 2020 and Part II, Item 1A, Risk Factors of our Form 10-Q for the quarter ended May 2, 2020, 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

There have been no material changes in our primary risk exposures or management of market risks from those disclosed in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk of our Form 10-K for the fiscal year ended February 1, 2020.

Item 4. Controls and Procedures

Changes in Internal Control Over Financial Reporting

During the most recently completed fiscal quarter, the following changes materially affected, or are reasonably likely to materially affect, our internal control over financial reporting:

•We are in the process of a broad multi-year migration of many mainframe-based systems and middleware products to a modern platform, including systems and processes supporting inventory and supply chain-related transactions.

•In March 2020, as a result of COVID-19, we temporarily suspended physical inventory counts at our stores. We resumed physical inventory counts in June 2020 using a statistical sampling method, and we have continued to record estimated losses related to shrink and markdowns based upon historical rates.

During the most recently completed fiscal quarter, no other changes in our internal control over financial reporting materially affected, or is 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.


TARGET CORPORATION						Q3 2020 Form 10-Q			24


			SUPPLEMENTAL INFORMATION			Table of Contents
						Index to Notes

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

No response is required under Item 103 of Regulation S-K, nor have there been any material developments for any previously reported legal proceedings.

Item 1A. Risk Factors

Other than as described in Part II, Item 1A, Risk Factors of our Form 10-Q for the quarter ended May 2, 2020, there have been no material changes to the risk factors described in Part I, Item 1A, Risk Factors of our Form 10-K for the fiscal year ended February 1, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On September 19, 2019, our Board of Directors authorized a $5 billion share repurchase program with no stated expiration. We began repurchasing shares under the authorization during the first quarter of 2020. Under the program, we have repurchased 4.6 million shares of common stock at an average price of $105.80, for a total investment of $484 million. As of October 31, 2020, the dollar value of shares that may yet be purchased under the program is $4.5 billion. There were no Target common stock purchases made during the three months ended October 31, 2020, by Target or any "affiliated purchaser" of Target, as defined in Rule 10b-18(a)(3) under the Exchange Act.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.


TARGET CORPORATION						Q3 2020 Form 10-Q			25


			SUPPLEMENTAL INFORMATION			Table of Contents
						Index to Notes

Item 6. Exhibits


(3)A						Amended and Restated Articles of Incorporation (as amended through June 9, 2010) (1)

(3)B						Bylaws (as amended through March 27, 2020) (2)

(31)A						Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(31)B						Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(32)A						Certification of the Chief Executive Officer As Adopted Pursuant to 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(32)B						Certification of the Chief Financial Officer As Adopted Pursuant to 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS						XBRL Instance Document

101.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

(1) Incorporated by reference to Exhibit (3)A to the Registrant’s Form 8-K Report filed June 10, 2010.

(2) Incorporated by reference to Exhibit (3)B to the Registrant’s Form 8-K Report filed April 2, 2020.

(3) Incorporated by reference to Exhibit (10)D to the Registrant’s Form 8-K Report filed June 11, 2020.


TARGET CORPORATION						Q3 2020 Form 10-Q			26


			SUPPLEMENTAL INFORMATION			Table of Contents
						Index to Notes

SIGNATURE

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.


	TARGET CORPORATION



Dated: November 25, 2020	By:	/s/ Michael J. Fiddelke
			Michael J. Fiddelke
			Executive Vice President and
			Chief Financial Officer
			(Duly Authorized Officer and
			Principal Financial Officer)


		/s/ Robert M. Harrison
			Robert M. Harrison
			Senior Vice President, Chief Accounting Officer
			and Controller


TARGET CORPORATION						Q3 2020 Form 10-Q			27

Target - 10-Q quarterly report FY2020 Q3

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PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Statements of Operations	1
	Consolidated Statements of Comprehensive Income	2
	Consolidated Statements of Financial Position	3
	Consolidated Statements of Cash Flows	4
	Consolidated Statements of Shareholders’ Investment	5
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	26

Signature		27


INDEX TO NOTES

Notes to Consolidated Financial Statements		7
Note 1	Accounting Policies	8
Note 2	Coronavirus (COVID-19)	8
Note 3	Revenues	9
Note 4	Fair Value Measurements	10
Note 5	Property and Equipment	10
Note 6	Commercial Paper and Long-Term Debt	10
Note 7	Derivative Financial Instruments	11
Note 8	Share Repurchase	11
Note 9	Pension Benefits	12
Note 10	Accumulated Other Comprehensive Loss	12