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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 28, 2023
OR
☐ TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from ____ to ____
Commission File Number 1-6049
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
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Common stock, par value $0.0833 per share |
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TGT |
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o
No
☒
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, 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.
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Large accelerated filer
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x
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Accelerated filer
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o
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Non-accelerated filer
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o
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Smaller reporting company
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o
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Emerging growth company
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o
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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 has filed a report on
and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit
report.
☒
If securities are registered pursuant to Section 12(b) of the Act,
indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an
error to previously issued financial
statements. ☐
Indicate by check mark whether any of those error corrections are
restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers
during the relevant recovery period pursuant to
§240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act).
Yes ☐ No ☒
The aggregate market value of the voting stock held by
non-affiliates of the registrant as of July 29, 2022,
was
$75,322,105,637 based on the closing price of $163.38 per share of
common stock as reported on the New York Stock
Exchange.
Total shares of common stock, par value $0.0833, outstanding as of
March 2, 2023, were 460,363,991.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Target's Proxy Statement for the Annual Meeting of
Shareholders to be held on June 14, 2023, are incorporated into
Part III.
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TARGET CORPORATION |
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2022 Form 10-K |
1
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PART I
Item 1. Business
General
Target Corporation (Target, the Corporation, or the Company) was
incorporated in Minnesota in 1902. Our corporate purpose is to help
all families discover the joy of everyday life. We offer to our
customers, referred to as "guests," everyday essentials and
fashionable, differentiated merchandise at discounted prices. We
operate as a single segment designed to enable guests to purchase
products seamlessly in stores or through our digital channels.
Since 1946, we have given 5 percent of our profit to
communities.
Strategy
Our team, technology, and operations enable us to serve guests,
fulfill our purpose, and drive business results through a durable,
growth-focused enterprise strategy that differentiates Target in
the marketplace. The six pillars of our strategy are:
•Differentiating
from our competition with our assortment of unique owned brands and
curated leading national brands;
•Investing
to create an engaging, convenient, safe, and differentiated
shopping experience for our guests;
•Leveraging
our stores as fulfillment hubs to efficiently meet our guests'
needs, whether they purchase online or in-store;
•Engaging
with our guests through programs like Target Circle and RedCard to
maintain and enhance our relevancy;
•Delivering
affordability to our guests; and
•Leveraging
our size and scale to benefit people, the planet, and our business,
primarily through Target Forward, our enterprise sustainability
strategy.
Our recent growth in sales demonstrates the strength and relevance
of Target’s strategy. Our strategy places stores at the center of
our flexible fulfillment approach, with stores fulfilling more than
96 percent of total sales, which provides convenience for our
guests at a reduced fulfillment cost.
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TARGET CORPORATION |
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2022 Form 10-K |
2
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Sales by Fulfillment Channel
Financial Highlights
Seasonality
A larger share of annual revenues traditionally occurs in the
fourth quarter because it includes the November and December
holiday sales period.
Merchandise
The majority of our stores offer a wide assortment of general
merchandise and food. Nearly all of our stores larger than 170,000
square feet offer a variety of general merchandise and a full line
of food items comparable to traditional supermarkets. Our digital
channels include a wide merchandise and food assortment, including
many items found in our stores, along with a complementary
assortment sold by Target and third parties. We manage our business
across the five core merchandise categories shown below. Within
categories, gross margins vary depending on the type of
merchandise.
Sales by Merchandise Category
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TARGET CORPORATION |
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2022 Form 10-K |
3
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A significant portion of our sales is from national brand
merchandise. Approximately one-third of our sales come from our
owned and exclusive brands, including, but not limited to, the
brands listed below.
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Owned Brands |
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A New Day™ |
Goodfellow & Co™ |
Room Essentials™ |
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All in Motion™ |
Hearth & Hand™ with Magnolia |
Shade & Shore™ |
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Art Class™ |
Heyday™ |
Smartly™ |
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Auden™ |
Hyde & EEK! Boutique™ |
Smith & Hawken™ |
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Ava & Viv™ |
JoyLab™ |
Sonia Kashuk™ |
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Boots & Barkley™ |
Kindfull™ |
Spritz™ |
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Brightroom™ |
Knox Rose™ |
Stars Above™ |
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Bullseye's Playground™ |
Kona Sol™ |
Sun Squad™ |
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Casaluna™ |
Made By Design™ |
Threshold™ |
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Cat & Jack™ |
Market Pantry™ |
Universal Thread™ |
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Cloud Island™ |
Mondo Llama™ |
up & up™ |
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Colsie™ |
More Than Magic™ |
Wild Fable™ |
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Embark™ |
Opalhouse™ |
Wondershop™ |
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Everspring™ |
Open Story™ |
Xhilaration™ |
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Favorite Day™ |
Original Use™ |
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Future Collective™ |
Pillowfort™ |
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Good & Gather™ |
Project 62™ |
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Exclusive Adult Beverage Brands |
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California Roots™ |
Jingle & Mingle™ |
SunPop™ |
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Casa Cantina™ |
Photograph™ |
The Collection™ |
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Headliner™ |
Rosé Bae™ |
Wine Cube™ |
We also sell merchandise through periodic exclusive design and
creative partnerships, and shop-in-shop experiences, with partners
such as Apple, Disney, Levi's, and Ulta Beauty, and generate
revenue from in-store amenities such as Starbucks, Target Café, and
Target Optical. CVS Pharmacy, Inc. (CVS) operates pharmacies and
clinics in our stores under a perpetual operating agreement from
which we generate annual occupancy income.
Customer Loyalty Programs
Our guests receive a 5 percent discount on nearly all purchases and
receive free shipping at Target.com when they use their Target
Debit Card, RedCard Reloadable Account, Target Credit Card, or
Target MasterCard®
(collectively, RedCards™). We also seek to drive customer loyalty
and trip frequency through our Target Circle program, where members
earn 1 percent rewards on nearly all non-RedCard purchases, among
other benefits.
Distribution
The vast majority of merchandise is distributed to our stores
through our network of distribution centers. Common carriers ship
merchandise to and from our distribution centers. Vendors or
third-party distributors ship certain food items and other
merchandise directly to our stores. Merchandise sold through our
digital channels is distributed to our guests through guest pick-up
at our stores, via common carriers (from stores, distribution
centers, vendors, and third-party distributors), and delivery via
our wholly owned subsidiary, Shipt, Inc. (Shipt). Our stores
fulfill the majority of the digitally originated sales, which
allows improved product availability, faster fulfillment times,
reduced shipping costs, and allows us to offer guests a suite of
same-day fulfillment options such as Order Pickup, Drive Up, and
Shipt.
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TARGET CORPORATION |
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2022 Form 10-K |
4
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Human Capital Management
In support of our purpose—to help all families discover the joy of
everyday life—we invest in our team, our most important asset, by
giving them opportunities to grow professionally, take care of
themselves, each other, and their families, and to make a
difference for our guests and our communities. We are among the
largest private employers in the United States (U.S.), and our
workforce has varying goals and expectations of their employment
relationship, from team members looking to build a career to
students, retirees, and others who are seeking to supplement their
income in an enjoyable atmosphere. We seek to be an employer of
choice to attract and retain top talent no matter their objectives
in seeking employment. To that end, we strive to foster an engaged,
diverse, inclusive, safe, purpose-driven culture where employees,
referred to as "team members," have equitable opportunities for
success.
As of January 28, 2023, we employed approximately 440,000
full-time, part-time, and seasonal team members. Because of the
seasonal nature of the retail business, employment levels peak
in the holiday season. We also engage independent contractors, most
notably in our Shipt subsidiary.
Our Board of Directors, through the Compensation and Human Capital
Management Committee, oversees human capital management
matters.
Talent Development and Engagement
We offer a compelling work environment with meaningful experiences
and abundant growth and career-development opportunities. This
starts with the opportunity to do challenging work and learn on the
job and is supplemented by programs and continuous learning that
help our team build skills at all levels, including programs
focused on specialized skill development, leadership opportunities,
coaching, and mentoring. Our talent and succession planning process
supports the development of a diverse talent pipeline for
leadership and other critical roles. We monitor our team members’
perceptions of these commitments through a number of surveys and
take steps to address areas needing improvement.
Diversity, Equity, and Inclusion (DE&I)
We embrace diversity and strive to give our team members equitable
access to opportunities. We champion workplace diversity and an
inclusive work environment with a focus on attracting, engaging,
developing, and advancing team members equitably in order to
reflect the guests and communities we serve. We monitor the
representation of women and racially or ethnically diverse team
members at different levels throughout the company and disclose the
composition of our team in our annual Workforce Diversity Report
and EEO-1 report. We set company-wide DE&I goals to drive
progress in these areas. Developing environments where all team
members feel seen, heard, and welcome to belong is part of Target's
core value of inclusivity and is fundamental to creating an
inclusive guest experience.
Compensation and Benefits
Our compensation and benefits are designed to support the
financial, mental, and physical well-being of our team members and
their families. We believe in paying team members equitably,
regardless of gender, race, or ethnicity, and we regularly review
the pay data of U.S. team members to confirm that we are doing so.
Our compensation packages include a starting wage range of $15 to
$24 per hour for U.S. hourly team members in our stores and supply
chain facilities (who comprise the vast majority of our team), a
401(k) plan with dollar-for-dollar matching contributions up to
five percent of eligible earnings, paid vacation and holidays,
family leave, merchandise and other discounts, disability
insurance, life insurance, healthcare and dependent care flexible
spending accounts, debt-free education assistance and tuition
reimbursement, free mental health services, an annual short-term
incentive program, long-term equity awards, and health insurance
benefits, including free virtual health care visits. Eligibility
for, and the level of, benefits vary depending on team members’
full-time or part-time status, work location, compensation level,
and tenure.
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TARGET CORPORATION |
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2022 Form 10-K |
5
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Workplace Health and Safety
We strive to maintain a safe and secure work environment and have
specific safety programs. This includes administering a
comprehensive occupational injury- and illness-prevention program
and training for team members.
Throughout the COVID-19 pandemic, we continued to invest in the
well-being, health, and safety of our team members with a variety
of mental, emotional, and physical wellness resources. We also
enacted dozens of safety, social distancing, and cleaning measures
designed to protect our team and guests during the COVID-19
pandemic.
Working Capital
Effective inventory management is key to our ongoing success, and
we use various techniques including demand forecasting and planning
and various forms of replenishment management. We achieve effective
inventory management by staying in-stock in core product offerings,
maintaining positive vendor relationships, and carefully planning
inventory levels for seasonal and apparel items to minimize
markdowns. During 2022, rapid changes in consumer preferences and
supply chain volatility resulted in increased working capital
needs.
Competition
We compete with traditional and internet retailers, including
department stores, off-price general merchandise retailers,
wholesale clubs, category-specific retailers, drug stores,
supermarkets, direct-to-consumer brands, and other forms of retail
commerce. Our ability to positively differentiate ourselves from
other retailers and provide compelling value to our guests largely
determines our competitive position within the retail
industry.
Intellectual Property
Our brand image is a critical element of our business strategy. Our
principal trademarks, including Target, our "Expect More. Pay
Less." brand promise, and our "Bullseye Design,"
have
been registered with the U.S. Patent and Trademark Office. We also
seek to obtain and preserve intellectual property protection for
our brands.
Geographic Information
Nearly all of our revenues are generated within the U.S. The vast
majority of our property and equipment is located within the
U.S.
Available Information
Our internet website is corporate.target.com. Our Annual Report on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, proxy statements, and amendments to those
documents filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended (Exchange
Act), are available free of charge on the Investors section of our
website (corporate.target.com/investors) as soon as reasonably
practicable after we file such material with, or furnish it to, the
U.S. Securities and Exchange Commission (SEC). In addition, the SEC
maintains a website (http://www.sec.gov) that contains reports,
proxy and information statements, and other information regarding
issuers that file electronically with the SEC. Investors should
note that we currently announce material information to our
investors and others using filings with the SEC, press releases,
public conference calls, webcasts, or our corporate website
(corporate.target.com). Information that we post on our corporate
website could be deemed material to investors. We encourage
investors, the media, and others interested in us to review the
information we post on these channels. The information on our
website is not, and shall not be deemed to be, a part hereof or
incorporated into this or any of our other filings with the
SEC.
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TARGET CORPORATION |
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2022 Form 10-K |
6
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Information About Our Executive Officers
Executive officers are elected by, and serve at the pleasure of,
the Board of Directors. There are no family relationships between
any of the officers named and any other executive officer or member
of the Board of Directors, or any arrangement or understanding
pursuant to which any person was selected as an
officer.
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Name |
Title and Recent Business Experience |
Age |
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Katie M. Boylan |
Executive Vice President and Chief Communications Officer since
February 2021. Senior Vice President and Chief Communications
Officer from January 2019 to February 2021. Senior Vice President,
Communications from June 2017 to January 2019.
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46 |
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Brian C. Cornell |
Chair of the Board and Chief Executive Officer since August
2014. |
64 |
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Michael J. Fiddelke |
Executive Vice President and Chief Financial Officer since November
2019. Senior Vice President, Operations from August 2018 to October
2019. Senior Vice President, Merchandising Capabilities from March
2017 to August 2018. |
46 |
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A. Christina Hennington
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Executive Vice President and Chief Growth Officer since February
2021. Executive Vice President and Chief Merchandising Officer,
Hardlines, Essentials and Capabilities from January 2020 to
February 2021. Senior Vice President, Group Merchandise Manager,
Essentials, Beauty, Hardlines and Services from January 2019 to
January 2020. Senior Vice President, Merchandising Essentials,
Beauty and Wellness from April 2017 to January 2019. |
48 |
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Melissa K. Kremer |
Executive Vice President and Chief Human Resources Officer since
January 2019. Senior Vice President, Talent and Organizational
Effectiveness from October 2017 to January 2019. |
45 |
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Don H. Liu |
Executive Vice President, Chief Legal & Risk Officer and
Corporate Secretary since October 2017. |
61 |
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John J. Mulligan |
Executive Vice President and Chief Operating Officer since
September 2015. |
57 |
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Cara A. Sylvester |
Executive Vice President and Chief Guest Experience Officer since
May 2022. Executive Vice President and Chief Marketing &
Digital Officer from February 2021 to May 2022. Senior Vice
President, Home from March 2019 to February 2021. Vice President,
Beauty & Dermstore from June 2017 to March 2019.
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45 |
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Laysha L. Ward |
Executive Vice President and Chief External Engagement Officer
since January 2017. |
55 |
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Item 1A. Risk Factors
Our business is subject to many risks. Set forth below are the
material risks we face. Risks are listed in the categories where
they primarily apply, but other categories may also
apply.
Competitive and Reputational Risks
If we are unable to positively differentiate ourselves from other
retailers, our results of operations and financial condition could
be adversely affected.
We attempt to differentiate our guest experience through a careful
combination of price, merchandise assortment, store environment,
convenience, guest service, loyalty programs, and marketing. Our
ability to successfully differentiate ourselves depends on many
competitive factors, including guest perceptions regarding the
safety and cleanliness of our stores, the value and exclusivity of
our offerings, our in-stock levels, the effectiveness of our
digital channels and fulfillment options, our ability to
responsibly source merchandise, and our ability to create a
personalized guest experience. If we fail to differentiate our
guest experience from our competitors, our results of operations
and financial condition could be adversely affected.
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TARGET CORPORATION |
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2022 Form 10-K |
7
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The retail industry's continuing migration to digital channels and
multiple fulfillment options for consumers has affected the ways we
differentiate from other retailers. Since consumers can quickly
comparison shop using digital tools, they may make decisions based
solely on price or convenience, which could limit our ability to
differentiate from our competitors. In addition, providing multiple
fulfillment options and implementing new technology is complex,
costly, and may not meet our guests’ expectations. If we are unable
to offset the increased costs of new technology and expanded
fulfillment options with improved performance or efficiencies, our
results of operations could be adversely affected. To remain
competitive, we must anticipate and adapt to developments and
offerings by other retailers. Consumers may also use third-party
channels or devices to initiate shopping searches and place orders,
which could make us dependent on the capabilities and search
algorithms of those third parties to reach those consumers. Any
difficulties in executing our differentiation efforts could
adversely affect our results of operations and financial
condition.
If we do not anticipate and respond quickly to changing consumer
preferences, our results of operations and financial condition
could suffer.
A large part of our business is dependent on our ability to make
trend-right decisions in a broad range of merchandise categories.
If we do not predict and quickly respond to changing consumer
preferences and spending patterns, we may experience lower sales,
spoilage, and increased inventory markdowns, which could adversely
affect our results of operations. Our ability to predict and adapt
to changing consumer preferences depends on many factors, including
obtaining accurate and relevant data on guest preferences,
emphasizing relevant merchandise categories, effectively managing
our inventory levels, and implementing competitive and effective
pricing and promotion strategies. We have not always been able to
predict rapid changes in consumer preferences and spending
patterns, including those that were impacted by the COVID-19
pandemic, which has previously resulted in insufficient or excess
inventory, increased costs, and adverse impacts on our results of
operations. If we are unable to effectively adapt to future changes
in consumer preferences and spending patterns, our results of
operations and financial condition could be adversely
affected.
Our continued success is dependent on positive perceptions of
Target which, if eroded, could adversely affect our business and
our relationships with our guests and team members.
We believe that one of the reasons our shareholders, guests, team
members, and vendors choose Target is the positive reputation we
have built over many years for serving those constituencies and the
communities in which we operate. To be successful in the future, we
must continue to preserve Target's reputation. Our reputation is
largely based on perceptions. It may be difficult to address
negative publicity across media channels, regardless of whether it
is accurate. Negative incidents involving us, our workforce, or
others with whom we do business could quickly erode trust and
confidence and result in consumer boycotts, workforce unrest or
walkouts, government investigations, and litigation. Negative
reputational incidents or negative perceptions of us could
adversely affect our business and results of operations, including
through lower sales, the termination of business relationships,
loss of new store and development opportunities, and team member
retention and recruiting difficulties.
In addition, stakeholder expectations regarding environmental,
social, and governance matters continue to evolve and are not
uniform. We have established, and may continue to establish,
various goals and initiatives on these matters, including with
respect to diversity, equity, and inclusion topics. We cannot
guarantee that we will achieve these goals and initiatives. Any
failure, or perceived failure, by us to achieve these goals and
initiatives or to otherwise meet evolving and varied stakeholder
expectations could adversely affect our reputation and result in
legal and regulatory proceedings against us. Any of these outcomes
could negatively impact our results of operations and financial
condition.
Reputational harm can also occur indirectly through companies with
whom we do business. We have relationships with a variety of other
companies, including Apple, CVS, Disney, Levi’s, Starbucks, and
Ulta Beauty. If our guests have negative experiences with or view
unfavorably any of the companies with whom we have relationships,
it could cause them to stop shopping with us.
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TARGET CORPORATION |
|
2022 Form 10-K |
8
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If we are unable to successfully develop, source, and market our
owned and exclusive brand products, our results of operations could
be adversely affected.
Our owned and exclusive brand products represent approximately one
third of our overall sales and generally carry higher margins than
equivalent national brand products. If we are unable to
successfully develop, source, and market our owned and exclusive
brands, or if we are unable to successfully protect our related
intellectual property rights, our results of operations could be
adversely affected. In addition, our reliance on owned and
exclusive brand products may also amplify other risks discussed in
this Item 1A, Risk Factors, because many of these products are
imported and we are more involved in the development and sourcing
of those products. For example, owned brand products involve
greater responsible sourcing risk in the selection of vendors,
which can exacerbate reputational risk. In addition, owned brand
products generally require longer lead times between order
placement and product delivery and require us to take ownership of
those products earlier in the supply chain. This exposes us to
enhanced risks of supply chain disruptions and changing consumer
preferences, which could adversely affect our results of
operations.
If we are unable to protect against inventory shrink, our results
of operations and financial condition could be adversely
affected.
Our business depends on our ability to effectively manage our
inventory. We have historically experienced loss of inventory (also
called shrink) due to damage, theft (including from organized
retail crime), and other causes. We continue to experience elevated
levels of inventory shrink relative to historical levels, which
have adversely affected, and could continue to adversely affect,
our results of operations and financial condition. To protect
against rising inventory shrink, we have taken, and may continue to
take, certain operational and strategic actions that could
adversely affect our reputation, guest experience, and results of
operations. In addition, sustained high rates of inventory shrink
at certain stores could impact the profitability of those stores
and result in the impairment of long-term assets.
Investments and Infrastructure Risks
If our capital investments do not achieve appropriate returns, our
competitive position, results of operations, and financial
condition could be adversely affected.
Our business depends, in part, on our ability to remodel existing
stores and build new stores in a manner that achieves appropriate
returns on our capital investment. When building new stores, we
compete with other retailers and businesses for suitable locations
for our stores. Pursuing the wrong remodel or new store
opportunities and any delays, cost increases, or other difficulties
related to those projects could adversely affect our results of
operations and financial condition.
We are making, and expect to continue to make, significant
investments in technology and supply chain infrastructure. The
effectiveness of these investments can be less predictable than
remodeling or building new stores, and might not provide the
anticipated benefits, which could adversely affect our results of
operations and financial condition. For example, our stores-as-hubs
strategy depends on adequate replenishment facilities to receive,
store, and move inventory to stores on a timely basis.
Underestimating our replenishment capacity needs could result in
lower in-stock levels or increased costs for temporary storage.
Conversely, overestimating replenishment capacity needs could
result in inefficient deployment of capital. Any of these outcomes
could adversely affect our results of operations and financial
condition.
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TARGET CORPORATION |
|
2022 Form 10-K |
9
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A significant disruption in our computing and information systems
and our inability to adequately maintain and update those systems
could adversely affect our operations and negatively affect our
guests.
We rely extensively on computing and information systems throughout
our business. We also rely on continued and unimpeded access to the
Internet to use our systems. Our systems are subject to possible
damage or interruption from many events, including power outages,
telecommunications failures, malicious attacks, security breaches,
and implementation errors. If our systems are damaged or disrupted,
we may incur substantial costs, experience data loss or theft, and
be unable to manage inventories or process guest transactions,
which could adversely affect our reputation, results of operations,
and financial condition. For example, in the past, we have
experienced disruptions in our point-of-sale system that prevented
our ability to process debit or credit transactions, which
negatively impacted some guests’ experiences and generated negative
publicity. We continually invest to maintain and update our
systems, but implementing significant changes increases the risk of
system disruption. Problems and interruptions associated with
implementing technology initiatives could adversely affect our
operational efficiency and negatively impact our guests and their
confidence in us.
Information Security, Cybersecurity, and Data Privacy
Risks
If our efforts to maintain information security, cybersecurity, and
data privacy are unsuccessful or if we are unable to meet
increasingly demanding regulatory requirements, our reputation,
results of operations, and financial condition could be adversely
affected.
We regularly receive and store information about our guests, team
members, vendors, and other third parties. We have programs in
place to detect, contain, and respond to data security incidents.
However, we may be unable to anticipate security incidents or
implement adequate preventive measures. In addition, hardware or
software that we develop or obtain from third parties may contain
defects that could compromise information security, cybersecurity,
or data privacy. Unauthorized parties may also attempt to gain
access to our systems or facilities, or those of third parties with
whom we do business, through fraud, deception, or other bad acts.
Although we conduct regular training as part of our information
security, cybersecurity, and data privacy efforts, that training
may not be completely effective in preventing successful
attacks.
Our only significant data security incident was a data breach that
occurred in 2013 and went undetected for several weeks. The 2013
data breach adversely affected our reputation and results of
operations. Both we and our vendors have experienced data security
incidents since that data breach; however, to date, these other
incidents have not been material to our results of operations.
Based on the prominence and notoriety of our prior significant data
breach, additional data security incidents could draw greater
scrutiny. If we, our vendors, or other third parties with whom we
do business experience additional significant data security
incidents or fail to detect and appropriately respond to
significant incidents, we could be exposed to costly government
enforcement actions and private litigation. In addition, our guests
could lose confidence in our ability to protect their information,
stop using our RedCards or loyalty programs, or stop shopping with
us altogether, which could adversely affect our reputation, results
of operations, and financial condition.
The legal and regulatory environment regarding information
security, cybersecurity, and data privacy is dynamic and has strict
requirements for using and treating personal data. Complying with
current or contemplated data protection laws and regulations, or
any failure to comply, could cause us to incur substantial costs,
require changes to our business practices, and expose us to
litigation and regulatory risks, each of which could adversely
affect our reputation, results of operations, and financial
condition.
Supply Chain and Third-Party Risks
Changes in our relationships with our vendors, changes in tax or
trade policy, interruptions in our operations or supply chain, and
increased commodity or supply chain costs could adversely affect
our reputation and results of operations.
We are dependent on our vendors, including common carriers, to
supply merchandise to our distribution centers, stores, and guests.
If our replenishment and fulfillment network does not operate
properly, if a vendor fails to deliver on its commitments, or if
common carriers have difficulty providing capacity to meet demands
for their services like they experienced in recent years, we could
experience merchandise out-of-stocks, delays in shipping and
receiving merchandise, and increased costs, which could adversely
affect our reputation and results of operations.
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TARGET CORPORATION |
|
2022 Form 10-K |
10
|
A large portion of the merchandise that we offer is sourced,
directly or indirectly, from outside the U.S., with China as our
single largest source. Any major changes in tax or trade policy
between the U.S. and countries from which we source merchandise,
such as the imposition of additional tariffs or duties on imported
products, could require us to take certain actions, including
raising prices on products we sell and seeking alternative sources
of supply from vendors in other countries. Any of these actions
could adversely affect our reputation and results of
operations.
Political or financial instability, currency fluctuations, the
outbreak of pandemics or other illnesses, labor shortages, labor
unrest or strikes, transport capacity and costs, inflation, port
security, weather conditions, natural disasters, armed conflicts,
or other events that could affect foreign trade are beyond our
control and could disrupt our supply of merchandise, increase our
costs, and adversely affect our results of operations. For example,
there have been periodic closings and ship diversions, labor
disputes, and congestion disrupting U.S. ports, including in
California where we receive a significant portion of the products
we source from outside the U.S. We have from time to time made
alternative arrangements to continue the flow of inventory as a
result of supply chain disruptions in the U.S. and other countries.
If these types of events recur, it could increase our costs and
adversely affect our supply of inventory. In addition, prices of
fuel and other commodities that our supply chain depends on are
historically volatile and subject to fluctuations based on a
variety of international and domestic factors. Rapid and
significant changes in commodity prices, as has occurred in recent
years, could further increase our costs and adversely affect our
results of operations.
If services we obtain from third parties are unavailable or fail to
meet our standards, our reputation and results of operations could
be adversely affected.
We rely on third parties to support our business operations,
including portions of our technology infrastructure, digital
platforms, replenishment and fulfillment operations, store and
supply chain infrastructure, delivery services, guest contact
centers, payment processing, and extensions of credit for our
RedCard program. If we are unable to contract with third parties
having the specialized skills needed to support our operations or
if they fail to meet our performance standards, then our reputation
and results of operations could be adversely affected.
Legal, Regulatory, Global, and Other External Risks
The effects of the COVID-19 pandemic, or other similar public
health crises, may continue to amplify the risks and uncertainties
facing our business.
The long-term impacts of the social, economic, and financial
disruptions caused by the COVID-19 pandemic and the government
responses to such disruptions are unknown. In addition, the impact
on our business of the long-term effects of the COVID-19 pandemic,
or other similar public health crises, will depend on numerous
factors that we cannot accurately predict.
The long-term effects of the COVID-19 pandemic, or other similar
public health crises, may also continue to amplify other risks
discussed in this Item 1A, Risk Factors, including risks related to
macroeconomic conditions and consumer confidence and spending,
supply chain, information security, cybersecurity, and data
privacy, and our workforce, any of which could have a material
effect on us. For example, the rise in remote working arrangements
by our team members, vendors, and other third parties that began
during the COVID-19 pandemic increases the risk of a data security
compromise and has amplified our already extensive reliance on
computing and information systems and unimpeded Internet
access.
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TARGET CORPORATION |
|
2022 Form 10-K |
11
|
Our earnings depend on the state of macroeconomic conditions and
consumer confidence and spending in the U.S.
Nearly all of our sales are in the U.S., making our results highly
dependent on the health of the U.S. economy and U.S. consumer
confidence and spending, which can be affected by a variety of
factors, including inflation, interest rates, housing prices,
unemployment rates, household debt and wage levels, and credit
usage. In addition, the interconnected nature of the global economy
means that international events such as armed conflicts,
geopolitical conflicts, public health crises, energy availability,
and market volatility can all affect macroeconomic conditions in
the U.S. A deterioration in U.S. macroeconomic conditions or
consumer confidence or spending could adversely affect our business
in many ways, including slowing sales growth, reducing overall
sales, reducing gross margins, and lowering our credit card
profit-sharing revenue, each of which could adversely affect our
results of operations and financial condition.
Uncharacteristic or significant weather conditions or natural
disasters and the impacts of climate change could adversely affect
our results of operations.
Uncharacteristic or significant weather conditions, including the
physical impacts of climate change, can affect consumer shopping
patterns, particularly in apparel and seasonal items, which could
lead to lower sales or greater than expected markdowns and
adversely affect our results of operations. In addition, we have
significant operations in certain states where natural disasters
are more prevalent. Natural disasters in those states or in other
areas where we operate could result in significant physical damage
to or closure of one or more of our stores, distribution centers,
facilities, or key vendors. In addition, weather conditions,
natural disasters, and other catastrophic events in areas where we
or our vendors operate, or depend upon for continued operations,
could adversely affect the availability and cost of certain
products within our supply chain, affect consumer purchasing power,
and reduce consumer demand. Any of these events could adversely
affect our results of operations.
The long-term effects of global climate change are expected to be
widespread and unpredictable. The potential impacts of climate
change present a variety of risks. The physical effects of climate
change, such as extreme weather conditions, drought, and rising sea
levels, could adversely affect our results of operations, including
by increasing our energy costs, disrupting our supply chain,
negatively impacting our workforce, damaging our stores,
distribution centers, and inventory, and threatening the
habitability of the locations in which we operate. In addition to
physical risks, the potential impacts of climate change also
present transition risks, including regulatory and reputational
risks. For example, we use commodities and energy inputs in our
operations that may face increased regulation due to climate change
or other environmental concerns, which could increase our costs.
Furthermore, any failure to achieve our goals with respect to
reducing our impact on the environment, or perception of a failure
to act responsibly with respect to the environment, could adversely
affect our reputation and results of operations.
We rely on a large, global, and changing workforce of team members,
contractors, and temporary staffing. If we do not effectively
manage our workforce, our labor costs and results of operations
could be adversely affected.
With over 400,000 team members, our workforce costs represent our
largest operating expense, and our business is dependent on our
ability to attract, train, and retain the appropriate mix of
qualified team members, contractors, and temporary staffing. Many
team members are in entry-level or part-time positions with high
turnover rates historically. Our ability to meet our changing labor
needs while controlling our costs is subject to external factors
such as labor laws and regulations, unemployment levels, prevailing
wage rates, benefit costs, changing demographics, and our
reputation within the labor market. If we are unable to attract and
retain a workforce meeting our needs, our operations, guest service
levels, support functions, and competitiveness could suffer and our
results of operations could be adversely affected. We are
periodically subject to labor organizing efforts and activism,
which could negatively impact how we are perceived by team members
and our overall reputation. If we become subject to one or more
collective bargaining agreements in the future, it could adversely
affect our labor costs, how we operate our business, and our
results of operations. In addition to our United States operations,
we have support offices in India and China, and any extended
disruption of our operations in our different locations, whether
due to labor difficulties or otherwise, could adversely affect our
results of operations.
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TARGET CORPORATION |
|
2022 Form 10-K |
12
|
Failure to address product safety and sourcing concerns could
adversely affect our results of operations.
If any of our merchandise offerings do not meet applicable safety
standards or Target's or our guests’ expectations regarding safety,
supply chain transparency, and responsible sourcing, we could be
exposed to legal and reputational risks and our results of
operations could be adversely affected. Our vendors must comply
with applicable product safety laws, and we are dependent on them
to ensure that the products we buy comply with all safety
standards. Events that give rise to actual or perceived product
safety concerns, including food or drug contamination and product
defects, could expose us to government enforcement actions and
private litigation and result in costly product recalls and other
liabilities. Our sourcing vendors, including any third parties
selling through our digital channels, must also meet our
expectations across multiple areas of social compliance, including
supply chain transparency and responsible sourcing. We have a
social compliance audit process that performs audits regularly, but
we cannot continuously monitor every vendor, so we are also
dependent on our vendors to ensure that the products we buy comply
with applicable standards. If we need to seek alternative sources
of supply from vendors with whom we have less familiarity, the risk
of our standards not being met may increase. Negative guest
perceptions regarding the safety and sourcing of the products we
sell could harm our reputation and adversely affect our results of
operations.
Our failure to comply with applicable laws, or changes in these
laws, could adversely affect our results of operations and
financial condition.
Our business is subject to a wide variety of complex laws and
regulations.
Our expenses could increase and our operations could be adversely
affected by changes in law or adverse judicial developments
involving our workforce, including an employer’s obligation to
recognize collective bargaining units, minimum wage requirements,
advance scheduling notice requirements, health care or other
mandates, the classification of exempt and non-exempt employees,
and the classification of workers as either employees or
independent contractors. Our Shipt subsidiary is a technology
company that connects Shipt members through its online marketplace
with a network of independent contractors who select, purchase, and
deliver groceries and household essentials ordered from Target and
other retailers. The classification of workers as employees or
independent contractors, in particular, is an area that is
experiencing legal challenges and legislative changes. Our Shipt
subsidiary has faced, and continues to face, legal challenges to
its worker classification. If, as a result of judicial decisions or
legislation, Shipt is required to treat its network of independent
contractors as employees, we may experience higher digital
fulfillment costs, which could adversely affect our results of
operations and financial condition.
Changes in the legal or regulatory environment affecting any other
area of our business, including information security,
cybersecurity, and data privacy, product safety, or payment methods
could cause our expenses to increase and adversely affect our
results of operations. In addition, if we fail to comply with other
applicable laws and regulations, including the Foreign Corrupt
Practices Act and other anti-bribery laws, we could be subject to
legal and reputational risks, including government enforcement
actions and class action civil litigation, which could adversely
affect our results of operations and financial
condition.
Financial Risks
Increases in our effective income tax rate could adversely affect
our results of operations.
Several factors influence our effective income tax rate, including
tax laws and regulations, the related interpretations, and our
ability to sustain our reporting positions on examination. Changes
in any of those factors could change our effective tax rate, which
could adversely affect our net income. In addition, changes in our
operations both in and outside of the U.S. may cause greater
volatility in our effective tax rate.
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TARGET CORPORATION |
|
2022 Form 10-K |
13
|
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|
RISK FACTORS & UNRESOLVED STAFF COMMENTS |
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|
If we are unable to access the capital markets or obtain bank
credit, our financial condition and results of operations could
suffer.
We are dependent on a stable, liquid, and well-functioning
financial system to fund our operations and capital investments.
Our continued access to financial markets depends on multiple
factors including the condition of debt capital markets, our
operating performance, and our credit ratings. If rating agencies
lower our credit ratings, it could adversely affect our ability to
access the debt markets, our cost of funds, and other terms for new
debt issuances. Each of the credit rating agencies reviews its
rating periodically, and there is no guarantee that our current
credit ratings will remain the same. In addition, we use a variety
of derivative products to manage our exposure to market risk,
principally interest rate fluctuations. Disruptions or turmoil in
the financial markets could reduce our ability to fund our
operations and capital investments and lead to losses on derivative
positions from counterparty failures, which could adversely affect
our financial condition and results of operations.
Item 1B. Unresolved Staff
Comments
Not applicable.
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TARGET CORPORATION |
|
2022 Form 10-K |
14
|
Item 2. Properties
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|
Stores as of
January 28, 2023 |
Stores |
Retail Square Feet
(in thousands) |
|
Stores as of
January 28, 2023 |
Stores |
Retail Square Feet
(in thousands) |
|
Alabama |
22 |
|
3,132 |
|
|
Montana |
7 |
|
777 |
|
|
Alaska |
3 |
|
504 |
|
|
Nebraska |
14 |
|
2,005 |
|
|
Arizona |
46 |
|
6,081 |
|
|
Nevada |
18 |
|
2,262 |
|
|
Arkansas |
9 |
|
1,165 |
|
|
New Hampshire |
10 |
|
1,236 |
|
|
California |
314 |
|
37,304 |
|
|
New Jersey |
49 |
|
6,189 |
|
|
Colorado |
45 |
|
6,361 |
|
|
New Mexico |
10 |
|
1,185 |
|
|
Connecticut |
21 |
|
2,732 |
|
|
New York |
100 |
|
10,820 |
|
|
Delaware |
4 |
|
551 |
|
|
North Carolina |
52 |
|
6,653 |
|
|
District of Columbia |
5 |
|
342 |
|
|
North Dakota |
4 |
|
554 |
|
|
Florida |
127 |
|
17,225 |
|
|
Ohio |
65 |
|
7,863 |
|
|
Georgia |
51 |
|
6,826 |
|
|
Oklahoma |
15 |
|
2,167 |
|
|
Hawaii |
8 |
|
1,234 |
|
|
Oregon |
22 |
|
2,353 |
|
|
Idaho |
7 |
|
725 |
|
|
Pennsylvania |
78 |
|
9,260 |
|
|
Illinois |
100 |
|
12,171 |
|
|
Rhode Island |
4 |
|
517 |
|
|
Indiana |
32 |
|
4,186 |
|
|
South Carolina |
20 |
|
2,389 |
|
|
Iowa |
21 |
|
2,859 |
|
|
South Dakota |
5 |
|
580 |
|
|
Kansas |
17 |
|
2,385 |
|
|
Tennessee |
30 |
|
3,815 |
|
|
Kentucky |
14 |
|
1,575 |
|
|
Texas |
154 |
|
21,176 |
|
|
Louisiana |
16 |
|
2,195 |
|
|
Utah |
15 |
|
1,981 |
|
|
Maine |
6 |
|
741 |
|
|
Vermont |
1 |
|
60 |
|
|
Maryland |
41 |
|
5,070 |
|
|
Virginia |
61 |
|
7,789 |
|
|
Massachusetts |
50 |
|
5,546 |
|
|
Washington |
40 |
|
4,424 |
|
|
Michigan |
54 |
|
6,300 |
|
|
West Virginia |
6 |
|
755 |
|
|
Minnesota |
73 |
|
10,332 |
|
|
Wisconsin |
38 |
|
4,614 |
|
|
Mississippi |
6 |
|
743 |
|
|
Wyoming |
3 |
|
257 |
|
|
Missouri |
35 |
|
4,618 |
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|
|
Total |
1,948 |
|
244,584 |
|
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|
Stores and Supply Chain Facilities as of January 28,
2023 |
Stores |
Supply Chain Facilities
(a)
|
|
Owned |
1,530 |
|
37 |
|
|
Leased |
261 |
|
18 |
|
|
Owned buildings on leased land |
157 |
|
— |
|
|
Total |
1,948 |
|
55 |
|
(a)Supply
Chain Facilities includes distribution centers and sortation
centers with a total of 59.2 million square feet.
We own our corporate headquarters buildings located in and around
Minneapolis, Minnesota, and we lease and own additional office
space elsewhere in Minneapolis and the U.S. We also lease office
space in other countries. Our properties are in good condition,
well maintained, and suitable to carry on our
business.
For additional information on our properties, see the
Capital
Expenditures
section in MD&A and
Notes 11
and
17
to the Consolidated Financial Statements.
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TARGET CORPORATION |
|
2022 Form 10-K |
15
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LEGAL PROCEEDINGS & MINE SAFETY DISCLOSURES |
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Item 3. Legal Proceedings
No response is required under Item 103 of Regulation
S-K.
Item 4. Mine Safety
Disclosures
Not applicable.
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TARGET CORPORATION |
|
2022 Form 10-K |
16
|
PART II
Item 5. Market for the Registrant's
Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock is listed on the New York Stock Exchange
under the symbol "TGT." We are authorized to issue up to
6,000,000,000 shares of common stock, par value $0.0833, and up to
5,000,000 shares of preferred stock, par value $0.01. As of
March 2, 2023, there were 13,187 shareholders of record.
Dividends declared per share for 2022, 2021, and 2020, are
disclosed in our
Consolidated
Statements of Shareholders' Investment.
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 at an
average price of $223.52, for a total investment of $5.3 billion.
As of January 28, 2023, 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
January 28, 2023 by Target or any "affiliated purchaser" of
Target, as defined in Rule 10b-18(a)(3) under the Exchange
Act.
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TARGET CORPORATION |
|
2022 Form 10-K |
17
|
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Fiscal Years Ended |
|
|
February 3, 2018 |
February 2, 2019 |
February 1, 2020 |
January 30, 2021 |
January 29, 2022 |
January 28, 2023 |
|
Target |
$ |
100.00 |
|
$ |
100.82 |
|
$ |
161.87 |
|
$ |
270.17 |
|
$ |
329.06 |
|
$ |
260.13 |
|
|
S&P 500 Index |
100.00 |
|
99.94 |
|
121.49 |
|
142.45 |
|
172.36 |
|
160.94 |
|
|
Peer Group |
100.00 |
|
104.28 |
|
126.36 |
|
175.31 |
|
183.63 |
|
156.02 |
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The graph above compares the cumulative total shareholder return on
our common stock for the last five fiscal years with (i) the
cumulative total return on the S&P 500 Index and (ii) the
peer group consisting of 19 online, general merchandise, department
stores, food, and specialty retailers (Albertsons Companies, Inc.,
Amazon.com, Inc., Best Buy Co., Inc., Costco Wholesale Corporation,
CVS Health Corporation, Dollar General Corporation, Dollar Tree,
Inc., The Gap, Inc., The Home Depot, Inc., Kohl's Corporation, The
Kroger Co., Lowe's Companies, Inc., Macy's, Inc., Nordstrom, Inc.,
Rite Aid Corporation, Ross Stores, Inc., The TJX Companies, Inc.,
Walgreens Boots Alliance, Inc., and Walmart Inc.) (Peer Group). The
Peer Group is consistent with the retail peer group described in
our definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on June 14, 2023, excluding Publix Super
Markets, Inc., which is not quoted on a public stock
exchange.
The peer group is weighted by the market capitalization of each
component company. The graph assumes the investment of $100 in
Target common stock, the S&P 500 Index, and the Peer Group
on February 3, 2018, and reinvestment of all
dividends.
Item 6. [Reserved]
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TARGET CORPORATION |
|
2022 Form 10-K |
18
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
|
EXECUTIVE OVERVIEW & FINANCIAL SUMMARY |
|
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Executive Overview
We continue to make strategic investments to support our durable
operating and financial model that further differentiates Target
and is designed to drive sustainable sales and profit growth.
During 2022, in support of our enterprise strategy described
in
Item
1 on page 2
of this Form 10-K, we
•Expanded
our supply chain capacity and digital fulfillment capabilities,
including adding one new distribution center and six new sortation
centers to support our growth and commitment to fast delivery
times, while helping our teams work more efficiently and managing
our shipping costs;
•Fulfilled
over 50 percent of our digital sales through our same-day
fulfillment options: Order Pickup, Drive Up, and delivery via
Shipt;
•Continued
the steady stream of newness across our assortment and continued to
introduce new owned and exclusive brands, including fashion forward
brands Future CollectiveTM
and Houston White x Target;
•Completed
140 full store remodels and invested in hundreds of other stores
through projects to increase efficiency of our Same-Day Services,
build-out and open Ulta Beauty shop-in-shops, and expand Apple and
Disney experiences;
•Opened
23 new stores, including a new larger-footprint store with
reimagined design elements and additional stores in key urban
markets and on college campuses;
•Invested
in our team through our updated starting wage range, expanded
access to health care benefits, and our debt-free education
assistance program;
•Offered
compelling promotions, attractive every day price points on key
items, and free and easy payment and fulfillment options, including
our new RedCard Reloadable Account, which provides all the benefits
of our RedCard program without the need for a credit check or an
existing bank account; and
•Launched
Target Zero, a collection of products designed to reduce waste and
make it easier to shop sustainably, and completed retrofitting our
first store designed to be net zero energy, located in Vista,
California.
Financial Summary
2022 included the following notable items:
•GAAP
diluted earnings per share were $5.98.
•Adjusted
diluted earnings per share were $6.02.
•Total
revenue increased 2.9 percent, reflecting total sales growth of 2.8
percent and a 9.8 percent increase in other revenue.
•Comparable
sales increased 2.2 percent, driven by a 2.1 percent increase in
traffic.
◦Comparable
store originated sales grew 2.4 percent.
◦Comparable
digitally originated sales increased 1.5 percent.
•Operating
income of $3.8 billion was 57.0 percent lower than the comparable
prior-year period. See
Business
Environment
below for additional information.
Sales were $107.6 billion for 2022, an increase of $3.0 billion, or
2.8 percent, from the prior year. Operating cash flow was $4.0
billion for 2022, a decrease of $(4.6) billion, or (53.4) percent,
from $8.6 billion for 2021. The drivers of the operating cash flow
decrease are described on
page
27.
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TARGET CORPORATION |
|
2022 Form 10-K |
19
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|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
|
FINANCIAL SUMMARY & ANALYSIS OF OPERATIONS |
|
|
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|
Earnings Per Share
|
|
|
|
Percent Change |
|
2022 |
2021 |
2020 |
2022/2021 |
2021/2020 |
|
GAAP diluted earnings per share |
$ |
5.98 |
|
$ |
14.10 |
|
$ |
8.64 |
|
(57.6) |
% |
63.1 |
% |
|
Adjustments |
0.03 |
|
(0.53) |
|
0.78 |
|
|
|
|
Adjusted diluted earnings per share |
$ |
6.02 |
|
$ |
13.56 |
|
$ |
9.42 |
|
(55.7) |
% |
44.0 |
% |
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 24.
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 January 28, 2023, after-tax ROIC was 12.6
percent, compared with 33.1 percent for the trailing twelve months
ended January 29, 2022. The calculation of ROIC is provided
on
page
26.
Business Environment
Following the onset of the COVID-19 pandemic in 2020, we
experienced strong comparable sales growth and significant
volatility in our category and channel mix, which continued through
2021, along with increasing supply chain disruptions. In addition
to country of origin production delays, trucker and dockworker
shortages, a broad-based surge in consumer demand, and other
factors led to industry-wide U.S. port and ground transportation
delays. In response to the rising guest demand and supply chain
constraints, we took various actions, including ordering
merchandise earlier, securing ocean freight routes, adding
incremental holding capacity near U.S. ports, and increasing use of
air transport for certain merchandise. Some of these supply chain
disruptions and resulting actions resulted in increased
costs.
In 2022, our comparable sales growth slowed significantly,
reflecting sales decreases in our Discretionary categories (Apparel
& Accessories, Hardlines, and Home Furnishings & Decor)
that substantially offset growth in our Frequency categories
(Beauty & Household Essentials and Food & Beverage). In
response to this shift in demand, we took several actions to
address our inventory position and create additional flexibility in
a rapidly changing environment, including increasing promotional
and clearance markdowns, removing excess inventory, and cancelling
purchase orders. In addition, during the second half of 2022, port
congestion, shipping container availability, and other supply chain
pressures improved. This resulted in some inventory arriving
earlier than anticipated, which resulted in increased costs of
managing elevated inventory levels and an increased working capital
investment. These factors, net of the impact of retail price
increases taken to address merchandise and freight cost inflation,
resulted in decreased profitability compared to the prior year. The
Gross Margin Rate analysis on
page
23
and Inventory section on
page
27
provide additional information.
Sale of Dermstore
In February 2021, we sold Dermstore LLC (Dermstore) for $356
million in cash and recognized a $335 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.
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TARGET CORPORATION |
|
2022 Form 10-K |
20
|
|
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|
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
|
ANALYSIS OF OPERATIONS |
|
Analysis of Results of Operations
|
|
|
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|
|
|
|
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|
|
Summary of Operating Income |
|
|
|
Percent Change |
|
(dollars in millions) |
2022 |
2021 |
2020 |
2022/2021 |
2021/2020 |
|
Sales |
$ |
107,588 |
|
$ |
104,611 |
|
$ |
92,400 |
|
2.8 |
% |
13.2 |
% |
|
Other revenue |
1,532 |
|
1,394 |
|
1,161 |
|
9.8 |
|
20.2 |
|
|
Total revenue |
109,120 |
|
106,005 |
|
93,561 |
|
2.9 |
|
13.3 |
|
|
Cost of sales |
82,229 |
|
74,963 |
|
66,177 |
|
9.7 |
|
13.3 |
|
|
SG&A expenses |
20,658 |
|
19,752 |
|
18,615 |
|
4.6 |
|
6.1 |
|
|
Depreciation and amortization (exclusive of depreciation
included in cost of sales)
|
2,385 |
|
2,344 |
|
2,230 |
|
1.8 |
|
5.1 |
|
|
Operating income |
$ |
3,848 |
|
$ |
8,946 |
|
$ |
6,539 |
|
(57.0) |
% |
36.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate Analysis |
2022 |
2021 |
2020 |
|
Gross margin rate |
23.6 |
% |
28.3 |
% |
28.4 |
% |
|
SG&A expense rate |
18.9 |
|
18.6 |
|
19.9 |
|
|
Depreciation and amortization (exclusive of depreciation included
in cost of sales) expense rate
|
2.2 |
|
2.2 |
|
2.4 |
|
|
Operating income margin rate |
3.5 |
|
8.4 |
|
7.0 |
|
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.
A discussion regarding Analysis of Results of Operations and
Analysis of Financial Condition for 2021, as compared to 2020, is
included in
Part II, Item 7, MD&A
to our Annual Report on Form 10-K for the year ended
January 29, 2022.
Sales
Sales include all merchandise sales, net of expected returns, and
our estimate of gift card breakage.
Note 3
to the Financial Statements defines gift card "breakage." We use
comparable sales to evaluate the performance of our stores and
digital channel sales by measuring the change in sales for a period
over the comparable, prior-year period of equivalent length.
Comparable sales include all sales, except sales from stores open
less than 13 months, digital acquisitions we have owned less than
13 months, stores that have been closed, and digital acquisitions
that we no longer operate. Comparable sales measures vary across
the retail industry. As a result, our comparable sales calculation
is not necessarily comparable to similarly titled measures reported
by other companies. Digitally originated sales include all sales
initiated through mobile applications and our websites. Our stores
fulfill the majority of digitally originated sales, including
shipment from stores to guests, store Order Pickup or Drive Up, and
delivery via Shipt. Digitally originated sales may also be
fulfilled through our distribution centers, our vendors, or other
third parties.
Sales growth – from both comparable sales and new stores –
represents an important driver of our long-term profitability. We
expect that comparable sales growth will drive the majority of our
total sales growth. We believe that our ability to successfully
differentiate our guests’ shopping experience through a careful
combination of merchandise assortment, price, convenience, guest
experience, and other factors will over the long-term drive both
increasing shopping frequency (number of transactions, or
"traffic") and the amount spent each visit (average transaction
amount).
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Sales |
2022 |
2021 |
2020 |
|
Comparable sales change |
2.2 |
% |
12.7 |
% |
19.3 |
% |
|
Drivers of change in comparable sales |
|
|
|
|
Number of transactions (traffic) |
2.1 |
|
12.3 |
|
3.7 |
|
|
Average transaction amount |
0.1 |
|
0.4 |
|
15.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TARGET CORPORATION |
|
2022 Form 10-K |
21
|
|
|
|
|
|
|
|
|
|
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
|
ANALYSIS OF OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Sales by Channel |
2022 |
2021 |
2020 |
|
Stores originated comparable sales change |
2.4 |
% |
11.0 |
% |
7.2 |
% |
|
Digitally originated comparable sales change |
1.5 |
|
20.8 |
|
144.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by Channel |
2022 |
2021 |
2020 |
|
Stores originated |
81.4 |
% |
81.1 |
% |
82.1 |
% |
|
Digitally originated |
18.6 |
|
18.9 |
|
17.9 |
|
|
Total |
100 |
% |
100 |
% |
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by Fulfillment Channel |
2022 |
2021 |
2020 |
|
Stores |
96.7 |
% |
96.4 |
% |
96.0 |
% |
|
Other |
3.3 |
|
3.6 |
|
4.0 |
|
|
Total |
100 |
% |
100 |
% |
100 |
% |
Note: Sales fulfilled by stores include in-store purchases and
digitally originated sales fulfilled by shipping merchandise from
stores to guests, Order Pickup, Drive Up, and Shipt.
Part
I,
Item 1,
Business
of
this Form
10-K
and
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 transfer of sales to new stores makes
further analysis of sales metrics infeasible.
TD Bank Group offers credit to qualified guests through
Target-branded credit cards: the Target Credit Card and the Target
MasterCard Credit Card (Target Credit Cards). Additionally, we
offer a branded proprietary Target Debit Card and RedCard
Reloadable Account. Collectively, we refer to these products as
RedCards™. Guests receive a 5 percent discount on virtually all
purchases when they use a RedCard at Target. 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 incremental purchases on our RedCards are
also incremental sales for Target. For the years ended
January 28, 2023, January 29, 2022, and January 30,
2021, total RedCard Penetration was 19.8 percent, 20.5 percent, and
21.5 percent, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
TARGET CORPORATION |
|
2022 Form 10-K |
22
|
|
|
|
|
|
|
|
|
|
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
|
ANALYSIS OF OPERATIONS |
|
Gross Margin Rate
Our gross margin rate was 23.6 percent in 2022 and
28.3 percent in 2021. This decrease reflected the net impact
of
•merchandising
pressure, including
◦higher
clearance and promotional markdown rates, including the impact of
inventory impairments and other actions taken in our Discretionary
categories; and
◦higher
merchandise and freight costs, partially offset by the benefit of
retail price increases;
•supply
chain pressure related to increased compensation and headcount in
our distribution centers, investments in new facilities, and costs
of managing excess inventory;
•higher
inventory shrink; and
•favorable
mix in the relative growth rates of higher and lower margin
categories.
Selling, General and Administrative (SG&A) Expense
Rate
Our SG&A expense rate was 18.9 percent in 2022, compared
with 18.6 percent in 2021, reflecting the net impact of cost
increases across our business, including investments in hourly team
member wages, partially offset by lower incentive compensation in
2022 compared to the prior year.
Store Data
|
|
|
|
|
|
|
|
|
|
Change in Number of Stores |
2022 |
2021 |
|
Beginning store count |
1,926 |
|
1,897 |
|
|
Opened |
23 |
|
32 |
|
|
Closed |
(1) |
|
(3) |
|
|
|
|
|
Ending store count |
1,948 |
|
1,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Stores and
Retail Square Feet |
Number of Stores |
|
Retail Square Feet
(a)
|
|
January 28, 2023 |
January 29, 2022 |
|
January 28, 2023 |
January 29, 2022 |
|
170,000 or more sq. ft. |
274 |
|
274 |
|
|
48,985 |
|
49,071 |
|
|
50,000 to 169,999 sq. ft. |
1,527 |
|
1,516 |
|
|
191,241 |
|
190,205 |
|
|
49,999 or less sq. ft. |
147 |
|
136 |
|
|
4,358 |
|
4,008 |
|
|
Total |
1,948 |
|
1,926 |
|
|
244,584 |
|
243,284 |
|
(a)In
thousands; reflects total square feet less office, distribution
center, and vacant space.
|
|
|
|
|
|
|
|
|
|
|
|
|
TARGET CORPORATION |
|
2022 Form 10-K |
23
|
|
|
|
|
|
|
|
|
|
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
|
ANALYSIS OF OPERATIONS |
|
Other Performance Factors
Net Interest Expense
Net interest expense was $478 million for 2022, compared with $421
million for 2021. The increase in net interest expense was
primarily due to higher average debt and commercial paper levels in
2022 compared with 2021.
Net Other (Income) / Expense
Net Other (Income) / Expense was $(48) million and
$(382) million for 2022 and 2021, respectively. 2021 included
the $335 million gain on the February 2021 sale of
Dermstore.
Provision for Income Taxes
Our 2022 effective income tax rate was 18.7 percent compared
with 22.0 percent in 2021. The decrease reflects lower pretax
earnings in the current year and the impacts of discrete tax
benefits. 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.
Note 18
to the Financial Statements provides additional
information.
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, generally accepted accounting principles in the
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 than we do, limiting the usefulness of the measure for
comparisons with other companies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Non-GAAP
Adjusted EPS |
|
2022 |
|
2021 |
|
2020 |
|
(millions, except per share data) |
|
Pretax |
|
Net of Tax |
|
Per Share Amounts |
|
Pretax |
|
Net of Tax |
|
Per Share Amounts |
|
Pretax |
|
Net of Tax |
|
Per Share Amounts |
|
GAAP diluted earnings per share
|
|
|
|
|
|
$ |
5.98 |
|
|
|
|
|
|
$ |
14.10 |
|
|
|
|
|
|
$ |
8.64 |
|
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on Dermstore Sale |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(335) |
|
|
$ |
(269) |
|
|
$ |
(0.55) |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Loss on debt extinguishment |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
512 |
|
|
379 |
|
|
0.75 |
|
|
Loss on investment
(a)
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
19 |
|
|
14 |
|
|
0.03 |
|
|
Other
(b)
|
|
20 |
|
|
15 |
|
|
0.03 |
|
|
9 |
|
|
7 |
|
|
0.01 |
|
|
28 |
|
|
20 |
|
|
0.04 |
|
|
Income tax matters
(c)
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(21) |
|
|
(0.04) |
|
|
Adjusted diluted earnings per share
|
|
|
|
|
|
$ |
6.02 |
|
|
|
|
|
|
$ |
13.56 |
|
|
|
|
|
|
$ |
9.42 |
|
Note: Amounts may not foot due to rounding.
(a)Represents
a loss on our investment in Casper Sleep Inc., which is not core to
our operations.
(b)Other
items unrelated to current period operations, none of which were
individually significant.
(c)Represents
benefits from the resolution of certain income tax matters
unrelated to current period operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
TARGET CORPORATION |
|
2022 Form 10-K |
24
|
|
|
|
|
|
|
|
|
|
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
|
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES |
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT and EBITDA |
|
|
Percent Change |
|
(dollars in millions) |
2022 |
2021 |
2020 |
2022/2021 |
2021/2020 |
|
Net earnings |
$ |
2,780 |
|
$ |
6,946 |
|
$ |
4,368 |
|
(60.0) |
% |
59.0 |
% |
|
+ Provision for income taxes |
638 |
|
1,961 |
|
1,178 |
|
(67.5) |
|
66.5 |
|
|
+ Net interest expense |
478 |
|
421 |
|
977 |
|
13.4 |
|
(56.9) |
|
|
EBIT
|
$ |
3,896 |
|
$ |
9,328 |
|
$ |
6,523 |
|
(58.2) |
% |
43.0 |
% |
|
+ Total depreciation and amortization
(a)
|
2,700 |
|
2,642 |
|
2,485 |
|
2.2 |
|
6.3 |
|
|
EBITDA
|
$ |
6,596 |
|
$ |
11,970 |
|
$ |
9,008 |
|
(44.9) |
% |
32.9 |
% |
(a)Represents
total depreciation and amortization, including amounts classified
within Depreciation and Amortization and within Cost of
Sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
TARGET CORPORATION |
|
2022 Form 10-K |
25
|
|
|
|
|
|
|
|
|
|
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
|
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES |
|
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
|
|
January 28, 2023 |
|
January 29, 2022 |
|
|
|
Operating income
|
|
$ |
3,848 |
|
|
$ |
8,946 |
|
|
|
|
+ Net other income / (expense) |
|
48 |
|
|
382 |
|
|
|
|
EBIT |
|
3,896 |
|
|
9,328 |
|
|
|
|
+ Operating lease interest
(a)
|
|
93 |
|
|
87 |
|
|
|
|
- Income taxes
(b)
|
|
744 |
|
|
2,073 |
|
|
|
|
Net operating profit after taxes |
|
$ |
3,245 |
|
|
$ |
7,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
January 28, 2023 |
|
January 29, 2022 |
|
January 30, 2021 |
|
Current portion of long-term debt and other borrowings |
|
$ |
130 |
|
|
$ |
171 |
|
|
$ |
1,144 |
|
|
+ Noncurrent portion of long-term debt |
|
16,009 |
|
|
13,549 |
|
|
11,536 |
|
|
+ Shareholders' investment |
|
11,232 |
|
|
12,827 |
|
|
14,440 |
|
|
+ Operating lease liabilities
(c)
|
|
2,934 |
|
|
2,747 |
|
|
2,429 |
|
|
- Cash and cash equivalents |
|
2,229 |
|
|
5,911 |
|
|
8,511 |
|
|
Invested capital |
|
$ |
28,076 |
|
|
$ |
23,383 |
|
|
$ |
21,038 |
|
|
Average invested capital
(d)
|
|
$ |
25,729 |
|
|
$ |
22,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax return on invested capital |
|
12.6 |
% |
|
33.1 |
% |
|
|
(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, which were 18.7 percent and 22.0
percent for the trailing twelve months ended January 28, 2023,
and January 29, 2022, respectively. For the trailing twelve
months ended January 28, 2023, and January 29, 2022,
includes tax effect of $0.7 billion and $2.1 billion, respectively,
related to EBIT, and $17 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, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
TARGET CORPORATION |
|
2022 Form 10-K |
26
|
|
|
|
|
|
|
|
|
|
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
|
ANALYSIS OF FINANCIAL CONDITION |
|
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.
Our year-end cash and cash equivalents balance decreased to $2.2
billion from $5.9 billion in 2021. Our cash and cash equivalents
balance includes short-term investments of $1.3 billion and $5.0
billion as of January 28, 2023, and January 29, 2022,
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
Cash flows provided by operating activities were $4.0 billion in
2022 compared with $8.6 billion in 2021. For 2022, operating cash
flows decreased as a result of lower earnings and lower accounts
payable leverage, partially offset by decreased inventory
investment, compared with 2021.
Inventory
Year-end inventory was $13.5 billion, compared with $13.9 billion
in 2021. The decrease in inventory levels primarily reflects the
following:
•decreased
in-transit and late-arriving inventory as lead times
improved,
•investments
in our inventory position in our Frequency categories, offsetting
reductions in our Discretionary categories, and
•increases
in unit costs across all of our categories.
The Business Environment section on
page
20
provides additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
TARGET CORPORATION |
|
2022 Form 10-K |
27
|
|
|
|
|
|
|
|
|
|
|
MANAGEMENT'S DISCUSSION AND ANALYSIS |
|
|
ANALYSIS OF FINANCIAL CONDITION |
|
Capital Expenditures
Note: Amounts may not foot due to rounding.
Capital expenditures increased in 2022 from the prior year as we
invested in our strategic initiatives, including an increase in
investments in both stores and in our supply chain. The increase
also reflects the impact of inflation on these projects. Beyond
full-store remodels, we invested in optimizing front-end space in
high-volume locations to increase the efficiency of our Same-Day
Services, and built-out and opened approximately 250 Ulta Beauty
shop-in-shops. We have completed over 1,000 full-store remodels
since the launch of the current program in 2017, including 140 in
2022.
In addition to these cash investments, we entered into leases
related to new stores in 2022, 2021, and 2020 with total future
minimum lease payments of $319 million, $401 million, and $764
million, respectively, and new leases related to our supply chain
with total future minimum lease payments of $1.6 billion, $226
million, and $442 million, respectively.
We expect capital expenditures in 2023 of approximately $4.0
billion to $5.0 billion to support full-store remodels and other
existing store investments, new stores, and supply chain projects.
Supply chain projects will add replenishment capacity and modernize
our network, including the use of sortation centers to enhance our
last-mile delivery capabilities. We expect to complete
approximately 70 full-store remodels, open about 20 new stores, and
add additional Ulta Beauty shop-in-shops during 2023. Additionally,
we will continue to invest in optimizing front-end space. We also
expect to continue to invest in new store and supply chain
leases.
Dividends
We paid dividends totaling $1.8 billion ($3.96 per share) in 2022
and $1.5 billion ($3.16 per share) in 2021, a per share increase of
25.3 percent. We declared dividends totaling $1.9
billion ($4.14 per share) in 2022 and $1.7 billion ($3.38 per
share) in 2021, a per share increase of 22.5 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.
Share Repurchases
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TARGET CORPORATION |
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2022 Form 10-K |
28
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
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ANALYSIS OF FINANCIAL CONDITION |
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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
January 28, 2023, our credit ratings were as
follows:
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Credit Ratings |
Moody's |
Standard and Poor's |
Fitch |
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Long-term debt |
A2 |
A |
A |
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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.
In 2022, we issued $2.7 billion of debt, and we repaid $62 million
of debt at maturity.
In 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. No balances
were outstanding under either credit facility at any time during
2022 or 2021.
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 January 28, 2023, 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.
Note
15
to the Financial Statements provides additional
information.
Future Cash Requirements
We enter into contractual obligations in the ordinary course of
business that may require future cash payments. Such obligations
include, but are not limited to, purchase commitments, debt
service, leasing arrangements, and liabilities related to deferred
compensation and pensions. The
Notes to
the Consolidated Financial Statements
provide additional information.
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 capital expenditure requirements, finance
anticipated expansion and strategic initiatives, fund debt
maturities, pay dividends, and execute purchases under our share
repurchase program for the foreseeable future.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance
with GAAP, which requires us to make estimates and apply judgments
that affect the reported amounts. In the
Notes to
the Consolidated Financial Statements,
we describe the significant accounting policies used in preparing
the consolidated financial statements. Our management has discussed
the
development, selection, and disclosure of our critical accounting
estimates with the Audit & Risk Committee of our Board
of Directors. The following items require significant estimation or
judgment:
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TARGET CORPORATION |
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2022 Form 10-K |
29
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
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ANALYSIS OF FINANCIAL CONDITION |
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Inventory and cost of sales: The
vast majority of our inventory is accounted for under the retail
inventory accounting method using the last-in, first-out method
(LIFO). Our inventory is valued at the lower of LIFO cost or
market. We reduce inventory for estimated losses related to shrink
and markdowns. Our shrink estimate is based on historical losses
verified by physical inventory counts. Historically, our actual
physical inventory count results have shown our estimates to be
reliable. Market adjustments for markdowns are recorded when the
salability of the merchandise has diminished. Salability can be
impacted by consumer preferences and seasonality, among other
factors. We believe the risk of inventory obsolescence is largely
mitigated because our inventory typically turns in less than three
months. Inventory was $13.5 billion and $13.9 billion as of
January 28, 2023, and January 29, 2022, respectively, and
is further described in
Note 9
to the Financial Statements.
Vendor income: We
receive various forms of consideration from our vendors (vendor
income), principally earned as a result of volume rebates, markdown
allowances, promotions, and advertising allowances. Substantially
all vendor income is recorded as a reduction of cost of sales.
Vendor income earned can vary based on a number of factors,
including purchase volumes, sales volumes, and our pricing and
promotion strategies.
We establish a receivable for vendor income that is earned but not
yet received. Based on historical trending and data, this
receivable is computed by forecasting vendor income collections and
estimating the amount earned. The majority of the year-end vendor
income receivables are collected within the following fiscal
quarter, and we do not believe there is a reasonable likelihood
that the assumptions used in our estimate will change
significantly. Historically, adjustments to our vendor income
receivable have not been material. Vendor income receivable was
$526 million and $518 million as of January 28, 2023, and
January 29, 2022, respectively. Vendor income is described
further in
Note 5
to the Financial Statements.
Long-lived assets: Long-lived
assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amounts may not be
recoverable. The evaluation is performed primarily at the store
level. An impairment loss is recognized when estimated undiscounted
future cash flows from the operation and/or eventual disposition of
the asset or asset group is less than its carrying amount, and is
measured as the excess of its carrying amount over fair value. We
estimate fair value by obtaining market appraisals, obtaining
valuations from third-party brokers, or using other valuation
techniques. We recorded impairments of $66 million, $87 million,
and $62 million in 2022, 2021, and 2020, respectively, which are
described further in
Note
11
to the Financial Statements.
Insurance/self-insurance: We
retain a substantial portion of the risk related to certain general
liability, workers' compensation, property loss, and team member
medical and dental claims. However, we maintain stop-loss coverage
to limit the exposure related to certain risks. Liabilities
associated with these losses include estimates of both claims filed
and losses incurred but not yet reported. We use actuarial methods
which consider a number of factors to estimate our ultimate cost of
losses. General liability and workers' compensation liabilities are
recorded based on our estimate of their net present value; other
liabilities referred to above are not discounted. Our workers'
compensation and general liability accrual was $560 million and
$519 million as of January 28, 2023, and January 29,
2022, respectively. We believe that the amounts accrued are
appropriate; however, our liabilities could be significantly
affected if future occurrences or loss developments differ from our
assumptions. For example, a 5 percent increase or decrease in
average claim costs would have impacted our self-insurance expense
by $28 million in 2022. Historically, adjustments to our
estimates have not been material. Refer to
Part
II,
Item 7A,
Quantitative
and Qualitative Disclosures About Market
Risk,
for further disclosure of the market risks associated with these
exposures. We maintain insurance coverage to limit our exposure to
certain events, including network security matters.
Income taxes: We
pay income taxes based on the tax statutes, regulations, and case
law of the various jurisdictions in which we operate. Significant
judgment is required in determining the timing and amounts of
deductible and taxable items, and in evaluating the ultimate
resolution of tax matters in dispute with tax authorities. The
benefits of uncertain tax positions are recorded in our financial
statements only after determining it is likely the uncertain tax
positions would withstand challenge by taxing authorities. We
periodically reassess these probabilities and record any changes in
the financial statements as appropriate. Gross uncertain tax
positions, including interest and penalties, were $241 million and
$138 million as of January 28, 2023, and January 29,
2022, respectively. We believe the resolution of these matters will
not materially affect our consolidated financial statements. Income
taxes are described further in
Note 18
to the Financial Statements.
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TARGET CORPORATION |
|
2022 Form 10-K |
30
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
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ANALYSIS OF FINANCIAL CONDITION & NEW ACCOUNTING
PRONOUNCEMENTS |
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Pension accounting: We
maintain a funded qualified defined benefit pension plan, as well
as nonqualified and international pension plans that are generally
unfunded, for certain current and retired team members. The costs
for these plans are determined based on actuarial calculations
using the assumptions described in the following paragraphs.
Eligibility and the level of benefits vary depending on each team
member's full-time or part-time status, date of hire, age, length
of service, and/or compensation. The benefit obligation and related
expense for these plans are determined based on actuarial
calculations using assumptions about the expected long-term rate of
return, the discount rate, compensation growth rates, mortality,
and retirement age. These assumptions, with adjustments made for
any significant plan or participant changes, are used to determine
the period-end benefit obligation and establish expense for the
next year.
Our 2022 expected long-term rate of return on plan assets of
5.60 percent was determined by the portfolio composition,
historical long-term investment performance, and current market
conditions. A 1 percentage point decrease in our expected long-term
rate of return would increase annual expense by
$42 million.
The discount rate used to determine benefit obligations is adjusted
annually based on the interest rate for long-term high-quality
corporate bonds, using yields for maturities that are in line with
the duration of our pension liabilities. Our benefit obligation and
related expense will fluctuate with changes in interest rates. A
1 percentage point decrease in the weighted average discount
rate would increase annual expense by
$59 million.
Based on our experience, we use a graduated compensation growth
schedule that assumes higher compensation growth for younger,
shorter-service pension-eligible team members than it does for
older, longer-service pension-eligible team members.
Pension benefits are further described in
Note 23
to the Financial Statements.
Legal and other contingencies: We
believe the accruals recorded in our consolidated financial
statements properly reflect loss exposures that are both probable
and reasonably estimable. We do not believe any of the currently
identified claims or litigation will materially affect our results
of operations, cash flows, or financial condition. However,
litigation is subject to inherent uncertainties, and unfavorable
rulings could occur. If an unfavorable ruling were to occur, it may
cause a material adverse impact on the results of operations, cash
flows, or financial condition for the period in which the ruling
occurs, or future periods. Refer to
Note
14
to the Financial Statements for further information on
contingencies.
New Accounting Pronouncements
We do not expect that any recently issued accounting pronouncements
will have a material effect on our financial
statements.
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TARGET CORPORATION |
|
2022 Form 10-K |
31
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MANAGEMENT'S DISCUSSION AND ANALYSIS |
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FORWARD LOOKING STATEMENTS & QUANTITATIVE AND QUALITATIVE
DISCLOSURES |
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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 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 contributions and payments related to our
pension plan, the expected return on plan assets, the expected
timing and recognition of compensation expenses, the adequacy of
our reserves for general liability, workers' compensation, and
property loss, the expected outcome of, and adequacy of our
reserves for claims, litigation, and the resolution of tax matters,
our expectations regarding our contractual obligations,
liabilities, and vendor income, the expected ability to recognize
deferred tax assets and liabilities and the timing of such
recognition, our expectations regarding arrangements with our
partners, 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
to this Form 10-K, 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 7A. Quantitative and Qualitative
Disclosures About Market Risk
As of January 28, 2023, our exposure to market risk was
primarily from interest rate changes on our debt obligations and
short-term investments, some of which are at a London Interbank
Offered Rate (LIBOR). Our interest rate exposure is primarily due
to differences between our floating rate debt obligations compared
to our floating rate short-term investments. As of January 28,
2023, our floating rate debt exceeded our floating rate short-term
investments by approximately $1.2 billion. Based on our
balance sheet position as of January 28, 2023, the annualized
effect of a 0.1 percentage point increase in floating interest
rates on our floating rate debt obligations, net of our floating
rate short-term investments, would decrease our earnings before
income taxes by $1 million. In general, we expect our floating
rate debt to exceed our floating rate short-term investments over
time, but that may vary in different interest rate and economic
environments. See further description of our debt and derivative
instruments in
Notes 15
and
16
to the Financial Statements.
The United Kingdom's Financial Conduct Authority has announced the
intent to phase out LIBOR by June 2023. We do not expect the phase
out to materially impact our financial statements, liquidity, or
access to capital markets.
We record our general liability and workers' compensation
liabilities at net present value; therefore, these liabilities
fluctuate with changes in interest rates. Based on our balance
sheet position as of January 28, 2023, the annualized effect
of a 0.5 percentage point increase/(decrease) in interest
rates would increase/(decrease) earnings before income taxes by $7
million.
In addition, we are exposed to market return fluctuations on our
qualified defined benefit pension plan. The value of our pension
liabilities is inversely related to changes in interest rates. A 1
percentage point decrease in the weighted average discount rate
would increase annual expense by $59 million. To protect against
declines in interest rates, we hold high-quality, long-duration
bonds and derivative instruments in our pension plan trust. As of
January 28, 2023, we had hedged 70 percent of the
interest rate exposure of our plan liabilities.
As more fully described in
Note
22
to the Financial Statements, we are exposed to market returns on
accumulated team member balances in our nonqualified, unfunded
deferred compensation plans. We control the risk of offering the
nonqualified plans by making investments in life insurance
contracts and prepaid forward contracts on our own common stock
that substantially offset our economic exposure to the returns on
these plans.
There have been no other material changes in our primary risk
exposures or management of market risks since the prior
year.
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TARGET CORPORATION |
|
2022 Form 10-K |
32
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FINANCIAL STATEMENTS |
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INDEX |
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Item 8. Financial Statements and
Supplementary Data
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |
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Reports of Independent Registered Public Accounting
Firm
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TARGET CORPORATION |
|
2022 Form 10-K |
33
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FINANCIAL STATEMENTS |
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REPORTS |
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Report of Management on the Consolidated Financial
Statements
Management is responsible for the consistency, integrity, and
presentation of the information in the Annual Report. The
consolidated financial statements and other information presented
in this Annual Report have been prepared in accordance with
accounting principles generally accepted in the United States and
include necessary judgments and estimates by
management.
To fulfill our responsibility, we maintain comprehensive systems of
internal control designed to provide reasonable assurance that
assets are safeguarded and transactions are executed in accordance
with established procedures. The concept of reasonable assurance is
based upon recognition that the cost of the controls should not
exceed the benefit derived. We believe our systems of internal
control provide this reasonable assurance.
The Board of Directors exercised its oversight role with respect to
the Corporation's systems of internal control primarily through its
Audit & Risk Committee, which is comprised of independent
directors. The Committee oversees the Corporation's systems of
internal control, accounting practices, financial reporting and
audits to assess whether their quality, integrity, and objectivity
are sufficient to protect shareholders' investments.
In addition, our consolidated financial statements have been
audited by Ernst & Young LLP, independent registered
public accounting firm, whose report also appears on this
page.
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/s/ Brian C. Cornell |
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/s/ Michael J. Fiddelke
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Brian C. Cornell
Chair of the Board and Chief Executive
Officer
March 8,
2023 |
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Michael J. Fiddelke
Executive Vice President and
Chief Financial Officer |
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Report of Independent Registered Public Accounting
Firm
To the Shareholders and the Board of Directors of
Target Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of
financial position of Target Corporation (the Corporation) as of
January 28, 2023 and January 29, 2022, the related
consolidated statements of operations, comprehensive income, cash
flows and shareholders' investment for each of the three years in
the period ended January 28, 2023, and the related notes
(collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of
the Corporation at January 28, 2023 and January 29, 2022,
and the results of its operations and its cash flows for each of
the three years in the period ended January 28, 2023, in
conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States) (PCAOB),
the Corporation's internal control over financial reporting as of
January 28, 2023, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) and our
report dated March 8, 2023 expressed an unqualified opinion
thereon.
Basis for Opinion
These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an
opinion on the Corporation’s financial statements based on our
audits. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Corporation
in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the
risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising
from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially
challenging, subjective or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are
not, by communicating the critical audit matters below, providing
separate opinions on the critical audit matters or on the accounts
or disclosures to which they relate.
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TARGET CORPORATION |
|
2022 Form 10-K |
34
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FINANCIAL STATEMENTS |
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REPORTS |
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Valuation of Inventory and related Cost of Sales
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Description of the Matter
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At January 28, 2023, the Corporation’s inventory was $13,499
million. As described in Note 9 to the consolidated financial
statements, the Corporation accounts for the vast majority of its
inventory under the retail inventory accounting method (RIM) using
the last-in, first-out (LIFO) method. RIM is an averaging method
that has been widely used in the retail industry due to its
practicality. Under RIM, inventory cost and the resulting gross
margins are calculated by applying a cost-to-retail ratio to the
inventory retail value.
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Auditing inventory requires extensive audit effort including
significant involvement of more experienced audit team members,
including the involvement of our information technology (IT)
professionals, given the relatively higher level of automation
impacting the inventory process including the involvement of
multiple information systems used to capture the high volume of
transactions processed by the Corporation. Further, the inventory
process is supported by a number of automated and IT dependent
controls that elevate the importance of the IT general controls
that support the underlying information systems utilized to process
transactions.
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How We Addressed the Matter in Our Audit
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We obtained an understanding, evaluated the design and tested the
operating effectiveness of controls over the Corporation’s
inventory process, including the underlying IT general controls.
For example, we tested automated controls performed by the
Corporation’s information systems and controls over the
completeness of data transfers between information systems used in
performing the Corporation’s RIM calculation. Our audit procedures
included, among others, testing the processing scenarios of the
automated controls by evaluating configuration settings and
performing a transaction walkthrough for each scenario. |
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Our audit procedures also included, among others, testing the key
inputs into the RIM calculation, including purchases, sales,
shortage, and price changes (markdowns) by comparing the key inputs
back to source information such as third-party vendor invoices,
third-party inventory count information and cash receipts. We also
performed analytical procedures. For example, we performed
predictive markdown analytics based on inquiries held with members
of the merchant organization to assess the level of price changes
within each category. In addition, we tested the existence of
inventories by observing physical inventory counts for a sample of
stores and distribution centers.
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Valuation of Vendor Income Receivable
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Description of the Matter
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At January 28, 2023, the Corporation’s vendor income receivable
totaled $526 million. As discussed in Note 5 of the consolidated
financial statements, the Corporation receives consideration for a
variety of vendor-sponsored programs, which are primarily recorded
as a reduction of cost of sales when earned. The Corporation
records a receivable for amounts earned but not yet
received.
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Auditing the Corporation's vendor income receivable was complex due
to the estimation required in measuring the receivable. The
estimate was sensitive to significant assumptions, such as
forecasted vendor income collections, and estimating the time
period over which the collections have been earned, which is
primarily based on historical trending and data.
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How We Addressed the Matter in Our Audit
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We obtained an understanding, evaluated the design and tested the
operating effectiveness of controls over the Corporation’s vendor
income receivable process, including controls over management’s
review of the significant assumptions described above.
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To test the estimated vendor income receivable, we performed audit
procedures that included, among others, assessing the estimation
methodology used by management and evaluating the forecasted vendor
income collections and the time period over which collections have
been earned as used in the receivable estimation model. For a
sample of the vendor rebates and concessions, we evaluated the
nature and source of the inputs used and the terms of the
contractual agreements. We recalculated the amount of the vendor
income earned based on the inputs and the terms of the agreements.
In addition, we recalculated the time period over which the vendor
income collection had been earned to assess the accuracy of
management’s estimates. We also performed sensitivity analyses of
significant assumptions to evaluate the significance of changes in
the receivable that would result from changes in
assumptions.
|
/s/ Ernst & Young LLP
We have served as the Corporation's auditor since
1931.
Minneapolis, Minnesota
March 8, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
TARGET CORPORATION |
|
2022 Form 10-K |
35
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS |
|
|
REPORTS |
|
Report of Management on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is
defined in Exchange Act Rules 13a-15(f). Under the supervision
and with the participation of our management, including our chief
executive officer and chief financial officer, we assessed the
effectiveness of our internal control over financial reporting as
of January 28, 2023, based on the framework in
Internal Control—Integrated Framework (2013),
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework). Based on our assessment, we conclude
that the Corporation's internal control over financial reporting is
effective based on those criteria.
Our internal control over financial reporting as of
January 28, 2023, has been audited by Ernst &
Young LLP, the independent registered public accounting firm
who has also audited our consolidated financial statements, as
stated in their report which appears on this page.
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Brian C. Cornell |
|
/s/ Michael J. Fiddelke
|
Brian C. Cornell
Chair of the Board and Chief Executive
Officer
March 8,
2023 |
|
Michael J. Fiddelke
Executive Vice President and
Chief Financial Officer |
|
|
|
Report of Independent Registered Public Accounting
Firm
To the Shareholders and the Board of Directors of
Target Corporation
Opinion on Internal Control Over Financial Reporting
We have audited Target Corporation’s internal control over
financial reporting as of January 28, 2023, based on criteria
established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) (the COSO criteria). In our opinion, Target
Corporation (the Corporation) maintained, in all material respects,
effective internal control over financial reporting as of
January 28, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States) (PCAOB),
the consolidated statements of financial position of the
Corporation as of January 28, 2023 and January 29, 2022,
the related consolidated statements of operations, comprehensive
income, cash flows and shareholders' investment for each of the
three years in the period ended January 28, 2023, and the
related notes and our report dated March 8, 2023 expressed an
unqualified opinion thereon.
Basis for Opinion
The Corporation’s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial
reporting included in the accompanying Report of Management on
Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Corporation’s internal control over
financial reporting based on our audit. We are a public accounting
firm registered with the PCAOB and are required to be independent
with respect to the Corporation in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control Over Financial
Reporting
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
March 8, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
TARGET CORPORATION |
|
2022 Form 10-K |
36
|
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
(millions, except per share data) |
2022 |
2021 |
2020 |
|
Sales |
$ |
107,588 |
|
$ |
104,611 |
|
$ |
92,400 |
|
|
Other revenue |
1,532 |
|
1,394 |
|
1,161 |
|
|
Total revenue |
109,120 |
|
106,005 |
|
93,561 |
|
|
Cost of sales |
82,229 |
|
74,963 |
|
66,177 |
|
|
Selling, general and administrative expenses |
20,658 |
|
19,752 |
|
18,615 |
|
|
Depreciation and amortization (exclusive of depreciation included
in cost of sales)
|
2,385 |
|
2,344 |
|
2,230 |
|
|
Operating income
|
3,848 |
|
8,946 |
|
6,539 |
|
|
Net interest expense |
478 |
|
421 |
|
977 |
|
|
Net other (income) / expense |
(48) |
|
(382) |
|
16 |
|
|
Earnings before income taxes |
3,418 |
|
8,907 |
|
5,546 |
|
|
Provision for income taxes |
638 |
|
1,961 |
|
1,178 |
|
|
Net earnings |
$ |
2,780 |
|
$ |
6,946 |
|
$ |
4,368 |
|
|
Basic earnings per share |
$ |
6.02 |
|
$ |
14.23 |
|
$ |
8.72 |
|
|
Diluted earnings per share |
$ |
5.98 |
|
$ |
14.10 |
|
$ |
8.64 |
|
|
Weighted average common shares outstanding |
|
|
|
|
Basic |
462.1 |
|
488.1 |
|
500.6 |
|
|
Diluted |
464.7 |
|
492.7 |
|
505.4 |
|
|
Antidilutive shares |
1.1 |
|
— |
|
— |
|
Note: Per share amounts may not foot due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
TARGET CORPORATION |
|
2022 Form 10-K |
37
|
Consolidated Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
(millions) |
2022 |
2021 |
2020 |
|
Net earnings |
$ |
2,780 |
|
$ |
6,946 |
|
$ |
4,368 |
|
|
Other comprehensive income / (loss), net of tax
|
|
|
|
|
Pension benefit liabilities
|
(113) |
|
152 |
|
102 |
|
|
Currency translation adjustment and cash flow hedges
|
247 |
|
51 |
|
10 |
|
|
Other comprehensive income
|
134 |
|
203 |
|
112 |
|
|
Comprehensive income
|
$ |
2,914 |
|
$ |
7,149 |
|
$ |
4,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TARGET CORPORATION |
|
2022 Form 10-K |
38
|
Consolidated Statements of Financial Position
|
|
|
|
|
|
|
|
|
|
(millions, except footnotes) |
January 28, 2023 |
January 29, 2022 |
|
Assets |
|
|
|
Cash and cash equivalents |
$ |
2,229 |
|
$ |
5,911 |
|
|
Inventory |
13,499 |
|
13,902 |
|
|
Other current assets |
2,118 |
|
1,760 |
|
|
Total current assets |
17,846 |
|
21,573 |
|
|
Property and equipment |
|
|
|
Land |
6,231 |
|
6,164 |
|
|
Buildings and improvements |
34,746 |
|
32,985 |
|
|
Fixtures and equipment |
7,439 |
|
6,407 |
|
|
Computer hardware and software |
3,039 |
|
2,505 |
|
|
Construction-in-progress |
2,688 |
|
1,257 |
|
|
Accumulated depreciation |
(22,631) |
|
(21,137) |
|
|
Property and equipment, net |
31,512 |
|
28,181 |
|
|
Operating lease assets |
2,657 |
|
2,556 |
|
|
Other noncurrent assets |
1,320 |
|
1,501 |
|
|
Total assets |
$ |
53,335 |
|
$ |
53,811 |
|
|
Liabilities and shareholders' investment |
|
|
|
Accounts payable |
$ |
13,487 |
|
$ |
15,478 |
|
|
Accrued and other current liabilities |
5,883 |
|
6,098 |
|
|
Current portion of long-term debt and other borrowings |
130 |
|
171 |
|
|
Total current liabilities
|
19,500 |
|
21,747 |
|
|
Long-term debt and other borrowings |
16,009 |
|
13,549 |
|
|
Noncurrent operating lease liabilities |
2,638 |
|
2,493 |
|
|
Deferred income taxes |
2,196 |
|
1,566 |
|
|
Other noncurrent liabilities |
1,760 |
|
1,629 |
|
|
Total noncurrent liabilities |
22,603 |
|
19,237 |
|
|
Shareholders' investment |
|
|
|
Common stock |
38 |
|
39 |
|
|
Additional paid-in capital |
6,608 |
|
6,421 |
|
|
Retained earnings |
5,005 |
|
6,920 |
|
|
Accumulated other comprehensive loss |
(419) |
|
(553) |
|
|
Total shareholders' investment |
11,232 |
|
12,827 |
|
|
Total liabilities and shareholders' investment |
$ |
53,335 |
|
$ |
53,811 |
|
Common Stock
Authorized 6,000,000,000 shares, $0.0833 par value; 460,346,947
shares issued and outstanding as of January 28, 2023;
471,274,073 shares issued and outstanding as of January 29,
2022.
Preferred Stock
Authorized 5,000,000 shares, $0.01 par value; no shares were issued
or outstanding during any period presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
TARGET CORPORATION |
|
2022 Form 10-K |
39
|
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
(millions) |
2022 |
2021 |
2020 |
|
Operating activities |
|
|
|
|
Net earnings
|
$ |
2,780 |
|
$ |
6,946 |
|
$ |
4,368 |
|
|
Adjustments to reconcile net earnings to cash provided by
operations: |
|
|
|
|
Depreciation and amortization |
2,700 |
|
2,642 |
|
2,485 |
|
|
Share-based compensation expense |
220 |
|
228 |
|
200 |
|
|
Deferred income taxes |
582 |
|
522 |
|
(184) |
|
|
|
|
|
|
Gain on Dermstore sale |
— |
|
(335) |
|
— |
|
|
Loss on debt extinguishment |
— |
|
— |
|
512 |
|
|
Noncash losses
/
(gains) and other, net
|
172 |
|
67 |
|
86 |
|
|
Changes in operating accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
Inventory |
403 |
|
(3,249) |
|
(1,661) |
|
|
Other assets |
22 |
|
(78) |
|
(137) |
|
|
Accounts payable |
(2,237) |
|
2,628 |
|
2,925 |
|
|
Accrued and other liabilities |
(624) |
|
(746) |
|
1,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities |
4,018 |
|
8,625 |
|
10,525 |
|
|
Investing activities |
|
|
|
|
Expenditures for property and equipment |
(5,528) |
|
(3,544) |
|
(2,649) |
|
|
Proceeds from disposal of property and equipment |
8 |
|
27 |
|
42 |
|
|
Proceeds from Dermstore sale |
— |
|
356 |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments |
16 |
|
7 |
|
16 |
|
|
|
|
|
|
|
|
|
|
Cash required for investing activities |
(5,504) |
|
(3,154) |
|
(2,591) |
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to long-term debt |
2,625 |
|
1,972 |
|
2,480 |
|
|
Reductions of long-term debt |
(163) |
|
(1,147) |
|
(2,415) |
|
|
Dividends paid |
(1,836) |
|
(1,548) |
|
(1,343) |
|
|
Repurchase of stock |
(2,826) |
|
(7,356) |
|
(745) |
|
|
|
|
|
|
Stock option exercises |
4 |
|
8 |
|
23 |
|
|
|
|
|
|
Cash required for financing activities |
(2,196) |
|
(8,071) |
|
(2,000) |
|
|
|
|
|
|
Net (decrease)
/
increase in cash and cash equivalents
|
(3,682) |
|
(2,600) |
|
5,934 |
|
|
Cash and cash equivalents at beginning of period |
5,911 |
|
8,511 |
|
2,577 |
|
|
Cash and cash equivalents at end of period |
$ |
2,229 |
|
$ |
5,911 |
|
$ |
8,511 |
|
|
Supplemental information |
|
|
|
|
Interest paid, net of capitalized interest |
$ |
449 |
|
$ |
414 |
|
$ |
939 |
|
|
Income taxes paid |
213 |
|
2,063 |
|
1,031 |
|
|
Leased assets obtained in exchange for new finance lease
liabilities |
224 |
|
288 |
|
428 |
|
|
Leased assets obtained in exchange for new operating lease
liabilities |
329 |
|
580 |
|
262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TARGET CORPORATION |
|
2022 Form 10-K |
40
|
Consolidated Statements of Shareholders' Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(millions) |
Common
Stock
Shares |
Stock
Par
Value |
Additional
Paid-in
Capital |
Retained
Earnings
|
Accumulated Other
Comprehensive
(Loss)
/
Income
|
Total |
|
February 1, 2020 |
504.2 |
|
$ |
42 |
|
$ |
6,226 |
|
$ |
6,433 |
|
$ |
(868) |
|
$ |
11,833 |
|
|
Net earnings |
— |
|
— |
|
— |
|
4,368 |
|
— |
|
4,368 |
|
|
Other comprehensive income |
— |
|
— |
|
— |
|
— |
|
112 |
|
112 |
|
|
Dividends declared |
— |
|
— |
|
— |
|
(1,367) |
|
— |
|
(1,367) |
|
|
Repurchase of stock |
(5.7) |
|
— |
|
— |
|
(609) |
|
— |
|
(609) |
|
|
Stock options and awards |
2.4 |
|
— |
|
103 |
|
— |
|
— |
|
103 |
|
|
January 30, 2021 |
500.9 |
|
$ |
42 |
|
$ |
6,329 |
|
$ |
8,825 |
|
$ |
(756) |
|
$ |
14,440 |
|
|
Net earnings |
— |
|
— |
|
— |
|
6,946 |
|
— |
|
6,946 |
|
|
Other comprehensive income |
— |
|
— |
|
— |
|
— |
|
203 |
|
203 |
|
|
Dividends declared |
— |
|
— |
|
— |
|
(1,655) |
|
— |
|
(1,655) |
|
|
Repurchase of stock |
(31.3) |
|
(3) |
|
— |
|
(7,196) |
|
— |
|
(7,199) |
|
|
Stock options and awards |
1.7 |
|
— |
|
92 |
|
— |
|
— |
|
92 |
|
|
January 29, 2022 |
471.3 |
|
$ |
39 |
|
$ |
6,421 |
|
$ |
6,920 |
|
$ |
(553) |
|
$ |
12,827 |
|
|
Net earnings |
— |
|
— |
|
— |
|
2,780 |
|
— |
|
2,780 |
|
|
Other comprehensive income |
— |
|
— |
|
— |
|
— |
|
134 |
|
134 |
|
|
Dividends declared |
— |
|
— |
|
— |
|
(1,931) |
|
— |
|
(1,931) |
|
|
Repurchase of stock |
(12.5) |
|
(1) |
|
119 |
|
(2,764) |
|
— |
|
(2,646) |
|
|
Stock options and awards |
1.5 |
|
— |
|
68 |
|
— |
|
— |
|
68 |
|
|
January 28, 2023 |
460.3 |
|
$ |
38 |
|
$ |
6,608 |
|
$ |
5,005 |
|
$ |
(419) |
|
$ |
11,232 |
|
We declared $4.14, $3.38, and $2.70 dividends per share for the
twelve months ended January 28, 2023, January 29, 2022,
and January 30, 2021, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
TARGET CORPORATION |
|
2022 Form 10-K |
41
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS |
|
|
NOTES |
|
Notes to Consolidated Financial Statements
1. Summary of Accounting Policies
Organization -
We are a general merchandise retailer selling products to our
guests through our stores and digital channels.
We operate as a single segment that includes all of our 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 United States (U.S.). The vast
majority of our long-lived assets are located within the
U.S.
Consolidation -
The consolidated financial statements include the balances of
Target and its subsidiaries after elimination of intercompany
balances and transactions. All subsidiaries are wholly
owned.
Use of estimates -
The preparation of our consolidated financial statements in
conformity with U.S. generally accepted accounting principles
(GAAP) requires management to make estimates and assumptions
affecting reported amounts in the consolidated financial statements
and accompanying notes. Actual results may differ significantly
from those estimates.
Fiscal year -
Our fiscal year ends on the Saturday nearest January 31.
Unless otherwise stated, references to years in this report relate
to fiscal years, rather than to calendar years. Fiscal 2022, 2021,
and 2020 ended January 28, 2023, January 29, 2022, and
January 30, 2021, respectively, and consisted of
52 weeks. Fiscal 2023 will end February 3, 2024, and will
consist of 53 weeks.
Accounting policies -
Our accounting policies are disclosed in the applicable Notes to
the Consolidated Financial Statements. Certain prior-year amounts
have been reclassified to conform to the current-year
presentation.
2. Dermstore Sale
In February 2021, we sold our wholly owned subsidiary Dermstore LLC
(Dermstore) for $356 million in cash and recognized a
$335 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
TARGET CORPORATION |
|
2022 Form 10-K |
42
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS |
|
|
NOTES |
|
3. Revenues
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
(millions)
|
2022 |
2021 |
2020 |
|
Apparel and accessories
(a)
|
$ |
17,646 |
|
$ |
17,931 |
|
$ |
14,772 |
|
|
Beauty and household essentials
(b)
|
29,575 |
|
27,268 |
|
24,461 |
|
|
Food and beverage
(c)
|
22,918 |
|
20,306 |
|
18,135 |
|
|
Hardlines
(d)
|
17,739 |
|
18,614 |
|
16,626 |
|
|
Home furnishings and décor
(e)
|
19,463 |
|
20,255 |
|
18,231 |
|
|
Other |
247 |
|
237 |
|
175 |
|
|
Sales |
107,588 |
|
104,611 |
|
92,400 |
|
|
Credit card profit sharing |
734 |
|
710 |
|
666 |
|
|
Other |
798 |
|
684 |
|
495 |
|
|
Other revenue |
1,532 |
|
1,394 |
|
1,161 |
|
|
Total revenue |
$ |
109,120 |
|
$ |
106,005 |
|
$ |
93,561 |
|
(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. Total revenues do not include sales tax because we are a
pass-through conduit for collecting and remitting sales taxes.
Generally, guests may return national brand merchandise within 90
days of purchase and owned and exclusive brands within one year of
purchase. Sales are recognized net of expected returns, which we
estimate using historical return patterns and our expectation of
future returns. As of January 28, 2023, and January 29,
2022, the liability for estimated returns was $174 million and $165
million, respectively.
We routinely enter into arrangements with vendors whereby we do not
purchase or pay for merchandise until the merchandise is ultimately
sold to a guest. Under the vast majority of these arrangements,
which represent less than 5 percent of consolidated sales, we
record revenue and related costs gross. We concluded that we are
the principal in these transactions for a number of reasons, most
notably because we 1) control the overall economics of the
transactions, including setting the sales price and realizing the
majority of cash flows from the sale, 2) control the relationship
with the customer, and 3) are responsible for fulfilling the
promise to provide goods to the customer. Merchandise received
under these arrangements is not included in Inventory because the
purchase and sale of this inventory are virtually
simultaneous.
Revenue from Target gift card sales is recognized upon gift card
redemption, which is typically within one year of issuance. Our
gift cards do not expire. Based on historical redemption rates, a
small and relatively stable percentage of gift cards will never be
redeemed, referred to as "breakage." Estimated breakage revenue is
recognized over time in proportion to actual gift card
redemptions.
|
|
|
|
|
|
|
|
|
|
|
|
|
TARGET CORPORATION |
|
2022 Form 10-K |
43
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS |
|
|
NOTES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gift Card Liability Activity
(millions)
|
January 29, 2022 |
|
Gift Cards
Issued During
Current Period
But Not
Redeemed
(b)
|
|
Revenue
Recognized
From
Beginning
Liability |
|
January 28, 2023 |
|
Gift card liability
(a)
|
$ |
1,202 |
|
|
$ |
927 |
|
|
$ |
(889) |
|
|
$ |
1,240 |
|
(a)Included
in Accrued and Other Current Liabilities.
(b)Net
of estimated breakage.
Guests receive a 5 percent discount on nearly all purchases and
receive free shipping at Target.com when they use their Target
Debit Card, RedCard Reloadable Account, Target Credit Card, or
Target MasterCard (collectively, RedCards).
Target Circle program members earn 1 percent rewards on nearly all
non-RedCard purchases and rewards on various other transactions. As
of January 28, 2023, and January 29, 2022, deferred
revenue of $112 million and $89 million, respectively,
related to this loyalty program was included in Accrued and Other
Current Liabilities.
Credit card profit sharing
– We receive payments under a credit card program agreement with
TD. Under the agreement, we receive a percentage of the profits
generated by the Target Credit Card and Target MasterCard
receivables in exchange for performing account servicing and
primary marketing functions. TD underwrites, funds, and owns Target
Credit Card and Target MasterCard receivables, controls risk
management policies, and oversees regulatory
compliance.
Other
– Includes advertising revenue, Shipt membership and service
revenues, commissions earned on third-party sales through
Target.com, rental income, and other miscellaneous
revenues.
4. Cost of Sales and Selling, General and Administrative
Expenses
The following table illustrates the primary items classified in
each major expense category:
|
|
|
|
|
|
|
Cost of Sales |
Selling, General and Administrative Expenses |
Total cost of products sold including
• Freight expenses associated with moving
merchandise from our vendors to and between
our
distribution centers and our retail
stores
• Vendor income that is not reimbursement of
specific, incremental, and identifiable
costs
Inventory shrink
Markdowns
Outbound shipping and handling expenses
associated with sales to our guests
Payment term cash discounts
Distribution center costs, including compensation
and benefits costs and depreciation
Compensation and benefit costs associated with
shipment of merchandise from stores
Import costs |
Compensation and benefit costs for stores and
headquarters, except ship from store costs
classified
as cost of sales
Occupancy and operating costs of retail and
headquarters facilities
Advertising, offset by vendor income that is a
reimbursement of specific, incremental,
and
identifiable costs
Pre-opening and exit costs of stores and other
facilities
Credit cards servicing expenses
Costs associated with accepting third-party bank
issued
payment cards
Litigation and defense costs and related insurance
recoveries
Other administrative costs
|
Note: The classification of these expenses varies across the retail
industry.
|
|
|
|
|
|
|
|
|
|
|
|
|
TARGET CORPORATION |
|
2022 Form 10-K |
44
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL STATEMENTS |
|
|
NOTES |
|
5. Consideration Received from Vendors
We receive consideration for a variety of vendor-sponsored
programs—such as volume rebates, markdown allowances, promotions,
certain advertising activities, and for our compliance
programs—referred to as "vendor income." Additionally, under our
compliance programs, vendors are charged for merchandise shipments
that do not meet our requirements (violations), such as late or
incomplete shipments. Substantially all vendor income is recorded
as a reduction of Cost of Sales.
We establish a receivable for vendor income that is earned but not
yet received. Based on historical trending and data, this
receivable is computed by forecasting vendor income collections and
estimating the amount earned. The majority of the year-end vendor
income receivables are collected within the following fiscal
quarter, and we do not believe there is a reasonable likelihood
that the assumptions used in our estimate will change
significantly.
Note
10
provides additional information.
6. Advertising Costs
Advertising costs, which primarily consist of digital
advertisements and media broadcast, are generally expensed at first
showing or distribution of the advertisement. Reimbursements from
vendors that are for specific, incremental, and identifiable
advertising costs are recognized as offsets of these advertising
costs within Selling, General and Administrative Expenses (SG&A
Expenses). Net advertising costs were $1.5 billion in 2022, 2021,
and 2020.
7. Fair Value Measurements
Fair value measurements are reported in one of three levels based
on the lowest level of significant input used: Level 1
(unadjusted quoted prices in active markets); Level 2
(observable market inputs, other than quoted prices included in
Level 1); and Level 3 (unobservable inputs that cannot be
corroborated by observable market data).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements - Recurring Basis |
|
|
Fair Value as of |
|
(millions) |
Classification |
Measurement Level |
|
January 28, 2023 |
|
January 29, 2022 |
|
Assets |
|
|
|
|
|
|
|
Short-term investments
(a)
|
Cash and Cash Equivalents |
Level 1 |
|
$ |
1,343 |
|
|
$ |
4,985 |
|
|
Prepaid forward contracts
(b)
|
Other Current Assets |
Level 1 |
|
27 |
|
|
35 |
|
|
|
|
|
|
|
|
|
Interest rate swaps
(c)
|
Other Current Assets |
Level 2 |
|
— |
|
|
17 |
|
|
Interest rate swaps
(c)
|
Other Noncurrent Assets |
Level 2 |
|
7 |
|
|
135 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
(c)
|
Other Noncurrent Liabilities |
Level 2 |
|
81 |
|
|
— |
|
(a)Carrying
value approximates fair value because maturities are less than
three months.
(b)Initially
valued at transaction price. Subsequently valued by reference to
the market price of Target common stock.
(c)Valuations
are based on observable inputs to the valuation model
(e.g., interest rates and credit spreads). See
Note 16
for additional information on interest rate swaps.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant Financial Instruments Not Measured at Fair Value
(a)
|
As of January 28, 2023 |
|
As of January 29, 2022 |
|
(millions) |
Carrying
Amount |
Fair
Value |
|
Carrying
Amount |