Minnesota | 41-0215170 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1000 Nicollet Mall, Minneapolis, Minnesota | 55403 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer x | Accelerated filer o | Non-accelerated filer o | |||
Smaller reporting company o | Emerging growth company o |
Consolidated Statements of Operations | |||||||
Three Months Ended | |||||||
(millions, except per share data) (unaudited) | May 5, 2018 | April 29, 2017 As Adjusted (a) | |||||
Sales | $ | 16,556 | $ | 15,995 | |||
Other revenue | 225 | 228 | |||||
Total revenue | 16,781 | 16,223 | |||||
Cost of sales | 11,625 | 11,199 | |||||
Selling, general and administrative expenses | 3,545 | 3,353 | |||||
Depreciation and amortization (exclusive of depreciation included in cost of sales) | 570 | 516 | |||||
Operating income | 1,041 | 1,155 | |||||
Net interest expense | 121 | 140 | |||||
Net other (income) / expense | (7 | ) | (15 | ) | |||
Earnings from continuing operations before income taxes | 927 | 1,030 | |||||
Provision for income taxes | 210 | 355 | |||||
Net earnings from continuing operations | 717 | 675 | |||||
Discontinued operations, net of tax | 1 | 3 | |||||
Net earnings | $ | 718 | $ | 678 | |||
Basic earnings per share | |||||||
Continuing operations | $ | 1.34 | $ | 1.22 | |||
Discontinued operations | — | 0.01 | |||||
Net earnings per share | $ | 1.34 | $ | 1.23 | |||
Diluted earnings per share | |||||||
Continuing operations | $ | 1.33 | $ | 1.21 | |||
Discontinued operations | — | 0.01 | |||||
Net earnings per share | $ | 1.33 | $ | 1.22 | |||
Weighted average common shares outstanding | |||||||
Basic | 536.9 | 552.4 | |||||
Dilutive impact of share-based awards | 4.1 | 2.8 | |||||
Diluted | 541.0 | 555.2 | |||||
Antidilutive shares | 2.2 | 3.0 | |||||
Dividends declared per share | $ | 0.62 | $ | 0.60 |
(a) | Refer to Note 2 regarding the adoption of new accounting standards for revenue recognition, leases, and pensions, including impacts on previously reported results. |
Consolidated Statements of Comprehensive Income | |||||||
Three Months Ended | |||||||
(millions) (unaudited) | May 5, 2018 | April 29, 2017 As Adjusted (a) | |||||
Net earnings | $ | 718 | $ | 678 | |||
Other comprehensive income | |||||||
Pension, net of taxes of $5 and $5 | 13 | 7 | |||||
Currency translation adjustment and cash flow hedges, net of tax (benefit) / provision of $(1) and $1 | (3 | ) | 5 | ||||
Other comprehensive income | 10 | 12 | |||||
Comprehensive income | $ | 728 | $ | 690 |
(a) | Refer to Note 2 regarding the adoption of new accounting standards for revenue recognition, leases, and pensions, including impacts on previously reported results. |
Consolidated Statements of Financial Position | |||||||||||
(millions) (unaudited) | May 5, 2018 | February 3, 2018 As Adjusted (a) | April 29, 2017 As Adjusted (a) | ||||||||
Assets | |||||||||||
Cash and cash equivalents | $ | 1,060 | $ | 2,643 | $ | 2,680 | |||||
Inventory | 8,652 | 8,597 | 7,920 | ||||||||
Other current assets | 1,164 | 1,300 | 1,116 | ||||||||
Total current assets | 10,876 | 12,540 | 11,716 | ||||||||
Property and equipment | |||||||||||
Land | 6,090 | 6,095 | 6,105 | ||||||||
Buildings and improvements | 28,363 | 28,131 | 27,320 | ||||||||
Fixtures and equipment | 5,135 | 5,623 | 5,177 | ||||||||
Computer hardware and software | 2,511 | 2,645 | 2,546 | ||||||||
Construction-in-progress | 639 | 440 | 379 | ||||||||
Accumulated depreciation | (17,971 | ) | (18,398 | ) | (17,285 | ) | |||||
Property and equipment, net | 24,767 | 24,536 | 24,242 | ||||||||
Operating lease assets | 1,958 | 1,884 | 1,879 | ||||||||
Other noncurrent assets | 1,328 | 1,343 | 723 | ||||||||
Total assets | $ | 38,929 | $ | 40,303 | $ | 38,560 | |||||
Liabilities and shareholders’ investment | |||||||||||
Accounts payable | $ | 8,131 | $ | 8,677 | $ | 6,537 | |||||
Accrued and other current liabilities | 3,630 | 4,094 | 3,973 | ||||||||
Current portion of long-term debt and other borrowings | 283 | 281 | 1,729 | ||||||||
Total current liabilities | 12,044 | 13,052 | 12,239 | ||||||||
Long-term debt and other borrowings | 11,107 | 11,117 | 10,916 | ||||||||
Noncurrent operating lease liabilities | 2,007 | 1,924 | 1,923 | ||||||||
Deferred income taxes | 744 | 693 | 843 | ||||||||
Other noncurrent liabilities | 1,869 | 1,866 | 1,660 | ||||||||
Total noncurrent liabilities | 15,727 | 15,600 | 15,342 | ||||||||
Shareholders’ investment | |||||||||||
Common stock | 44 | 45 | 46 | ||||||||
Additional paid-in capital | 5,664 | 5,858 | 5,674 | ||||||||
Retained earnings | 6,187 | 6,495 | 5,885 | ||||||||
Accumulated other comprehensive loss | (737 | ) | (747 | ) | (626 | ) | |||||
Total shareholders’ investment | 11,158 | 11,651 | 10,979 | ||||||||
Total liabilities and shareholders’ investment | $ | 38,929 | $ | 40,303 | $ | 38,560 |
(a) | Refer to Note 2 regarding the adoption of new accounting standards for revenue recognition, leases, and pensions, including impacts on previously reported results. |
Consolidated Statements of Cash Flows | |||||||
Three Months Ended | |||||||
(millions) (unaudited) | May 5, 2018 | April 29, 2017 As Adjusted (a) | |||||
Operating activities | |||||||
Net earnings | $ | 718 | $ | 678 | |||
Earnings from discontinued operations, net of tax | 1 | 3 | |||||
Net earnings from continuing operations | 717 | 675 | |||||
Adjustments to reconcile net earnings to cash provided by operations | |||||||
Depreciation and amortization | 631 | 581 | |||||
Share-based compensation expense | 42 | 16 | |||||
Deferred income taxes | 48 | 2 | |||||
Noncash losses / (gains) and other, net | 40 | (19 | ) | ||||
Changes in operating accounts | |||||||
Inventory | (55 | ) | 323 | ||||
Other assets | 26 | 22 | |||||
Accounts payable | (604 | ) | (715 | ) | |||
Accrued and other liabilities | (333 | ) | 372 | ||||
Cash provided by operating activities—continuing operations | 512 | 1,257 | |||||
Cash provided by operating activities—discontinued operations | 2 | 48 | |||||
Cash provided by operations | 514 | 1,305 | |||||
Investing activities | |||||||
Expenditures for property and equipment | (827 | ) | (486 | ) | |||
Proceeds from disposal of property and equipment | 4 | 13 | |||||
Other investments | 5 | (9 | ) | ||||
Cash required for investing activities | (818 | ) | (482 | ) | |||
Financing activities | |||||||
Reductions of long-term debt | (12 | ) | (10 | ) | |||
Dividends paid | (334 | ) | (332 | ) | |||
Repurchase of stock | (524 | ) | (317 | ) | |||
Accelerated share repurchase pending final settlement | (425 | ) | — | ||||
Stock option exercises | 16 | 4 | |||||
Cash required for financing activities | (1,279 | ) | (655 | ) | |||
Net (decrease) / increase in cash and cash equivalents | (1,583 | ) | 168 | ||||
Cash and cash equivalents at beginning of period | 2,643 | 2,512 | |||||
Cash and cash equivalents at end of period | $ | 1,060 | $ | 2,680 |
(a) | Refer to Note 2 regarding the adoption of new accounting standards for revenue recognition, leases, and pensions, including impacts on previously reported results. |
Consolidated Statements of Shareholders’ Investment | ||||||||||||||||||||||
Common | Stock | Additional | Accumulated Other | |||||||||||||||||||
Stock | Par | Paid-in | Retained | Comprehensive | ||||||||||||||||||
(millions) (unaudited) | Shares | Value | Capital | Earnings | (Loss) / Income | Total | ||||||||||||||||
January 28, 2017 As Adjusted (a) | 556.2 | $ | 46 | $ | 5,661 | $ | 5,846 | $ | (638 | ) | $ | 10,915 | ||||||||||
Net earnings | — | — | — | 2,914 | — | 2,914 | ||||||||||||||||
Other comprehensive income | — | — | — | — | 8 | 8 | ||||||||||||||||
Dividends declared | — | — | — | (1,356 | ) | — | (1,356 | ) | ||||||||||||||
Repurchase of stock | (17.6 | ) | (1 | ) | — | (1,026 | ) | — | (1,027 | ) | ||||||||||||
Stock options and awards | 3.1 | — | 197 | — | — | 197 | ||||||||||||||||
Reclassification of tax effects to retained earnings | — | — | — | 117 | (117 | ) | — | |||||||||||||||
February 3, 2018 As Adjusted (a) | 541.7 | $ | 45 | $ | 5,858 | $ | 6,495 | $ | (747 | ) | $ | 11,651 | ||||||||||
Net earnings | — | — | — | 718 | — | 718 | ||||||||||||||||
Other comprehensive income | — | — | — | — | 10 | 10 | ||||||||||||||||
Dividends declared | — | — | — | (333 | ) | — | (333 | ) | ||||||||||||||
Repurchase of stock | (6.9 | ) | (1 | ) | — | (493 | ) | — | (494 | ) | ||||||||||||
Accelerated share repurchase pending final settlement | (2.9 | ) | — | (225 | ) | (200 | ) | — | (425 | ) | ||||||||||||
Stock options and awards | 1.0 | — | 31 | — | — | 31 | ||||||||||||||||
May 5, 2018 | 532.9 | $ | 44 | $ | 5,664 | $ | 6,187 | $ | (737 | ) | $ | 11,158 |
(a) | Refer to Note 2 regarding the adoption of new accounting standards for revenue recognition, leases, and pensions, including impacts on previously reported results. |
Effect of Accounting Standards Adoption on Consolidated Statement of Operations | ||||||||||||||||||
Three Months Ended | Effect of the Adoption of | Three Months Ended | ||||||||||||||||
ASC Topic 606 (Revenue Recognition) | ASC Topic 842 (Leases) | ASU 2017-07 (Pension) | ||||||||||||||||
(millions, except per share data) (unaudited) | April 29, 2017 As Previously Reported | April 29, 2017 As Adjusted | ||||||||||||||||
Sales | $ | 16,017 | $ | (22 | ) | (a) | $ | — | $ | — | $ | 15,995 | ||||||
Other revenue | — | 228 | (a) | — | — | 228 | ||||||||||||
Total revenue | 16,017 | 206 | — | — | 16,223 | |||||||||||||
Cost of sales | 11,199 | — | — | — | 11,199 | |||||||||||||
Selling, general and administrative expenses | 3,132 | 206 | (a) | — | 15 | (c) | 3,353 | |||||||||||
Depreciation and amortization (exclusive of depreciation included in cost of sales) | 508 | — | 8 | (b) | — | 516 | ||||||||||||
Operating income | 1,178 | — | (8 | ) | (15 | ) | 1,155 | |||||||||||
Net interest expense | 144 | — | (3 | ) | (b) | — | 140 | |||||||||||
Net other (income) / expense | — | — | — | (15 | ) | (c) | (15 | ) | ||||||||||
Earnings from continuing operations before income taxes | 1,034 | — | (5 | ) | — | 1,030 | ||||||||||||
Provision for income taxes | 357 | — | (2 | ) | — | 355 | ||||||||||||
Net earnings from continuing operations | 677 | — | (3 | ) | — | 675 | ||||||||||||
Discontinued operations, net of tax | 4 | — | — | — | 3 | |||||||||||||
Net earnings | $ | 681 | $ | — | $ | (3 | ) | $ | — | $ | 678 | |||||||
Basic earnings per share | ||||||||||||||||||
Continuing operations | $ | 1.23 | $ | 1.22 | ||||||||||||||
Discontinued operations | 0.01 | 0.01 | ||||||||||||||||
Net earnings per share | $ | 1.23 | $ | 1.23 | ||||||||||||||
Diluted earnings per share | ||||||||||||||||||
Continuing operations | $ | 1.22 | $ | 1.21 | ||||||||||||||
Discontinued operations | 0.01 | 0.01 | ||||||||||||||||
Net earnings per share | $ | 1.23 | $ | 1.22 |
(a) | For the three months ended April 29, 2017, we reclassified $171 million of profit-sharing income under our credit card program agreement to Other Revenue from SG&A. In addition, we reclassified certain advertising, rental, and other miscellaneous revenues, none of which was individually significant, from Sales and SG&A to Other Revenues. |
(b) | Relates to lease-term changes under the hindsight practical expedient. |
(c) | Relates to non-service cost components reclassified to Net Other (Income) / Expense from SG&A. |
Effect of Accounting Standards Adoption on Consolidated Statement of Financial Position | |||||||||||||||
Effect of the Adoption of | |||||||||||||||
(millions) (unaudited) | February 3, 2018 As Previously Reported | ASC Topic 606 (Revenue Recognition) | ASC Topic 842 (Leases) | February 3, 2018 As Adjusted | |||||||||||
Assets | |||||||||||||||
Cash and cash equivalents | $ | 2,643 | $ | — | $ | — | $ | 2,643 | |||||||
Inventory | 8,657 | (60 | ) | (a) | — | 8,597 | |||||||||
Other current assets | 1,264 | 60 | (a) | (24 | ) | (b) | 1,300 | ||||||||
Total current assets | 12,564 | — | (24 | ) | 12,540 | ||||||||||
Property and equipment | |||||||||||||||
Land | 6,095 | — | — | 6,095 | |||||||||||
Buildings and improvements | 28,396 | — | (265 | ) | (c) | 28,131 | |||||||||
Fixtures and equipment | 5,623 | — | — | 5,623 | |||||||||||
Computer hardware and software | 2,645 | — | — | 2,645 | |||||||||||
Construction-in-progress | 440 | — | — | 440 | |||||||||||
Accumulated depreciation | (18,181 | ) | — | (217 | ) | (c) | (18,398 | ) | |||||||
Property and equipment, net | 25,018 | — | (482 | ) | 24,536 | ||||||||||
Operating lease assets | — | — | 1,884 | (d) | 1,884 | ||||||||||
Other noncurrent assets | 1,417 | — | (74 | ) | (e) | 1,343 | |||||||||
Total assets | $ | 38,999 | $ | — | $ | 1,304 | $ | 40,303 | |||||||
Liabilities and shareholders’ investment | |||||||||||||||
Accounts payable | $ | 8,677 | $ | — | $ | — | $ | 8,677 | |||||||
Accrued and other current liabilities | 4,254 | (14 | ) | (k) | (146 | ) | (f) | 4,094 | |||||||
Current portion of long-term debt and other borrowings | 270 | — | 11 | (g) | 281 | ||||||||||
Total current liabilities | 13,201 | (14 | ) | (135 | ) | 13,052 | |||||||||
Long-term debt and other borrowings | 11,317 | — | (200 | ) | (g) | 11,117 | |||||||||
Noncurrent operating lease liabilities | — | — | 1,924 | (h) | 1,924 | ||||||||||
Deferred income taxes | 713 | 4 | (24 | ) | 693 | ||||||||||
Other noncurrent liabilities | 2,059 | — | (192 | ) | (i) | 1,866 | |||||||||
Total noncurrent liabilities | 14,089 | 4 | 1,508 | 15,600 | |||||||||||
Shareholders’ investment | |||||||||||||||
Common stock | 45 | — | — | 45 | |||||||||||
Additional paid-in capital | 5,858 | — | — | 5,858 | |||||||||||
Retained earnings | 6,553 | 10 | (k) | (69 | ) | (j) | 6,495 | ||||||||
Accumulated other comprehensive loss | (747 | ) | — | — | (747 | ) | |||||||||
Total shareholders’ investment | 11,709 | 10 | (69 | ) | 11,651 | ||||||||||
Total liabilities and shareholders’ investment | $ | 38,999 | $ | — | $ | 1,304 | $ | 40,303 |
Effect of Accounting Standards Adoption on Consolidated Statement of Financial Position | |||||||||||||||
Effect of the Adoption of | |||||||||||||||
(millions) (unaudited) | April 29, 2017 As Previously Reported | ASC Topic 606 (Revenue Recognition) | ASC Topic 842 (Leases) | April 29, 2017 As Adjusted | |||||||||||
Assets | |||||||||||||||
Cash and cash equivalents | $ | 2,680 | $ | — | $ | — | $ | 2,680 | |||||||
Inventory | 7,986 | (65 | ) | (a) | — | 7,920 | |||||||||
Other current assets | 1,073 | 65 | (a) | (23 | ) | (b) | 1,116 | ||||||||
Total current assets | 11,739 | — | (23 | ) | 11,716 | ||||||||||
Property and equipment | |||||||||||||||
Land | 6,105 | — | — | 6,105 | |||||||||||
Buildings and improvements | 27,740 | — | (420 | ) | (c) | 27,320 | |||||||||
Fixtures and equipment | 5,177 | — | — | 5,177 | |||||||||||
Computer hardware and software | 2,546 | — | — | 2,546 | |||||||||||
Construction-in-progress | 379 | — | — | 379 | |||||||||||
Accumulated depreciation | (17,265 | ) | — | (20 | ) | (c) | (17,285 | ) | |||||||
Property and equipment, net | 24,682 | — | (440 | ) | 24,242 | ||||||||||
Operating lease assets | — | — | 1,879 | (d) | 1,879 | ||||||||||
Other noncurrent assets | 797 | — | (75 | ) | (e) | 723 | |||||||||
Total assets | $ | 37,218 | $ | — | $ | 1,341 | $ | 38,560 | |||||||
Liabilities and shareholders’ investment | |||||||||||||||
Accounts payable | $ | 6,537 | $ | — | $ | — | $ | 6,537 | |||||||
Accrued and other current liabilities | 4,137 | (14 | ) | (k) | (151 | ) | (f) | 3,973 | |||||||
Current portion of long-term debt and other borrowings | 1,718 | — | 11 | (g) | 1,729 | ||||||||||
Total current liabilities | 12,392 | (14 | ) | (140 | ) | 12,239 | |||||||||
Long-term debt and other borrowings | 11,086 | — | (170 | ) | (g) | 10,916 | |||||||||
Noncurrent operating lease liabilities | — | — | 1,923 | (h) | 1,923 | ||||||||||
Deferred income taxes | 869 | 6 | (32 | ) | 843 | ||||||||||
Other noncurrent liabilities | 1,850 | — | (190 | ) | (i) | 1,660 | |||||||||
Total noncurrent liabilities | 13,805 | 6 | 1,531 | 15,342 | |||||||||||
Shareholders’ investment | |||||||||||||||
Common stock | 46 | — | — | 46 | |||||||||||
Additional paid-in capital | 5,674 | — | — | 5,674 | |||||||||||
Retained earnings | 5,927 | 8 | (k) | (50 | ) | (j) | 5,885 | ||||||||
Accumulated other comprehensive loss | (626 | ) | — | — | (626 | ) | |||||||||
Total shareholders’ investment | 11,021 | 8 | (50 | ) | 10,979 | ||||||||||
Total liabilities and shareholders’ investment | $ | 37,218 | $ | — | $ | 1,341 | $ | 38,560 |
(a) | Represents estimated merchandise returns, which were reclassified from Inventory to Other Current Assets. |
(b) | Represents prepaid rent reclassified to Operating Lease Assets. |
(c) | Represents impact of changes in finance lease terms and related leasehold improvements (net of accumulated depreciation) under the hindsight practical expedient and derecognition of approximately $135 million of non-Target owned properties that were consolidated under previously existing build-to-suit accounting rules. |
(d) | Represents capitalization of operating lease assets and reclassification of leasehold acquisition costs, straight-line rent accrual, and tenant incentives. |
(e) | Represents reclassification of leasehold acquisition costs to Operating Lease Assets. |
(f) | Represents reclassification of straight-line rent accrual to Operating Lease Assets, partially offset by recognition of the current portion of operating lease liabilities. |
(g) | Represents the impact of changes in financing lease terms for certain leases due to the election of the hindsight practical expedient. |
(h) | Represents recognition of operating lease liabilities. |
(i) | Represents derecognition of approximately $135 million of liabilities related to non-Target owned properties that were consolidated under previously existing build-to-suit accounting rules and reclassification of tenant incentives to Operating Lease Assets. |
(j) | Represents the retained earnings impact of lease-term changes due to the use of hindsight, primarily from the shortening of lease terms for certain existing leases and useful lives of corresponding leasehold improvements. |
(k) | Primarily represents the impact of a change in timing of revenue recognition for certain promotional gift card programs. |
Revenues | Three Months Ended | ||||||
(millions) | May 5, 2018 | April 29, 2017 | |||||
Beauty and household essentials | $ | 4,227 | $ | 4,051 | |||
Food and beverage | 3,587 | 3,452 | |||||
Apparel and accessories | 3,503 | 3,413 | |||||
Home furnishings and décor | 2,903 | 2,747 | |||||
Hardlines | 2,313 | 2,310 | |||||
Other | 23 | 22 | |||||
Sales | 16,556 | 15,995 | |||||
Credit card profit sharing | 167 | 171 | |||||
Other | 58 | 57 | |||||
Other revenue | 225 | 228 | |||||
Total revenue | $ | 16,781 | $ | 16,223 |
(millions) | February 3, 2018 | Gift Cards Issued During Current Period But Not Redeemed (a) | Revenue Recognized From Beginning Liability | May 5, 2018 | |||||||||||
Gift card liability | $ | 709 | $ | 205 | $ | (281 | ) | $ | 633 |
(a) | Net of estimated breakage. |
Fair Value Measurements - Recurring Basis | Fair Value at | |||||||||||
(millions) | Pricing Category | May 5, 2018 | February 3, 2018 | April 29, 2017 | ||||||||
Assets | ||||||||||||
Cash and Cash Equivalents | ||||||||||||
Short-term investments | Level 1 | $ | 311 | $ | 1,906 | $ | 2,002 | |||||
Other Current Assets | ||||||||||||
Prepaid forward contracts | Level 1 | 21 | 23 | 37 | ||||||||
Other Noncurrent Assets | ||||||||||||
Interest rate swaps (a) | Level 2 | — | — | 4 | ||||||||
Liabilities | ||||||||||||
Other Noncurrent Liabilities | ||||||||||||
Interest rate swaps (a) | Level 2 | 10 | 6 | — |
(a) | See Note 7 for additional information on interest rate swaps. |
Significant Financial Instruments not Measured at Fair Value (a) (millions) | May 5, 2018 | February 3, 2018 | April 29, 2017 | |||||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||
Debt (b) | $ | 10,442 | $ | 10,782 | $ | 10,440 | $ | 11,155 | $ | 11,717 | $ | 12,610 |
(a) | The carrying amounts of certain other current assets, accounts payable, and certain accrued and other current liabilities approximate fair value due to their short-term nature. |
(b) | The carrying amount and estimated fair value of debt exclude unamortized swap valuation adjustments and lease liabilities. |
Leases (millions) | Classification | May 5, 2018 | February 3, 2018 | April 29, 2017 | ||||||
Assets | ||||||||||
Operating lease assets | Operating Lease Assets | $ | 1,958 | $ | 1,884 | $ | 1,879 | |||
Finance lease assets | Buildings and Improvements, net of Accumulated Depreciation (a) | 826 | 836 | 803 | ||||||
Total leased assets | $ | 2,784 | $ | 2,720 | $ | 2,682 | ||||
Liabilities | ||||||||||
Current | ||||||||||
Operating | Accrued and Other Current Liabilities | $ | 150 | $ | 147 | $ | 126 | |||
Finance | Current Portion of Long-term Debt and Other Borrowings | 81 | 80 | 44 | ||||||
Noncurrent | ||||||||||
Operating | Noncurrent Operating Lease Liabilities | 2,007 | 1,924 | 1,923 | ||||||
Finance | Long-term Debt and Other Borrowings | 876 | 885 | 877 | ||||||
Total lease liabilities | $ | 3,114 | $ | 3,036 | $ | 2,970 |
(a) | Finance lease assets are recorded net of accumulated amortization of $332 million, $317 million, and $269 million as of May 5, 2018, February 3, 2018, and April 29, 2017, respectively. |
Lease Cost | Three Months Ended | ||||||
(millions) | Classification | May 5, 2018 | April 29, 2017 | ||||
Operating lease cost (a) | SG&A Expenses | $ | 60 | $ | 53 | ||
Finance lease cost | |||||||
Amortization of leased assets | Depreciation and Amortization (b) | 17 | 15 | ||||
Interest on lease liabilities | Net Interest Expense | 11 | 10 | ||||
Sublease income (c) | Other Revenue | (2 | ) | (2 | ) | ||
Net lease cost | $ | 86 | $ | 76 |
(a) | Includes short-term leases and variable lease costs, which are immaterial. |
(b) | Supply chain-related amounts are included in Cost of Sales. |
(c) | Sublease income excludes rental income from owned properties of $12 million for the three months ended May 5, 2018 and April 29, 2017, which is included in Other Revenue. |
Maturity of Lease Liabilities (millions) | Operating Leases (a) | Finance Leases (b) | Total | ||||||
2018 | $ | 174 | $ | 99 | $ | 273 | |||
2019 | 230 | 91 | 321 | ||||||
2020 | 220 | 88 | 308 | ||||||
2021 | 212 | 88 | 300 | ||||||
2022 | 208 | 88 | 296 | ||||||
After 2022 | 1,880 | 920 | 2,800 | ||||||
Total lease payments | $ | 2,924 | $ | 1,374 | $ | 4,298 | |||
Less: Interest (c) | 767 | 417 | |||||||
Present value of lease liabilities (d) | $ | 2,157 | $ | 957 |
(a) | Operating lease payments include $798 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $264 million of legally binding minimum lease payments for leases signed but not yet commenced. |
(b) | Finance lease payments include $122 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $236 million of legally binding minimum lease payments for leases signed but not yet commenced. |
(c) | Calculated using the interest rate for each lease. |
(d) | Includes the current portion of $150 million for operating leases and $81 million for finance leases. |
Lease Term and Discount Rate | May 5, 2018 | February 3, 2018 | April 29, 2017 | |||
Weighted-average remaining lease term (years) | ||||||
Operating leases | 14.9 | 15.2 | 15.9 | |||
Finance leases | 15.2 | 15.4 | 15.4 | |||
Weighted-average discount rate | ||||||
Operating leases | 3.89 | % | 3.88 | % | 3.90 | % |
Finance leases | 4.67 | % | 4.64 | % | 4.63 | % |
Other Information | Three Months Ended | |||||
(millions) | May 5, 2018 | April 29, 2017 | ||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||
Operating cash flows from operating leases | $ | 49 | $ | 47 | ||
Operating cash flows from finance leases | 11 | 10 | ||||
Financing cash flows from finance leases | 12 | 10 | ||||
Leased assets obtained in exchange for new finance lease liabilities | 5 | 63 | ||||
Leased assets obtained in exchange for new operating lease liabilities | 113 | 103 |
Three Months Ended | |||||||
(dollars in millions) | May 5, 2018 | April 29, 2017 As Adjusted | |||||
Income tax expense | $ | 210 | $ | 355 | |||
Effective tax rate (a) | 22.6 | % | 34.5 | % |
(a) | For the three months ended May 5, 2018, our income tax rate decreased by 11.9% compared with the three months ended April 29, 2017 primarily due to the lower federal corporate tax rate enacted by the Tax Cuts and Jobs Act (the Tax Act), partially offset by certain other provisions, none of which was individually significant. |
Three Months Ended | |||||||
(millions, except per share data) | May 5, 2018 | April 29, 2017 | |||||
Total number of shares purchased | 6.9 | 4.9 | |||||
Average price paid per share | $ | 71.24 | $ | 61.68 | |||
Total investment | $ | 494 | $ | 305 |
Net Pension Benefits Expense | Three Months Ended | ||||||
(millions) | May 5, 2018 | April 29, 2017 | |||||
Service cost | $ | 24 | $ | 21 | |||
Interest cost | 37 | 34 | |||||
Expected return on assets | (62 | ) | (61 | ) | |||
Amortization of losses | 21 | 15 | |||||
Amortization of prior service cost | (3 | ) | (3 | ) | |||
Total | $ | 17 | $ | 6 |
(millions) | Cash Flow Hedges | Currency Translation Adjustment | Pension | Total | |||||||||||
February 3, 2018 | $ | (14 | ) | $ | (13 | ) | $ | (720 | ) | $ | (747 | ) | |||
Other comprehensive income before reclassifications | — | (3 | ) | — | (3 | ) | |||||||||
Amounts reclassified from AOCI | — | — | 13 | (a) | 13 | ||||||||||
May 5, 2018 | $ | (14 | ) | $ | (16 | ) | $ | (707 | ) | $ | (737 | ) |
(a) | Represents pension amortization, net of $5 million of taxes. |
• | GAAP earnings per share from continuing operations were $1.33. |
• | Adjusted earnings per share from continuing operations were $1.32. |
• | Comparable sales increased 3.0 percent, driven by a 3.7 percent increase in traffic. |
• | Digital channel sales increased 28 percent. |
Earnings Per Share from Continuing Operations | Three Months Ended | |||||||||
May 5, 2018 | April 29, 2017 As Adjusted (a) | Change | ||||||||
GAAP diluted earnings per share | $ | 1.33 | $ | 1.21 | 9.1 | % | ||||
Adjustments | (0.01 | ) | (0.01 | ) | ||||||
Adjusted diluted earnings per share | $ | 1.32 | $ | 1.20 | 9.4 | % |
(a) | Lease standard adoption resulted in a $0.01 reduction in both GAAP and Adjusted diluted earnings per share from continuing operations for the three months ended April 29, 2017. |
Three Months Ended | ||||||||||
(dollars in millions) | May 5, 2018 | April 29, 2017 As Adjusted | Change | |||||||
Sales | $ | 16,556 | $ | 15,995 | 3.5 | % | ||||
Other revenue (a) | 225 | 228 | (1.2 | ) | ||||||
Total revenue | 16,781 | 16,223 | 3.4 | |||||||
Cost of sales | 11,625 | 11,199 | 3.8 | |||||||
Selling, general and administrative expenses | 3,545 | 3,353 | 5.7 | |||||||
Depreciation and amortization (exclusive of depreciation included in cost of sales) | 570 | 516 | 10.5 | |||||||
Operating income | $ | 1,041 | $ | 1,155 | (9.9 | )% |
(a) | Other revenue includes $167 million and $171 million of profit-sharing income under our credit card program agreement for the three months ended May 5, 2018 and April 29, 2017, respectively. |
Rate Analysis | Three Months Ended | ||||
May 5, 2018 | April 29, 2017 As Adjusted | ||||
Gross margin rate (a) | 29.8 | % | 30.0 | % | |
SG&A expense rate (b) | 21.1 | 20.7 | |||
Depreciation and amortization (exclusive of depreciation included in cost of sales) expense rate (b) | 3.4 | 3.2 | |||
Operating income margin rate (b) | 6.2 | 7.1 |
(a) | Calculated as gross margin (sales less cost of sales) divided by sales. |
(b) | Calculated by dividing the applicable amount by total revenue. |
Comparable Sales | Three Months Ended | ||||
May 5, 2018 | April 29, 2017 | ||||
Comparable sales change | 3.0 | % | (1.3 | )% | |
Drivers of change in comparable sales | |||||
Number of transactions | 3.7 | (0.8 | ) | ||
Average transaction amount | (0.6 | ) | (0.6 | ) |
Contribution to Comparable Sales Change | Three Months Ended | ||||
May 5, 2018 | April 29, 2017 | ||||
Stores channel comparable sales change | 1.9 | % | (2.2 | )% | |
Digital channel contribution to comparable sales change | 1.1 | 0.8 | |||
Total comparable sales change | 3.0 | % | (1.3 | )% |
Sales by Channel | Three Months Ended | ||||
May 5, 2018 | April 29, 2017 As Adjusted | ||||
Stores | 94.8 | % | 95.8 | % | |
Digital | 5.2 | 4.2 | |||
Total | 100 | % | 100 | % |
REDcard Penetration | Three Months Ended | ||||
May 5, 2018 | April 29, 2017 | ||||
Target Debit Card | 13.5 | % | 13.6 | % | |
Target Credit Cards | 10.6 | 11.1 | |||
Total REDcard Penetration | 24.1 | % | 24.7 | % |
Change in Number of Stores | Three Months Ended | ||||
May 5, 2018 | April 29, 2017 | ||||
Beginning store count | 1,822 | 1,802 | |||
Opened | 7 | 5 | |||
Closed | — | — | |||
Ending store count | 1,829 | 1,807 |
Number of Stores and Retail Square Feet | Number of Stores | Retail Square Feet (a) | |||||||||||
May 5, 2018 | February 3, 2018 | April 29, 2017 | May 5, 2018 | February 3, 2018 | April 29, 2017 | ||||||||
170,000 or more sq. ft. | 274 | 274 | 276 | 48,951 | 48,966 | 49,328 | |||||||
50,000 to 169,999 sq. ft. | 1,502 | 1,500 | 1,505 | 189,258 | 189,030 | 189,746 | |||||||
49,999 or less sq. ft. | 53 | 48 | 26 | 1,477 | 1,359 | 709 | |||||||
Total | 1,829 | 1,822 | 1,807 | 239,686 | 239,355 | 239,783 |
Three Months Ended | ||||||||||||||||||||||||
May 5, 2018 | April 29, 2017 As Adjusted (a) | |||||||||||||||||||||||
(millions, except per share data) | Pretax | Net of Tax | Per Share Amounts | Pretax | Net of Tax | Per Share Amounts | ||||||||||||||||||
GAAP diluted earnings per share from continuing operations | $ | 1.33 | $ | 1.21 | ||||||||||||||||||||
Adjustments | ||||||||||||||||||||||||
Income tax matters (b) | $ | — | $ | (5 | ) | $ | (0.01 | ) | $ | — | $ | (7 | ) | $ | (0.01 | ) | ||||||||
Adjusted diluted earnings per share from continuing operations | $ | 1.32 | $ | 1.20 |
(a) | Lease standard adoption resulted in a $0.01 reduction in both GAAP and Adjusted diluted earnings per share from continuing operations for the three months ended April 29, 2017. Refer to Note 2 to the Consolidated Financial Statements. |
(b) | Represents income from income tax matters not related to current period operations. |
EBIT and EBITDA | Three Months Ended | ||||||||||
(millions) (unaudited) | May 5, 2018 | April 29, 2017 As Adjusted | Change | ||||||||
Net earnings from continuing operations | $ | 717 | $ | 675 | 6.3 | % | |||||
+ Provision for income taxes | 210 | 355 | (41.0 | ) | |||||||
+ Net interest expense | 121 | 140 | (13.4 | ) | |||||||
EBIT (a) | $ | 1,048 | $ | 1,170 | (10.4 | )% | |||||
+ Total depreciation and amortization (b) | 631 | 581 | 8.6 | ||||||||
EBITDA (a) | $ | 1,679 | $ | 1,751 | (4.1 | )% |
(a) | Adoption of the new accounting standards resulted in an $8 million decrease in EBIT for the three months ended April 29, 2017, with no impact on EBITDA. |
(b) | Represents total depreciation and amortization, including amounts classified within Depreciation and Amortization and within Cost of Sales on our Consolidated Statements of Operations. |
After-Tax Return on Invested Capital | ||||||||||||
Trailing Twelve Months | ||||||||||||
Numerator (dollars in millions) | May 5, 2018 (a) | April 29, 2017 As Adjusted | ||||||||||
Operating income | $ | 4,110 | $ | 4,723 | ||||||||
+ Net other income / (expense) | 51 | 93 | ||||||||||
EBIT | 4,161 | 4,816 | ||||||||||
+ Operating lease interest (b) | 80 | 75 | ||||||||||
Adjusted EBIT | $ | 4,241 | $ | 4,891 | ||||||||
- Income taxes (c) | 692 | (d) | 1,633 | |||||||||
Net operating profit after taxes | $ | 3,549 | $ | 3,258 |
Denominator (dollars in millions) | May 5, 2018 | April 29, 2017 As Adjusted |