Target(TGT) - 2026 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Unaudited condensed consolidated financial statements for Q2 and H1 2025 and 2024, covering operations, financial position, cash flows, and detailed notes Consolidated Statements of Operations Consolidated Statements of Operations (millions, except per share data): | Metric | Three Months Ended Aug 2, 2025 | Three Months Ended Aug 3, 2024 | Six Months Ended Aug 2, 2025 | Six Months Ended Aug 3, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Net sales | $25,211 | $25,452 | $49,057 | $49,983 | | Cost of sales | 17,903 | 17,826 | 35,031 | 35,297 | | Operating income | 1,317 | 1,635 | 2,789 | 2,931 | | Net earnings | $935 | $1,192 | $1,971 | $2,134 | | Basic earnings per share | $2.06 | $2.58 | $4.33 | $4.62 | | Diluted earnings per share | $2.05 | $2.57 | $4.32 | $4.60 | Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income (millions): | Metric | Three Months Ended Aug 2, 2025 | Three Months Ended Aug 3, 2024 | Six Months Ended Aug 2, 2025 | Six Months Ended Aug 3, 2024 | | :---------------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Net earnings | $935 | $1,192 | $1,971 | $2,134 | | Other comprehensive loss, net of tax | (6) | (5) | (10) | (10) | | Comprehensive income | $929 | $1,187 | $1,961 | $2,124 | Consolidated Statements of Financial Position Consolidated Statements of Financial Position (millions): | Metric | August 2, 2025 | February 1, 2025 | August 3, 2024 | | :---------------------------------- | :------------- | :--------------- | :------------- | | Cash and cash equivalents | $4,341 | $4,762 | $3,497 | | Inventory | 12,881 | 12,740 | 12,604 | | Total current assets | 19,034 | 19,454 | 17,918 | | Total assets | $57,851 | $57,769 | $55,995 | | Total current liabilities | 19,223 | 20,799 | 19,984 | | Total noncurrent liabilities | 23,208 | 22,304 | 21,582 | | Total shareholders' investment | 15,420 | 14,666 | 14,429 | | Total liabilities and shareholders' investment | $57,851 | $57,769 | $55,995 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (millions) - Six Months Ended: | Metric | August 2, 2025 | August 3, 2024 | | :---------------------------------- | :------------- | :------------- | | Net earnings | $1,971 | $2,134 | | Cash provided by operating activities | 2,358 | 3,339 | | Cash required for investing activities | (1,853) | (1,305) | | Cash required for financing activities | (926) | (2,342) | | Net decrease in cash and cash equivalents | (421) | (308) | | Cash and cash equivalents at end of period | $4,341 | $3,497 | Consolidated Statements of Shareholders' Investment Consolidated Statements of Shareholders' Investment (millions) - As of: | Metric | February 1, 2025 | May 3, 2025 | August 2, 2025 | | :---------------------------------- | :--------------- | :---------- | :------------- | | Total Shareholders' Investment | $14,666 | $14,947 | $15,420 | | Net earnings (Q2 2025) | - | 1,036 | 935 | | Dividends declared (Q2 2025) | - | (515) | (529) | | Repurchase of stock (Q2 2025) | - | (251) | - | | Share-based compensation (Q2 2025) | - | 15 | 73 | Notes to Consolidated Financial Statements - The company operates as a single segment, with nearly all revenues and long-lived assets located within the U.S. Quarterly results are not necessarily indicative of full-year performance due to seasonality[26][27] Net Sales by Category (millions) - Three Months Ended: | Category | August 2, 2025 | August 3, 2024 | | :------------------------ | :------------- | :------------- | | Apparel & accessories | $4,086 | $4,261 | | Beauty | 3,396 | 3,384 | | Food & beverage | 5,588 | 5,538 | | Hardlines | 3,522 | 3,322 | | Home furnishings & décor | 3,662 | 3,908 | | Household essentials | 4,422 | 4,564 | | Merchandise sales | 24,719 | 25,021 | | Advertising revenue | 217 | 162 | | Credit card profit sharing | 134 | 144 | | Other | 141 | 125 | | Net sales | $25,211 | $25,452 | - In March 2025, the company recorded $593 million in pre-tax net gains from credit card interchange fee litigation settlements, included in SG&A Expenses[35] Long-Term Debt Issuances (millions) - Six Months Ended August 2, 2025: | Issuance Date | Maturity Date | Principal Amount | Interest Rate (Fixed) | | :------------ | :------------ | :--------------- | :-------------------- | | March 2025 | April 2035 | $1,000 | 5.00% | | June 2025 | June 2028 | 500 | 4.35% | | June 2025 | February 2036 | 500 | 5.25% | Long-Term Debt Repayments (millions) - Six Months Ended August 2, 2025: | Repayment Date | Maturity Date | Principal Amount | Interest Rate (Fixed) | | :------------- | :------------ | :--------------- | :-------------------- | | April 2025 | April 2025 | $1,500 | 2.25% | - The company repurchased 2.2 million shares for $251 million during the six months ended August 2, 2025, compared to 1.1 million shares for $155 million in the prior-year period[48] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of financial condition and results of operations for Q2 and H1 fiscal 2025, covering performance, business environment, and liquidity Financial Summary Key Financial Highlights - Three Months Ended August 2, 2025: | Metric | Value | Change YoY | | :-------------------------- | :---- | :--------- | | GAAP diluted EPS | $2.05 | (20.2)% | | Net Sales | $25.2B | (0.9)% | | Comparable sales decrease | 1.9% | - | | Traffic decrease | 1.3% | - | | Average transaction decrease | 0.6% | - | | Comparable stores-originated sales decline | 3.2% | - | | Comparable digitally-originated sales increase | 4.3% | - | | Operating income | $1.3B | (19.4)% | - After-tax Return on Invested Capital (ROIC) for the trailing twelve months ended August 2, 2025, was 14.3%, down from 16.6% in the prior-year period[55] Business Environment - The U.S. imposed tariffs on foreign-manufactured products in April 2025, with China being the largest source of imported merchandise for Target (approximately half of merchandise sourced from outside the U.S.)[56] - Target is monitoring the evolving consumer and regulatory landscape, adjusting plans through vendor negotiations, assortment changes, country of production movements, order quantity/timing adjustments, and pricing strategies to mitigate tariff impacts[57][58] Analysis of Results of Operations Summary of Operating Income (millions) & Rates - Three Months Ended: | Metric | Aug 2, 2025 | Aug 3, 2024 | Change (%) | | :---------------------------------- | :---------- | :---------- | :--------- | | Net sales | $25,211 | $25,452 | (0.9)% | | Cost of sales | 17,903 | 17,826 | 0.4% | | SG&A expenses | 5,359 | 5,365 | (0.1)% | | Operating income | $1,317 | $1,635 | (19.4)% | | Gross margin rate | 29.0% | 30.0% | (1.0) pp | | SG&A expense rate | 21.3% | 21.1% | 0.2 pp | | Operating income margin rate | 5.2% | 6.4% | (1.2) pp | Comparable Sales Change & Drivers - Three Months Ended: | Metric | August 2, 2025 | August 3, 2024 | | :---------------------------------- | :------------- | :------------- | | Comparable sales change | (1.9)% | 2.0% | | Drivers of change in comparable sales: | | | | Number of transactions (traffic) | (1.3)% | 3.0% | | Average transaction amount | (0.6)% | (0.9)% | Comparable Sales by Channel - Three Months Ended: | Channel | August 2, 2025 | August 3, 2024 | | :---------------------------------- | :------------- | :------------- | | Stores originated comparable sales change | (3.2)% | 0.7% | | Digitally originated comparable sales change | 4.3% | 8.7% | Merchandise Sales by Product Category (Percentage of Total) - Three Months Ended: | Category | August 2, 2025 | August 3, 2024 | | :------------------------ | :------------- | :------------- | | Apparel & accessories | 16% | 17% | | Beauty | 14% | 14% | | Food & beverage | 23% | 22% | | Hardlines | 14% | 13% | | Home furnishings & décor | 15% | 16% | | Household essentials | 18% | 18% | | Total | 100% | 100% | - Gross margin rate decreased by 1.0 percentage point to 29.0% for the three months ended August 2, 2025, primarily due to higher markdown rates, purchase order cancellation costs, and changes in category sales mix, partially offset by growth in advertising and other revenues and lower inventory shrink[73][75] - SG&A expense rate increased to 21.3% for the three months ended August 2, 2025, from 21.1% in the prior-year period, reflecting deleveraging from lower Net Sales, though higher remodel-related expenses were offset by cost savings[77] - Net interest expense increased to $116 million for the three months ended August 2, 2025, from $110 million in the prior-year period, mainly due to higher average debt levels[80] - The effective income tax rate for the three months ended August 2, 2025, was 23.2%, up from 22.9% in the prior-year period, driven by the impact of Pillar Two global minimum taxes[81] Reconciliation of Non-GAAP Financial Measures to GAAP Measures Reconciliation of Non-GAAP Adjusted EPS (millions, except per share data) - Six Months Ended: | Metric | August 2, 2025 (Net of Tax) | August 2, 2025 (Per Share) | August 3, 2024 (Net of Tax) | August 3, 2024 (Per Share) | | :---------------------------------- | :-------------------------- | :------------------------- | :-------------------------- | :------------------------- | | GAAP diluted earnings per share | - | $4.32 | - | $4.60 | | Adjustments: Interchange fee settlements | $(441) | $(0.97) | $0 | $0 | | Adjusted EPS | - | $3.35 | - | $4.60 | EBIT and EBITDA (millions) - Three Months Ended: | Metric | August 2, 2025 | August 3, 2024 | Change (%) | | :---------------------------------- | :------------- | :------------- | :--------- | | Net earnings | $935 | $1,192 | (21.5)% | | EBIT | $1,334 | $1,655 | (19.3)% | | EBITDA | $2,104 | $2,398 | (12.2)% | After-Tax Return on Invested Capital (ROIC) - Trailing Twelve Months: | Metric | August 2, 2025 | August 3, 2024 | | :---------------------------------- | :------------- | :------------- | | Net operating profit after taxes | $4,385 | $4,934 | | Average invested capital | $30,715 | $29,760 | | After-tax return on invested capital | 14.3% | 16.6% | Note: The 14.3% ROIC for August 2, 2025, includes a 1.4 percentage point increase due to after-tax net gains on interchange fee settlements[90][92] Analysis of Financial Condition - The company prioritizes capital allocation: first, investing in profitable growth and maintaining operations; second, maintaining and growing a competitive quarterly dividend; and third, repurchasing shares with excess cash within credit rating goals[93] Cash and Cash Equivalents (millions) - As of: | Date | Amount | | :---------------------------------- | :----- | | August 2, 2025 | $4,341 | | February 1, 2025 | $4,762 | | August 3, 2024 | $3,497 | Short-term investments included in cash and cash equivalents were $3.3 billion as of August 2, 2025[94] - Cash flows from operating activities decreased to $2.4 billion for the six months ended August 2, 2025, from $3.3 billion in the prior-year period, primarily due to lower accounts payable leverage and reduced net earnings, partially offset by interchange fee settlement gains[95] - Inventory increased to $12.9 billion as of August 2, 2025, from $12.6 billion as of August 3, 2024, reflecting higher merchandise costs and continued investment in frequency categories[96] - Cash required for investing activities increased to $1.9 billion for the six months ended August 2, 2025, from $1.3 billion in the prior-year period, driven by higher capital expenditures[97] - Dividends paid for the six months ended August 2, 2025, totaled $1,019 million ($2.24 per share), a 1.8% per share increase from the prior-year period[98] - The company maintains strong credit ratings (Moody's A2, S&P A, Fitch A for long-term debt) to ensure liquidity and access to capital markets, with no commercial paper outstanding as of August 2, 2025[101][103] New Accounting Pronouncements - Management does not expect any recently issued accounting pronouncements to have a material effect on the financial statements[106] Forward-Looking Statements - The report contains forward-looking statements regarding future financial and operational performance, liquidity, debt funding, share repurchases, capital expenditures, dividends, and other expectations, which are subject to risks outlined in the company's Form 10-K[108][109] Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the company's primary risk exposures or management of market risks since the last Form 10-K filing - No material changes in market risk exposures or management from the prior fiscal year's Form 10-K[110] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the most recent fiscal quarter Changes in Internal Control Over Financial Reporting - No changes occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[111] Evaluation of Disclosure Controls and Procedures - The CEO and CFO concluded that disclosure controls and procedures were effective at a reasonable assurance level as of the end of the reporting period[112] PART II. OTHER INFORMATION Item 1. Legal Proceedings No response is required under Item 103 of Regulation S-K, and there have been no material developments in previously reported legal proceedings for the quarter ended August 2, 2025 - No material developments in legal proceedings for the quarter ended August 2, 2025[114] Item 1A. Risk Factors There have been no material changes to the risk factors previously described in the company's Form 10-K for the fiscal year ended February 1, 2025 - No material changes to the risk factors described in the Form 10-K for the fiscal year ended February 1, 2025[115] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds As of August 2, 2025, the company has $8.4 billion remaining under its $15 billion share repurchase program, with no common stock purchases made during the three months ended August 2, 2025 - The company has $8.4 billion remaining under its $15 billion share repurchase program, authorized on August 11, 2021[116] - No Target common stock purchases were made during the three months ended August 2, 2025[116] Item 3. Defaults Upon Senior Securities This item is not applicable for the reporting period Item 4. Mine Safety Disclosures This item is not applicable for the reporting period Item 5. Other Information This item is not applicable for the reporting period Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, transition agreements, certifications, and XBRL-related documents - Exhibits include Amended and Restated Articles of Incorporation, Bylaws, Transition Agreements for A. Christina Hennington and Amy Tu, CEO/CFO certifications (Sarbanes-Oxley Act), and Inline XBRL documents[121] Signatures The report is duly signed on behalf of Target Corporation by Jim Lee, Executive Vice President and Chief Financial Officer, and Matthew A. Liegel, Senior Vice President, Chief Accounting Officer and Controller, dated August 29, 2025 - The report was signed by Jim Lee, Executive Vice President and Chief Financial Officer, and Matthew A. Liegel, Senior Vice President, Chief Accounting Officer and Controller, on August 29, 2025[127]