Item 1. Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
(millions, except per share data) (unaudited)
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
Sales
|
$
|
18,414
|
|
|
$
|
17,590
|
|
|
$
|
53,997
|
|
|
$
|
51,699
|
|
|
Other revenue
|
251
|
|
|
231
|
|
|
716
|
|
|
680
|
|
|
Total revenue
|
18,665
|
|
|
17,821
|
|
|
54,713
|
|
|
52,379
|
|
|
Cost of sales
|
12,935
|
|
|
12,535
|
|
|
37,808
|
|
|
36,400
|
|
|
Selling, general and administrative expenses
|
4,153
|
|
|
3,937
|
|
|
11,728
|
|
|
11,347
|
|
|
Depreciation and amortization (exclusive of depreciation included in cost of sales)
|
575
|
|
|
530
|
|
|
1,717
|
|
|
1,639
|
|
|
Operating income
|
1,002
|
|
|
819
|
|
|
3,460
|
|
|
2,993
|
|
|
Net interest expense
|
113
|
|
|
115
|
|
|
359
|
|
|
352
|
|
|
Net other (income) / expense
|
(12
|
)
|
|
(9
|
)
|
|
(38
|
)
|
|
(21
|
)
|
|
Earnings from continuing operations before income taxes
|
901
|
|
|
713
|
|
|
3,139
|
|
|
2,662
|
|
|
Provision for income taxes
|
195
|
|
|
97
|
|
|
703
|
|
|
530
|
|
|
Net earnings from continuing operations
|
706
|
|
|
616
|
|
|
2,436
|
|
|
2,132
|
|
|
Discontinued operations, net of tax
|
8
|
|
|
6
|
|
|
11
|
|
|
7
|
|
|
Net earnings
|
$
|
714
|
|
|
$
|
622
|
|
|
$
|
2,447
|
|
|
$
|
2,139
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
1.38
|
|
|
$
|
1.17
|
|
|
$
|
4.75
|
|
|
$
|
4.01
|
|
|
Discontinued operations
|
0.02
|
|
|
0.01
|
|
|
0.02
|
|
|
0.01
|
|
|
Net earnings per share
|
$
|
1.40
|
|
|
$
|
1.18
|
|
|
$
|
4.77
|
|
|
$
|
4.02
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
1.37
|
|
|
$
|
1.16
|
|
|
$
|
4.71
|
|
|
$
|
3.98
|
|
|
Discontinued operations
|
0.02
|
|
|
0.01
|
|
|
0.02
|
|
|
0.01
|
|
|
Net earnings per share
|
$
|
1.39
|
|
|
$
|
1.17
|
|
|
$
|
4.74
|
|
|
$
|
3.99
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
509.7
|
|
|
525.9
|
|
|
512.5
|
|
|
531.5
|
|
|
Diluted
|
514.8
|
|
|
531.2
|
|
|
516.8
|
|
|
536.2
|
|
|
Antidilutive shares
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Note: Per share amounts may not foot due to rounding.
See accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Comprehensive Income
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
(millions) (unaudited)
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
Net earnings
|
$
|
714
|
|
|
$
|
622
|
|
|
$
|
2,447
|
|
|
$
|
2,139
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension, net of tax
|
10
|
|
|
13
|
|
|
30
|
|
|
42
|
|
|
Currency translation adjustment and cash flow hedges, net of tax
|
(1
|
)
|
|
(4
|
)
|
|
2
|
|
|
(9
|
)
|
|
Other comprehensive income
|
9
|
|
|
9
|
|
|
32
|
|
|
33
|
|
|
Comprehensive income
|
$
|
723
|
|
|
$
|
631
|
|
|
$
|
2,479
|
|
|
$
|
2,172
|
|
See accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Financial Position
|
|
|
|
|
|
|
|
|
|
(millions, except footnotes) (unaudited)
|
November 2,
2019
|
|
|
February 2,
2019
|
|
|
November 3,
2018
|
|
|
Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
969
|
|
|
$
|
1,556
|
|
|
$
|
825
|
|
|
Inventory
|
11,396
|
|
|
9,497
|
|
|
12,393
|
|
|
Other current assets
|
1,440
|
|
|
1,466
|
|
|
1,421
|
|
|
Total current assets
|
13,805
|
|
|
12,519
|
|
|
14,639
|
|
|
Property and equipment
|
|
|
|
|
|
|
|
|
|
Land
|
6,040
|
|
|
6,064
|
|
|
6,069
|
|
|
Buildings and improvements
|
30,467
|
|
|
29,240
|
|
|
29,090
|
|
|
Fixtures and equipment
|
6,032
|
|
|
5,912
|
|
|
5,784
|
|
|
Computer hardware and software
|
2,636
|
|
|
2,544
|
|
|
2,660
|
|
|
Construction-in-progress
|
298
|
|
|
460
|
|
|
384
|
|
|
Accumulated depreciation
|
(19,089
|
)
|
|
(18,687
|
)
|
|
(18,380
|
)
|
|
Property and equipment, net
|
26,384
|
|
|
25,533
|
|
|
25,607
|
|
|
Operating lease assets
|
2,151
|
|
|
1,965
|
|
|
1,997
|
|
|
Other noncurrent assets
|
1,401
|
|
|
1,273
|
|
|
1,329
|
|
|
Total assets
|
$
|
43,741
|
|
|
$
|
41,290
|
|
|
$
|
43,572
|
|
|
Liabilities and shareholders’ investment
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
11,258
|
|
|
$
|
9,761
|
|
|
$
|
11,959
|
|
|
Accrued and other current liabilities
|
4,191
|
|
|
4,201
|
|
|
4,096
|
|
|
Current portion of long-term debt and other borrowings
|
1,159
|
|
|
1,052
|
|
|
1,535
|
|
|
Total current liabilities
|
16,608
|
|
|
15,014
|
|
|
17,590
|
|
|
Long-term debt and other borrowings
|
10,513
|
|
|
10,223
|
|
|
10,104
|
|
|
Noncurrent operating lease liabilities
|
2,208
|
|
|
2,004
|
|
|
2,046
|
|
|
Deferred income taxes
|
1,215
|
|
|
972
|
|
|
970
|
|
|
Other noncurrent liabilities
|
1,652
|
|
|
1,780
|
|
|
1,782
|
|
|
Total noncurrent liabilities
|
15,588
|
|
|
14,979
|
|
|
14,902
|
|
|
Shareholders’ investment
|
|
|
|
|
|
|
|
|
|
Common stock
|
42
|
|
|
43
|
|
|
43
|
|
|
Additional paid-in capital
|
6,006
|
|
|
6,042
|
|
|
5,867
|
|
|
Retained earnings
|
6,270
|
|
|
6,017
|
|
|
5,884
|
|
|
Accumulated other comprehensive loss
|
(773
|
)
|
|
(805
|
)
|
|
(714
|
)
|
|
Total shareholders’ investment
|
11,545
|
|
|
11,297
|
|
|
11,080
|
|
|
Total liabilities and shareholders’ investment
|
$
|
43,741
|
|
|
$
|
41,290
|
|
|
$
|
43,572
|
|
Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 506,677,740, 517,761,600 and 521,810,597 shares issued and outstanding at November 2, 2019, February 2, 2019, and November 3, 2018, respectively.
Preferred Stock Authorized 5,000,000 shares, $0.01 par value; no shares were issued or outstanding during any period presented.
See accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows
|
|
|
|
|
|
Nine Months Ended
|
|
(millions) (unaudited)
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
Operating activities
|
|
|
|
|
|
|
Net earnings
|
$
|
2,447
|
|
|
$
|
2,139
|
|
|
Earnings from discontinued operations, net of tax
|
11
|
|
|
7
|
|
|
Net earnings from continuing operations
|
2,436
|
|
|
2,132
|
|
|
Adjustments to reconcile net earnings to cash provided by operations
|
|
|
|
|
|
|
Depreciation and amortization
|
1,905
|
|
|
1,826
|
|
|
Share-based compensation expense
|
116
|
|
|
106
|
|
|
Deferred income taxes
|
235
|
|
|
261
|
|
|
Noncash losses / (gains) and other, net
|
6
|
|
|
85
|
|
|
Changes in operating accounts
|
|
|
|
|
|
Inventory
|
(1,899
|
)
|
|
(3,796
|
)
|
|
Other assets
|
(10
|
)
|
|
(140
|
)
|
|
Accounts payable
|
1,473
|
|
|
3,298
|
|
|
Accrued and other liabilities
|
(121
|
)
|
|
(158
|
)
|
|
Cash provided by operating activities—continuing operations
|
4,141
|
|
|
3,614
|
|
|
Cash provided by operating activities—discontinued operations
|
18
|
|
|
10
|
|
|
Cash provided by operations
|
4,159
|
|
|
3,624
|
|
|
Investing activities
|
|
|
|
|
|
|
Expenditures for property and equipment
|
(2,403
|
)
|
|
(2,873
|
)
|
|
Proceeds from disposal of property and equipment
|
29
|
|
|
39
|
|
|
Other investments
|
14
|
|
|
15
|
|
|
Cash required for investing activities
|
(2,360
|
)
|
|
(2,819
|
)
|
|
Financing activities
|
|
|
|
|
|
|
Change in commercial paper, net
|
—
|
|
|
490
|
|
|
Additions to long-term debt
|
994
|
|
|
—
|
|
|
Reductions of long-term debt
|
(1,041
|
)
|
|
(268
|
)
|
|
Dividends paid
|
(995
|
)
|
|
(1,001
|
)
|
|
Repurchase of stock
|
(959
|
)
|
|
(1,485
|
)
|
|
Accelerated share repurchase pending final settlement
|
(450
|
)
|
|
(450
|
)
|
|
Stock option exercises
|
65
|
|
|
91
|
|
|
Cash required for financing activities
|
(2,386
|
)
|
|
(2,623
|
)
|
|
Net decrease in cash and cash equivalents
|
(587
|
)
|
|
(1,818
|
)
|
|
Cash and cash equivalents at beginning of period
|
1,556
|
|
|
2,643
|
|
|
Cash and cash equivalents at end of period
|
$
|
969
|
|
|
$
|
825
|
|
|
Supplemental information
|
|
|
|
|
Leased assets obtained in exchange for new finance lease liabilities
|
$
|
301
|
|
|
$
|
29
|
|
|
Leased assets obtained in exchange for new operating lease liabilities
|
334
|
|
|
228
|
|
See accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Shareholders’ Investment
|
|
|
Common
|
|
|
Stock
|
|
|
Additional
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
Stock
|
|
|
Par
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
(millions) (unaudited)
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss) / Income
|
|
|
Total
|
|
|
February 3, 2018
|
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
|
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
799
|
|
|
—
|
|
|
799
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
14
|
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
(341
|
)
|
|
—
|
|
|
(341
|
)
|
|
Repurchase of stock
|
(2.9
|
)
|
|
—
|
|
|
225
|
|
|
(232
|
)
|
|
—
|
|
|
(7
|
)
|
|
Accelerated share repurchase pending final settlement
|
(4.6
|
)
|
|
—
|
|
|
(170
|
)
|
|
(355
|
)
|
|
—
|
|
|
(525
|
)
|
|
Stock options and awards
|
0.7
|
|
|
—
|
|
|
69
|
|
|
—
|
|
|
—
|
|
|
69
|
|
|
August 4, 2018
|
526.1
|
|
|
$
|
44
|
|
|
$
|
5,788
|
|
|
$
|
6,058
|
|
|
$
|
(723
|
)
|
|
$
|
11,167
|
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
622
|
|
|
—
|
|
|
622
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
9
|
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
(338
|
)
|
|
—
|
|
|
(338
|
)
|
|
Repurchase of stock
|
(1.7
|
)
|
|
(1
|
)
|
|
170
|
|
|
(171
|
)
|
|
—
|
|
|
(2
|
)
|
|
Accelerated share repurchase pending final settlement
|
(3.5
|
)
|
|
—
|
|
|
(163
|
)
|
|
(287
|
)
|
|
—
|
|
|
(450
|
)
|
|
Stock options and awards
|
0.9
|
|
|
—
|
|
|
72
|
|
|
—
|
|
|
—
|
|
|
72
|
|
|
November 3, 2018
|
521.8
|
|
|
$
|
43
|
|
|
$
|
5,867
|
|
|
$
|
5,884
|
|
|
$
|
(714
|
)
|
|
$
|
11,080
|
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
799
|
|
|
—
|
|
|
799
|
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(91
|
)
|
|
(91
|
)
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
(336
|
)
|
|
—
|
|
|
(336
|
)
|
|
Repurchase of stock
|
(4.7
|
)
|
|
—
|
|
|
163
|
|
|
(330
|
)
|
|
—
|
|
|
(167
|
)
|
|
Stock options and awards
|
0.7
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
February 2, 2019
|
517.8
|
|
|
$
|
43
|
|
|
$
|
6,042
|
|
|
$
|
6,017
|
|
|
$
|
(805
|
)
|
|
$
|
11,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Shareholders’ Investment
|
|
|
Common
|
|
|
Stock
|
|
|
Additional
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
Stock
|
|
|
Par
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
(millions) (unaudited)
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss) / Income
|
|
|
Total
|
|
|
February 2, 2019
|
517.8
|
|
|
$
|
43
|
|
|
$
|
6,042
|
|
|
$
|
6,017
|
|
|
$
|
(805
|
)
|
|
$
|
11,297
|
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
795
|
|
|
—
|
|
|
795
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|
13
|
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
(330
|
)
|
|
—
|
|
|
(330
|
)
|
|
Repurchase of stock
|
(3.6
|
)
|
|
—
|
|
|
—
|
|
|
(277
|
)
|
|
—
|
|
|
(277
|
)
|
|
Accelerated share repurchase pending final settlement
|
(3.0
|
)
|
|
—
|
|
|
(153
|
)
|
|
(247
|
)
|
|
—
|
|
|
(400
|
)
|
|
Stock options and awards
|
1.1
|
|
|
—
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
19
|
|
|
May 4, 2019
|
512.3
|
|
|
$
|
43
|
|
|
$
|
5,908
|
|
|
$
|
5,958
|
|
|
$
|
(792
|
)
|
|
$
|
11,117
|
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
938
|
|
|
—
|
|
|
938
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
10
|
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
(341
|
)
|
|
—
|
|
|
(341
|
)
|
|
Repurchase of stock
|
(1.3
|
)
|
|
—
|
|
|
153
|
|
|
(94
|
)
|
|
—
|
|
|
59
|
|
|
Stock options and awards
|
0.3
|
|
|
—
|
|
|
53
|
|
|
—
|
|
|
—
|
|
|
53
|
|
|
August 3, 2019
|
511.3
|
|
|
$
|
43
|
|
|
$
|
6,114
|
|
|
$
|
6,461
|
|
|
$
|
(782
|
)
|
|
$
|
11,836
|
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
714
|
|
|
—
|
|
|
714
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
9
|
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
(338
|
)
|
|
—
|
|
|
(338
|
)
|
|
Repurchase of stock
|
(3.0
|
)
|
|
(1
|
)
|
|
—
|
|
|
(295
|
)
|
|
—
|
|
|
(296
|
)
|
|
Accelerated share repurchase pending final settlement
|
(2.5
|
)
|
|
—
|
|
|
(178
|
)
|
|
(272
|
)
|
|
—
|
|
|
(450
|
)
|
|
Stock options and awards
|
0.9
|
|
|
—
|
|
|
70
|
|
|
—
|
|
|
—
|
|
|
70
|
|
|
November 2, 2019
|
506.7
|
|
|
$
|
42
|
|
|
$
|
6,006
|
|
|
$
|
6,270
|
|
|
$
|
(773
|
)
|
|
$
|
11,545
|
|
We declared $0.66 and $0.64 dividends per share for the three months ended November 2, 2019, and November 3, 2018, respectively, and $2.54 per share for the fiscal year ended February 2, 2019.
See accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements (unaudited)
1. Accounting Policies
These unaudited condensed consolidated financial statements are prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC) applicable to interim financial statements. While these statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by United States (U.S.) generally accepted accounting principles (U.S. GAAP) for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the financial statement disclosures in our 2018 Form 10-K.
We use the same accounting policies in preparing quarterly and annual financial statements. Unless otherwise noted, amounts presented within the Notes to Consolidated Financial Statements refer to our continuing operations.
We operate as a single segment that includes all of our continuing operations, which are designed to enable guests to purchase products seamlessly in stores or through our digital channels. Nearly all of our revenues are generated in the U.S. The vast majority of our long-lived assets are located within the U.S.
Due to the seasonal nature of our business, quarterly revenues, expenses, earnings, and cash flows are not necessarily indicative of the results that may be expected for the full year.
2. Revenues
General merchandise sales represent the vast majority of our revenues. We also earn revenues from a variety of other sources, most notably credit card profit sharing income from our arrangement with TD Bank Group (TD).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
Three Months Ended
|
|
Nine Months Ended
|
|
(millions)
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
Apparel and accessories (a)
|
$
|
3,564
|
|
|
$
|
3,219
|
|
|
$
|
10,510
|
|
|
$
|
9,803
|
|
|
Beauty and household essentials (a)
|
5,125
|
|
|
4,788
|
|
|
15,172
|
|
|
14,189
|
|
|
Food and beverage
|
3,717
|
|
|
3,611
|
|
|
10,899
|
|
|
10,570
|
|
|
Hardlines
|
2,460
|
|
|
2,478
|
|
|
7,348
|
|
|
7,292
|
|
|
Home furnishings and décor
|
3,527
|
|
|
3,476
|
|
|
9,985
|
|
|
9,781
|
|
|
Other
|
21
|
|
|
18
|
|
|
83
|
|
|
64
|
|
|
Sales
|
18,414
|
|
|
17,590
|
|
|
53,997
|
|
|
51,699
|
|
|
|
|
|
|
|
|
|
|
|
Credit card profit sharing
|
177
|
|
|
169
|
|
|
505
|
|
|
503
|
|
|
Other
|
74
|
|
|
62
|
|
|
211
|
|
|
177
|
|
|
Other revenue
|
251
|
|
|
231
|
|
|
716
|
|
|
680
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
18,665
|
|
|
$
|
17,821
|
|
|
$
|
54,713
|
|
|
$
|
52,379
|
|
|
|
|
|
(a)
|
We reclassified certain non-apparel baby merchandise sales totaling $406 million and $1,260 million for the three and nine months ended November 2, 2019, respectively, and $403 million and $1,166 million for the three and nine months ended November 3, 2018, respectively, from Apparel and Accessories to Beauty and Household Essentials.
|
We record almost all retail store revenues at the point of sale. Digitally originated sales may include shipping revenue and are recorded upon delivery to the guest or upon guest pickup at the store. Sales are recognized net of expected returns, which we estimate using historical return patterns and our expectation of future returns. As of November 2, 2019, February 2, 2019, and November 3, 2018, the accrual for estimated returns was $137 million, $116 million, and $125 million, respectively. We have not historically had material adjustments to our returns estimates.
Revenue from Target gift card sales is recognized upon gift card redemption, which is typically within one year of issuance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gift Card Liability Activity
|
February 2,
2019
|
|
|
Gift Cards Issued During Current Period But Not Redeemed (a)
|
|
|
Revenue Recognized From Beginning Liability
|
|
|
November 2,
2019
|
|
|
(millions)
|
|
|
|
|
Gift card liability
|
$
|
840
|
|
|
$
|
386
|
|
|
$
|
(543
|
)
|
|
$
|
683
|
|
|
|
|
|
(a)
|
Net of estimated breakage.
|
Credit card profit sharing – We receive payments under a credit card program agreement with TD. Under the agreement, we receive a percentage of the profits generated by the Target Credit Card and Target MasterCard receivables in exchange for performing account servicing and primary marketing functions. TD underwrites, funds, and owns Target Credit Card and Target MasterCard receivables, controls risk management policies, and oversees regulatory compliance.
3. Fair Value Measurements
Fair value measurements are reported in one of three levels reflecting the valuation techniques used to determine fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements - Recurring Basis
|
|
Fair Value at
|
|
(millions)
|
Classification
|
Pricing Category
|
November 2,
2019
|
|
|
February 2,
2019
|
|
|
November 3,
2018
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
Cash and Cash Equivalents
|
Level 1
|
$
|
163
|
|
|
$
|
769
|
|
|
$
|
42
|
|
|
Prepaid forward contracts
|
Other Current Assets
|
Level 1
|
24
|
|
|
19
|
|
|
23
|
|
|
Interest rate swaps
|
Other Noncurrent Assets
|
Level 2
|
122
|
|
|
10
|
|
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
Other Current Liabilities
|
Level 2
|
—
|
|
|
3
|
|
|
6
|
|
|
Interest rate swaps
|
Other Noncurrent Liabilities
|
Level 2
|
—
|
|
|
—
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant Financial Instruments Not Measured at Fair Value (a)
(millions)
|
November 2, 2019
|
|
February 2, 2019
|
|
November 3, 2018
|
|
Carrying
Amount
|
|
Fair
Value
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
|
Long-term debt, including current portion (b)
|
$
|
10,246
|
|
$
|
11,870
|
|
|
$
|
10,247
|
|
$
|
10,808
|
|
|
$
|
10,245
|
|
$
|
10,396
|
|
|
|
|
|
(a)
|
The carrying amounts of certain other current assets, commercial paper, accounts payable, and certain accrued and other current liabilities approximate fair value due to their short-term nature.
|
|
|
|
|
(b)
|
The fair value of debt is generally measured using a discounted cash flow analysis based on current market interest rates for the same or similar types of financial instruments and would be classified as Level 2. These amounts exclude commercial paper, unamortized swap valuation adjustments, and lease liabilities.
|
4. Property and Equipment
We review long-lived assets for impairment when store performance expectations, events, or changes in circumstances—such as a decision to relocate or close a store or distribution center, discontinue projects, or make significant software changes—indicate that the asset’s carrying value may not be recoverable. We recognized impairment charges of $7 million and $21 million during the three and nine months ended November 2, 2019, respectively, primarily resulting from store impairments. We recognized no impairment charges during the three months ended November 3, 2018, and $85 million of impairment charges during the nine months ended November 3, 2018, primarily resulting from planned store closures. The impairment charges are recorded in Selling, General and Administrative Expenses.
5. Commercial Paper and Long-Term Debt
In March 2019, we issued $1,000 million of 10-year unsecured fixed rate debt at 3.375 percent, and in June 2019, we repaid $1,000 million of unsecured 2.3 percent fixed rate debt at maturity.
Our commercial paper program provides a source of short-term financing. For the nine months ended November 2, 2019, the maximum amount outstanding was $744 million, and the average daily amount outstanding was $55 million at a weighted average annual interest rate of 2.4 percent. For the nine months ended November 3, 2018, the maximum amount outstanding was $658 million, and the average daily amount outstanding was $54 million at a weighted average annual interest rate of 1.9 percent. As of November 2, 2019, no balances were outstanding. As of November 3, 2018, $490 million was outstanding and is classified within Current Portion of Long-Term Debt and Other Borrowings on our Consolidated Statement of Financial Position.
6. Derivative Financial Instruments
Our derivative instruments consist of interest rate swaps used to mitigate interest rate risk. As a result, we have counterparty credit exposure to large global financial institutions, which we monitor on an ongoing basis. Note 3 provides the fair value and classification of these instruments.
In March 2019, we entered into interest rate swaps with a total notional amount of $1,000 million, and in June 2019, interest rate swaps with a total notional amount of $1,000 million matured. As of November 2, 2019, and November 3, 2018, we were party to interest rate swaps with notional amounts totaling $1,500 million. We pay a variable rate and receive a fixed rate under each of these agreements. All of the agreements are designated as fair value hedges, and all were perfectly effective during the three and nine months ended November 2, 2019, and November 3, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Hedges on Debt
|
|
(millions)
|
|
November 2,
2019
|
|
|
February 2,
2019
|
|
|
November 3,
2018
|
|
|
Current portion of long-term debt and other borrowings
|
|
|
|
|
|
|
|
Carrying amount of hedged debt
|
|
$
|
—
|
|
|
$
|
996
|
|
|
$
|
993
|
|
|
Cumulative hedging adjustments, included in carrying amount
|
|
—
|
|
|
(3
|
)
|
|
(6
|
)
|
|
Long-term debt and other borrowings
|
|
|
|
|
|
|
|
Carrying amount of hedged debt
|
|
1,614
|
|
|
508
|
|
|
491
|
|
|
Cumulative hedging adjustments, included in carrying amount
|
|
122
|
|
|
10
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Hedges on Net Interest Expense
|
Three Months Ended
|
|
Nine Months Ended
|
|
(millions)
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
Gain (loss) on fair value hedges recognized in Net Interest Expense
|
|
|
|
|
|
|
|
|
Interest rate swap designated as fair value hedges
|
$
|
14
|
|
|
$
|
(4
|
)
|
|
$
|
115
|
|
|
$
|
(7
|
)
|
|
Hedged debt
|
(14
|
)
|
|
4
|
|
|
(115
|
)
|
|
7
|
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
7. Share Repurchase
We periodically repurchase shares of our common stock under a board-authorized repurchase program through a combination of open market transactions, accelerated share repurchase (ASR) arrangements, and other privately negotiated transactions with financial institutions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Repurchase Activity
|
Three Months Ended
|
Nine Months Ended
|
|
(millions, except per share data)
|
November 2,
2019
|
|
|
November 3,
2018
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
Number of shares purchased
|
3.0
|
|
|
6.3
|
|
10.8
|
|
|
19.0
|
|
|
Average price paid per share
|
$
|
99.25
|
|
|
$
|
84.00
|
|
$
|
84.28
|
|
|
$
|
76.38
|
|
|
Total investment
|
$
|
294
|
|
|
$
|
526
|
|
$
|
912
|
|
|
$
|
1,451
|
|
Note: This table excludes activity related to the ASR arrangements described below because final settlement had not occurred as of November 2, 2019, and November 3, 2018, respectively.
During the third quarter of 2019, we entered into an ASR arrangement to repurchase $300 to $450 million of our common stock. Under the agreement, we paid $450 million and received an initial delivery of 2.5 million shares, which were retired, resulting in a $272 million reduction to Retained Earnings. As of November 2, 2019, $178 million is included in the Consolidated Statement of Financial Position as a reduction to Additional Paid-in Capital.
During the third quarter of 2018, we entered into an ASR arrangement to repurchase $325 to $450 million of our common stock. Under the agreement, we paid $450 million and received an initial delivery of 3.5 million shares, which were retired, resulting in a $287 million reduction to Retained Earnings. As of November 3, 2018, $163 million was included as a reduction to Additional Paid-in Capital. Upon final settlement in the fourth quarter of 2018, we received an additional 2.2 million shares, which were retired, and $3.6 million for the remaining amount not settled in shares. In total, we repurchased 5.7 million shares under the ASR arrangement for a total cash investment of $446 million ($77.98 per share).
8. Pension Benefits
We provide pension plan benefits to eligible team members.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Pension Benefits Expense
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
(millions)
|
Classification
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
Service cost benefits earned
|
SG&A Expenses
|
$
|
23
|
|
|
$
|
24
|
|
|
$
|
69
|
|
|
$
|
72
|
|
|
Interest cost on projected benefit obligation
|
Net Other (Income) / Expense
|
37
|
|
|
37
|
|
|
111
|
|
|
110
|
|
|
Expected return on assets
|
Net Other (Income) / Expense
|
(62
|
)
|
|
(62
|
)
|
|
(186
|
)
|
|
(185
|
)
|
|
Amortization of losses
|
Net Other (Income) / Expense
|
16
|
|
|
20
|
|
|
47
|
|
|
61
|
|
|
Amortization of prior service cost
|
Net Other (Income) / Expense
|
(3
|
)
|
|
(3
|
)
|
|
(8
|
)
|
|
(8
|
)
|
|
Settlement charges
|
Net Other (Income) / Expense
|
—
|
|
|
1
|
|
|
—
|
|
|
4
|
|
|
Total
|
|
$
|
11
|
|
|
$
|
17
|
|
|
$
|
33
|
|
|
$
|
54
|
|
9. Accumulated Other Comprehensive (Loss) / Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Accumulated Other Comprehensive Income
|
Cash Flow
Hedges
|
|
|
Currency Translation Adjustment
|
|
|
Pension
|
|
|
Total
|
|
|
(millions)
|
|
|
|
|
February 2, 2019
|
$
|
(13
|
)
|
|
$
|
(20
|
)
|
|
$
|
(772
|
)
|
|
$
|
(805
|
)
|
|
Other comprehensive income before reclassifications, net of tax
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
Amounts reclassified from AOCI, net of tax
|
—
|
|
|
—
|
|
|
30
|
|
|
30
|
|
|
November 2, 2019
|
$
|
(13
|
)
|
|
$
|
(18
|
)
|
|
$
|
(742
|
)
|
|
$
|
(773
|
)
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
Third quarter 2019 includes the following notable items:
|
|
|
|
•
|
GAAP earnings per share from continuing operations were $1.37.
|
|
|
|
|
•
|
Adjusted earnings per share from continuing operations were $1.36.
|
|
|
|
|
•
|
Total revenue increased 4.7 percent, driven by a comparable sales increase and sales from new stores.
|
|
|
|
|
•
|
Comparable sales increased 4.5 percent, driven by a 3.1 percent increase in traffic.
|
|
|
|
|
◦
|
Comparable store sales grew 2.8 percent.
|
|
|
|
|
◦
|
Digital channel sales increased 31 percent, contributing 1.7 percentage points to comparable sales growth.
|
|
|
|
|
•
|
Operating income of $1,002 million was 22.3 percent higher than the comparable prior-year period.
|
Sales were $18,414 million for the three months ended November 2, 2019, an increase of $824 million, or 4.7 percent, from the same period in the prior year. Operating cash flow provided by continuing operations was $4,141 million for the nine months ended November 2, 2019, an increase of $527 million, or 14.6 percent, from $3,614 million for the nine months ended November 3, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share from Continuing Operations
|
Three Months Ended
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
Change
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
Change
|
|
|
GAAP diluted earnings per share
|
$
|
1.37
|
|
|
$
|
1.16
|
|
|
18.2
|
%
|
|
$
|
4.71
|
|
|
$
|
3.98
|
|
|
18.5
|
%
|
|
Adjustments
|
(0.01
|
)
|
|
(0.07
|
)
|
|
|
|
(0.01
|
)
|
|
(0.11
|
)
|
|
|
|
|
Adjusted diluted earnings per share
|
$
|
1.36
|
|
|
$
|
1.09
|
|
|
24.9
|
%
|
|
$
|
4.70
|
|
|
$
|
3.87
|
|
|
21.4
|
%
|
Note: Amounts may not foot due to rounding. Adjusted diluted earnings per share from continuing operations (Adjusted EPS), a non-GAAP metric, excludes the impact of certain items. Management believes that Adjusted EPS is useful in providing period-to-period comparisons of the results of our continuing operations. A reconciliation of non-GAAP financial measures to GAAP measures is provided on page 17.
For the trailing twelve months ended November 2, 2019, after-tax return on invested capital from continuing operations (ROIC) was 15.0 percent, compared with 15.8 percent for the trailing twelve months ended November 3, 2018. Excluding the discrete impacts of the Tax Cuts and Jobs Act of 2017 (Tax Act), ROIC was 15.1 percent and 13.9 percent for the trailing twelve months ended November 2, 2019, and November 3, 2018, respectively. The calculation of ROIC is provided on page 19.
Analysis of Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Operating Income
|
Three Months Ended
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
(dollars in millions)
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
Change
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
Change
|
|
|
Sales
|
$
|
18,414
|
|
|
$
|
17,590
|
|
|
4.7
|
%
|
|
$
|
53,997
|
|
|
$
|
51,699
|
|
|
4.4
|
%
|
|
Other revenue
|
251
|
|
|
231
|
|
|
8.8
|
|
|
716
|
|
|
680
|
|
|
5.3
|
|
|
Total revenue
|
18,665
|
|
|
17,821
|
|
|
4.7
|
|
|
54,713
|
|
|
52,379
|
|
|
4.5
|
|
|
Cost of sales
|
12,935
|
|
|
12,535
|
|
|
3.2
|
|
|
37,808
|
|
|
36,400
|
|
|
3.9
|
|
|
Selling, general and administrative expenses
|
4,153
|
|
|
3,937
|
|
|
5.5
|
|
|
11,728
|
|
|
11,347
|
|
|
3.4
|
|
|
Depreciation and amortization (exclusive of depreciation included in cost of sales)
|
575
|
|
|
530
|
|
|
8.5
|
|
|
1,717
|
|
|
1,639
|
|
|
4.8
|
|
|
Operating income
|
$
|
1,002
|
|
|
$
|
819
|
|
|
22.3
|
%
|
|
$
|
3,460
|
|
|
$
|
2,993
|
|
|
15.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate Analysis
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
Gross margin rate
|
29.8
|
%
|
|
28.7
|
%
|
|
30.0
|
%
|
|
29.6
|
%
|
|
SG&A expense rate
|
22.3
|
|
|
22.1
|
|
|
21.4
|
|
|
21.7
|
|
|
Depreciation and amortization (exclusive of depreciation included in cost of sales) expense rate
|
3.1
|
|
|
3.0
|
|
|
3.1
|
|
|
3.1
|
|
|
Operating income margin rate
|
5.4
|
|
|
4.6
|
|
|
6.3
|
|
|
5.7
|
|
Note: Gross margin rate is calculated as gross margin (sales less cost of sales) divided by sales. All other rates are calculated by dividing the applicable amount by total revenue.
Sales
Sales include all merchandise sales, net of expected returns, and gift card breakage. Comparable sales is a measure that highlights the performance of our stores and digital channels 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 pick-up or drive-up, and delivery via our wholly-owned subsidiary, Shipt. Digitally originated sales may also be fulfilled through our distribution centers, our vendors, or other third parties.
The increase in sales during the three and nine months ended November 2, 2019, is due to a comparable sales increase of 4.5 percent and 4.2 percent, respectively, and the contribution from new stores.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Sales
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
Comparable sales change
|
4.5
|
%
|
|
5.1
|
%
|
|
4.2
|
%
|
|
4.9
|
%
|
|
Drivers of change in comparable sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of transactions
|
3.1
|
|
|
5.3
|
|
|
3.3
|
|
|
5.1
|
|
|
Average transaction amount
|
1.4
|
|
|
(0.2
|
)
|
|
0.9
|
|
|
(0.2
|
)
|
Note: Amounts may not foot due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution to Comparable Sales Change
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
Stores channel comparable sales change
|
2.8
|
%
|
|
3.2
|
%
|
|
2.3
|
%
|
|
3.4
|
%
|
|
Digital channel contribution to comparable sales change
|
1.7
|
|
|
1.9
|
|
|
1.9
|
|
|
1.5
|
|
|
Total comparable sales change
|
4.5
|
%
|
|
5.1
|
%
|
|
4.2
|
%
|
|
4.9
|
%
|
Note: Amounts may not foot due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by Channel
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
Stores originated
|
92.5
|
%
|
|
94.0
|
%
|
|
92.7
|
%
|
|
94.4
|
%
|
|
Digitally originated
|
7.5
|
|
|
6.0
|
|
|
7.3
|
|
|
5.6
|
|
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Note 2 to the Consolidated Financial Statements provides sales by product category. 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.
We monitor the percentage of purchases that are paid for using RedCards (RedCard Penetration) because our internal analysis has indicated that a meaningful portion of the incremental purchases on RedCards are also incremental sales for Target. Guests receive a 5 percent discount on virtually all purchases when they use a RedCard at Target.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RedCard Penetration
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
Target Debit Card
|
12.5
|
%
|
|
12.9
|
%
|
|
12.7
|
%
|
|
13.1
|
%
|
|
Target Credit Cards
|
10.7
|
|
|
10.8
|
|
|
10.6
|
|
|
10.8
|
|
|
Total RedCard Penetration
|
23.1
|
%
|
|
23.7
|
%
|
|
23.3
|
%
|
|
23.9
|
%
|
Note: Amounts may not foot due to rounding.
Gross Margin Rate
For the three months ended November 2, 2019, our gross margin rate was 29.8 percent compared with 28.7 percent in the comparable period last year. The increase was due to merchandising efforts to optimize costs, pricing, promotions, and assortment, combined with favorable category sales mix. For the three months ended November 2, 2019, aggregate supply chain and digital fulfillment costs had an insignificant impact on our gross margin rate relative to the comparable prior-year period.
For the nine months ended November 2, 2019, our gross margin rate was 30.0 percent compared with 29.6 percent in the comparable period last year. The increase was due to merchandising efforts to optimize costs, pricing, promotions, and assortment, and favorable category sales mix, partially offset by increased supply chain and digital fulfillment costs.
Selling, General, and Administrative Expense Rate
For the three months ended November 2, 2019, our SG&A expense rate was 22.3 percent compared with 22.1 percent in the comparable period last year. The increase was primarily driven by higher compensation costs, including store wages, and marketing expenses, partially offset by broad-based cost savings.
For the nine months ended November 2, 2019, our SG&A expense rate was 21.4 percent compared with 21.7 percent in the comparable period last year. The decrease reflects lower impairment charges in 2019 and broad-based cost savings.
Store Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Number of Stores
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
Beginning store count
|
1,853
|
|
|
1,835
|
|
|
1,844
|
|
|
1,822
|
|
|
Opened
|
9
|
|
|
12
|
|
|
20
|
|
|
25
|
|
|
Closed
|
—
|
|
|
(1
|
)
|
|
(2
|
)
|
|
(1
|
)
|
|
Ending store count
|
1,862
|
|
|
1,846
|
|
|
1,862
|
|
|
1,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Stores and
Retail Square Feet
|
Number of Stores
|
|
Retail Square Feet (a)
|
|
November 2,
2019
|
|
February 2,
2019
|
|
November 3,
2018
|
|
|
November 2,
2019
|
|
February 2,
2019
|
|
November 3,
2018
|
|
|
170,000 or more sq. ft.
|
272
|
|
272
|
|
273
|
|
|
48,619
|
|
48,604
|
|
48,778
|
|
|
50,000 to 169,999 sq. ft.
|
1,504
|
|
1,501
|
|
1,505
|
|
|
189,164
|
|
188,900
|
|
189,496
|
|
|
49,999 or less sq. ft.
|
86
|
|
71
|
|
68
|
|
|
2,475
|
|
2,077
|
|
1,984
|
|
|
Total
|
1,862
|
|
1,844
|
|
1,846
|
|
|
240,258
|
|
239,581
|
|
240,258
|
|
(a) In thousands, reflects total square feet less office, distribution center, and vacant space.
Other Performance Factors
Net Interest Expense
Net interest expense was $113 million and $359 million for the three and nine months ended November 2, 2019, respectively, and $115 million and $352 million for the three and nine months ended November 3, 2018, respectively.
Provision for Income Taxes
Our effective income tax rate from continuing operations for the three and nine months ended November 2, 2019, was 21.7 percent and 22.4 percent, respectively, compared with 13.6 percent and 19.9 percent, respectively, for the comparable periods last year. The effective income tax rates for the three and nine months ended November 3, 2018, included $39 million of discrete benefits of the Tax Act and, to a lesser extent, rate benefits from our global sourcing operations.
Reconciliation of Non-GAAP Financial Measures to GAAP Measures
To provide additional transparency, we have disclosed non-GAAP adjusted diluted earnings per share from continuing operations (Adjusted EPS). This metric excludes certain items presented below. We believe this information is useful in providing period-to-period comparisons of the results of our continuing operations. This measure is not in accordance with, or an alternative to, generally accepted accounting principles in the U.S. (GAAP). The most comparable GAAP measure is diluted earnings per share from continuing operations. Adjusted EPS should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP. Other companies may calculate Adjusted EPS differently, limiting the usefulness of the measure for comparisons with other companies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Non-GAAP Adjusted EPS
|
|
Three Months Ended
|
|
|
|
November 2, 2019
|
|
November 3, 2018
|
|
(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
|
|
|
|
|
|
$
|
1.37
|
|
|
|
|
|
|
$
|
1.16
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Act (a)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(39
|
)
|
|
$
|
(0.07
|
)
|
|
Other (c)
|
|
(9
|
)
|
|
(6
|
)
|
|
(0.01
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Adjusted diluted earnings per share from continuing operations
|
|
|
|
|
|
$
|
1.36
|
|
|
|
|
|
|
$
|
1.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Non-GAAP Adjusted EPS
|
|
Nine Months Ended
|
|
|
|
November 2, 2019
|
|
November 3, 2018
|
|
(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
|
|
|
|
|
|
$
|
4.71
|
|
|
|
|
|
|
$
|
3.98
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Act (a)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(39
|
)
|
|
$
|
(0.07
|
)
|
|
Income tax matters (b)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(18
|
)
|
|
(0.03
|
)
|
|
Other (c)
|
|
(9
|
)
|
|
(6
|
)
|
|
(0.01
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Adjusted diluted earnings per share from continuing operations
|
|
|
|
|
|
$
|
4.70
|
|
|
|
|
|
|
$
|
3.87
|
|
Note: Amounts may not foot due to rounding.
|
|
|
|
(a)
|
Represents discrete items related to the Tax Act.
|
|
|
|
|
(b)
|
Represents benefits from the resolution of certain income tax matters unrelated to current period operations.
|
|
|
|
|
(c)
|
Represents an insurance recovery related to the 2013 data breach.
|
Earnings from continuing operations before interest expense and income taxes (EBIT) and earnings before interest expense, income taxes, depreciation and amortization (EBITDA) are non-GAAP financial measures which we believe provide meaningful information about our operational efficiency compared with our competitors by excluding the impact of differences in tax jurisdictions and structures, debt levels, and for EBITDA, capital investment. These measures are not in accordance with, or an alternative to, GAAP. The most comparable GAAP measure is net earnings from continuing operations. EBIT and EBITDA should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP. Other companies may calculate EBIT and EBITDA differently, limiting the usefulness of the measure for comparisons with other companies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT and EBITDA
|
|
Three Months Ended
|
|
|
|
Nine Months Ended
|
|
|
|
(dollars in millions) (unaudited)
|
|
November 2,
2019
|
|
November 3,
2018
|
|
Change
|
|
November 2,
2019
|
|
November 3,
2018
|
|
Change
|
|
Net earnings from continuing operations
|
|
$
|
706
|
|
|
$
|
616
|
|
|
14.5
|
%
|
|
$
|
2,436
|
|
|
$
|
2,132
|
|
|
14.3
|
%
|
|
+ Provision for income taxes
|
|
195
|
|
|
97
|
|
|
100.8
|
|
|
703
|
|
|
530
|
|
|
32.8
|
|
|
+ Net interest expense
|
|
113
|
|
|
115
|
|
|
(1.6
|
)
|
|
359
|
|
|
352
|
|
|
2.0
|
|
|
EBIT
|
|
$
|
1,014
|
|
|
$
|
828
|
|
|
22.4
|
%
|
|
$
|
3,498
|
|
|
$
|
3,014
|
|
|
16.1
|
%
|
|
+ Total depreciation and amortization (a)
|
|
637
|
|
|
592
|
|
|
7.6
|
|
|
1,905
|
|
|
1,826
|
|
|
4.3
|
|
|
EBITDA
|
|
$
|
1,651
|
|
|
$
|
1,420
|
|
|
16.2
|
%
|
|
$
|
5,403
|
|
|
$
|
4,840
|
|
|
11.6
|
%
|
|
|
|
|
(a)
|
Represents total depreciation and amortization, including amounts classified within Depreciation and Amortization and within Cost of Sales.
|
We have also disclosed after-tax ROIC, which is a ratio based on GAAP information. 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
|
|
November 2,
2019
|
|
|
November 3,
2018 (a)
|
|
|
|
|
Operating income
|
|
$
|
4,577
|
|
|
$
|
4,122
|
|
|
|
|
+ Net other income / (expense)
|
|
45
|
|
|
35
|
|
|
|
|
EBIT
|
|
4,622
|
|
|
4,157
|
|
|
|
|
+ Operating lease interest (b)
|
|
86
|
|
|
83
|
|
|
|
|
- Income taxes (c)(d)
|
|
1,043
|
|
|
524
|
|
|
|
|
Net operating profit after taxes
|
|
$
|
3,665
|
|
|
$
|
3,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
November 2,
2019
|
|
|
November 3,
2018
|
|
|
October 28,
2017
|
|
|
Current portion of long-term debt and other borrowings
|
|
$
|
1,159
|
|
|
$
|
1,535
|
|
|
$
|
1,366
|
|
|
+ Noncurrent portion of long-term debt
|
|
10,513
|
|
|
10,104
|
|
|
11,090
|
|
|
+ Shareholders' equity
|
|
11,545
|
|
|
11,080
|
|
|
11,092
|
|
|
+ Operating lease liabilities (e)
|
|
2,390
|
|
|
2,208
|
|
|
2,041
|
|
|
- Cash and cash equivalents
|
|
969
|
|
|
825
|
|
|
2,725
|
|
|
- Net assets of discontinued operations (f)
|
|
—
|
|
|
—
|
|
|
4
|
|
|
Invested capital
|
|
$
|
24,638
|
|
|
$
|
24,102
|
|
|
$
|
22,860
|
|
|
Average invested capital (g)
|
|
$
|
24,369
|
|
|
$
|
23,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax return on invested capital (d)
|
|
15.0
|
%
|
|
15.8
|
%
|
|
|
|
After-tax return on invested capital excluding discrete impacts of Tax Act (d)
|
|
15.1
|
%
|
|
13.9
|
%
|
|
|
|
|
|
|
(a)
|
Consisted of 53 weeks.
|
|
|
|
|
(b)
|
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.
|
|
|
|
|
(c)
|
Calculated using the effective tax rates for continuing operations, which were 22.1 percent and 12.3 percent for the trailing twelve months ended November 2, 2019, and November 3, 2018, respectively. For the trailing twelve months ended November 2, 2019, and November 3, 2018, includes tax effect of $1,024 million and $514 million, respectively, related to EBIT, and $19 million and $10 million, respectively, related to operating lease interest.
|
|
|
|
|
(d)
|
The effective tax rate for the trailing twelve months ended November 2, 2019, and November 3, 2018, includes discrete tax items of $(3) million and $382 million, respectively, related to the Tax Act.
|
|
|
|
|
(e)
|
Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities.
|
|
|
|
|
(f)
|
Included in Other Assets and Liabilities.
|
|
|
|
|
(g)
|
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.
|
Analysis of Financial Condition
Liquidity and Capital Resources
Our cash and cash equivalents balance was $969 million, $1,556 million, and $825 million at November 2, 2019, February 2, 2019, and November 3, 2018, respectively. Our cash and cash equivalents balance includes short-term investments of $163 million, $769 million, and $42 million as of November 2, 2019, February 2, 2019, and November 3, 2018, 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.
Capital Allocation
We follow a disciplined and balanced approach to capital allocation based on the following priorities, ranked in order of importance: first, we fully invest in opportunities to profitably grow our business, create sustainable long-term value, and maintain our current operations and assets; second, we maintain a competitive quarterly dividend and seek to grow it annually; and finally, we return any excess cash to shareholders by repurchasing shares within the limits of our credit rating goals.
We expect 2019 capital expenditures to total approximately $3.1 billion, compared with $3.5 billion in 2018.
Operating Cash Flows
Operating cash flow provided by continuing operations was $4,141 million for the nine months ended November 2, 2019, compared with $3,614 million for the nine months ended November 3, 2018. The operating cash flow increase was primarily driven by higher net earnings during the nine months ended November 2, 2019, compared with the same period in the prior year.
Inventory
Inventory was $11,396 million as of November 2, 2019, compared with $9,497 million and $12,393 million at February 2, 2019, and November 3, 2018, respectively. The increase from February 2, 2019, reflects the seasonal inventory build ahead of the November and December holiday sales period. Inventory levels were lower as of November 2, 2019, compared with November 3, 2018, partially due to timing of receipts because the Thanksgiving holiday is later in the current year. In addition, elevated inventory levels in the prior year reflected investments in toys and baby-related merchandise.
Dividends
We paid dividends totaling $337 million ($0.66 per share) and $995 million ($1.94 per share) for the three and nine months ended November 2, 2019, respectively, and $337 million ($0.64 per share) and $1,001 million ($1.88 per share) for the three and nine months ended November 3, 2018, respectively, a per share increase of 3.1 percent and 3.2 percent, respectively. We declared dividends totaling $338 million ($0.66 per share) during the third quarter of 2019, a per share increase of 3.1 percent over the $338 million ($0.64 per share) of declared dividends during the third quarter of 2018. 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 Repurchase
We returned $294 million and $912 million to shareholders through share repurchase during the three and nine months ended November 2, 2019, respectively. See Part II, Item 2 of this Quarterly Report on Form 10-Q and Note 7 to the Consolidated Financial Statements for more information.
Financing
Our financing strategy is to ensure liquidity and access to capital markets, to maintain a balanced spectrum of debt maturities, and to manage our net exposure to floating interest rate volatility. Within these parameters, we seek to minimize our borrowing costs. Our ability to access the long-term debt and commercial paper markets has provided us with ample sources of liquidity. Our continued access to these markets depends on multiple factors, including the condition of debt capital markets, our operating performance, and maintaining strong credit ratings. As of November 2, 2019, our credit ratings were as follows:
|
|
|
|
|
|
|
|
Credit Ratings
|
Moody’s
|
Standard and Poor’s
|
Fitch
|
|
Long-term debt
|
A2
|
A
|
A-
|
|
Commercial paper
|
P-1
|
A-1
|
F1
|
If our credit ratings were lowered, our ability to access the debt markets, our cost of funds, and other terms for new debt issuances could be adversely impacted. Each of the credit rating agencies reviews its rating periodically and there is no guarantee our current credit ratings will remain the same as described above. Fitch raised our commercial paper rating from F2 to F1 during the three months ended August 3, 2019.
In March 2019, we issued $1.0 billion of debt, and in June 2019, we repaid $1.0 billion of debt at maturity. Notes 5 and 6 to the Consolidated Financial Statements provide additional information.
We have additional liquidity through a committed $2.5 billion revolving credit facility obtained through a group of banks. In October 2018, we extended this credit facility by one year to October 2023. No balances were outstanding at any time during 2019 or 2018.
Most of our long-term debt obligations contain covenants related to secured debt levels. In addition to a secured debt level covenant, our credit facility also contains a debt leverage covenant. We are, and expect to remain, in compliance with these covenants. Additionally, as of November 2, 2019, 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 noninvestment 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 noninvestment grade.
We believe our sources of liquidity will continue to be adequate to maintain operations, finance anticipated expansion and strategic initiatives, fund debt maturities, pay dividends, and execute purchases under our share repurchase program for the foreseeable future. We continue to anticipate ample access to commercial paper and long-term financing.
Contractual Obligations and Commitments
As of the date of this report, other than the new borrowings discussed in Note 5 to the Consolidated Financial Statements, there were no material changes to our contractual obligations and commitments outside the ordinary course of business since February 2, 2019, as reported in our 2018 Form 10-K.
New Accounting Pronouncements
We do not expect any recently issued accounting pronouncements to have a material effect on our financial statements.
Forward-Looking Statements
This report contains forward-looking statements, which are based on our current assumptions and expectations. These statements are typically accompanied by the words “expect,” “may,” “could,” “believe,” “would,” “might,” “anticipates,” or similar words. The principal forward-looking statements in this report include: our financial performance, statements regarding the adequacy of and costs associated with our sources of liquidity, the funding of debt maturities, the continued execution of our share repurchase program, our expected capital expenditures and new lease commitments, the expected compliance with debt covenants, the expected impact of new accounting pronouncements, our intentions regarding future dividends, the expected return on plan assets, the expected outcome of, and adequacy of our reserves for, claims, litigation and the resolution of tax matters, the expected impact of changes in information technology systems, 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 on our description of risk factors in Item 1A of our Form 10-K for the fiscal year ended February 2, 2019, 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.