TARGET CORP

Gross Margin Rate

Quarter-to-Date

For the three months ended August 1, 2026, our gross margin rate was 33.7 percent compared with 29.0 percent in the comparable prior-year period. The increase reflected benefits from tariff refunds and net merchandising impacts, including lower purchase order cancellation costs compared to the prior year, as well as growth in advertising and other revenues. The Business Environment section provides additional information about tariff refunds.

Year-to-Date

For the six months ended August 1, 2026, our gross margin rate was 31.4 percent compared with 28.6 percent in the comparable prior-year period. The increase reflected benefits from:

•tariff refunds;

•merchandising, including lower purchase order cancellation costs and markdown rates compared to the prior year and growth in advertising and other revenues; and

•supply chain and digital fulfillment, including productivity improvements in supply chain facilities, and the leveraging impact of higher sales.

Selling, General, and Administrative Expense Rate

For the three months ended August 1, 2026, our SG&A expense rate was 21.6 percent compared with 21.3 percent for the comparable prior-year period. The increase reflected higher compensation expense, including stores payroll and incentive compensation, new store and remodel-related expenses, and the net impact of other cost increases. These cost increases were partially offset by the leverage benefit of higher sales.

For the six months ended August 1, 2026, our SG&A expense rate was 21.7 percent compared with 20.3 percent for the comparable prior-year period. The comparable prior-period rate included a 1.2 percentage point benefit from interchange fee settlements, which are further described in Note 4 to the Financial Statements. Excluding this item, our Adjusted SG&A expense rate for the six months ended August 2, 2025, was 21.5 percent. The remaining 0.2 percentage point increase in 2026 reflected higher compensation expense, including stores payroll and incentive compensation, new store and remodel-related expenses, and the net impact of other cost increases. These cost increases were partially offset by the leverage benefit of higher sales.

Other Performance Factors

Net Interest Expense

Net interest expense was$98 million and $215 million for the three and six months ended August 1, 2026, respectively, compared with $116 million and $232 million in the comparable prior-year periods. The decrease in net interest expense was primarily due to an increase in interest income.

Provision for Income Taxes

Our effective income tax rates for the three and six months ended August 1, 2026, were 23.7 percent and 23.9 percent, respectively, compared with 23.2 percent and 24.2 percent in the comparable prior-year periods. For the three month period, the increase was driven by higher pretax earnings, partially offset by additional tax credit benefits. For the six month period, the decrease reflects additional tax credit benefits and lower discrete tax expenses related to share-based compensation, partially offset by higher pretax earnings.

Reconciliation of Non-GAAP Financial Measures to GAAP Measures

To provide additional transparency, we have disclosed non-GAAP adjusted diluted earnings per share (Adjusted EPS), adjusted SG&A expenses, adjusted SG&A expense rate, adjusted operating income, and adjusted operating income margin rate. These measures exclude certain items presented below. We believe this information is useful in providing period-to-period comparisons of the results of our operations. These measures are not in accordance with, or an alternative to, generally accepted accounting principles in the U.S. (GAAP). The most comparable GAAP measures are diluted earnings per share, SG&A expenses, SG&A expense rate, operating income, and operating income margin rate. Adjusted EPS, adjusted SG&A expenses, adjusted SG&A expense rate, adjusted operating income, and adjusted operating income margin rate should not be considered in isolation or as a substitution for analysis of our results as reported in accordance with GAAP. Other companies may calculate these measures differently, or not provide similar measures, limiting the usefulness of the measures for comparisons with other companies.

Note: Amounts may not foot due to rounding. Rates are calculated by dividing the applicable amount by Net Sales.

(a)The adjustment removes the favorable impact of the settlement gains from prior-year SG&A Expenses and Operating Income. Note 4 to the Financial Statements provides additional information.

(b)Note (a) to the Summary of Operating Income and Rate Analysis tables provides information about the impact of tariff refunds on Operating Income and Operating Income margin rate.

We have also disclosed after-tax ROIC, which is a ratio based on GAAP information, with the exception of the add-back of operating lease interest to operating income. We believe this metric is useful in assessing the effectiveness of our capital allocation over time. Other companies may calculate ROIC differently, limiting the usefulness of the measure for comparisons with other companies.

(a)Represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases. Calculated using the discount rate for each lease and recorded as a component of rent expense within Operating Income. Operating lease interest is added back to Operating Income in the ROIC calculation to control for differences in capital structure between us and our competitors.

(b)Calculated using the effective tax rates, which were 22.4 percent and 22.9 percent for the trailing twelve months ended August 1, 2026, and August 2, 2025, respectively. For the trailing twelve months ended August 1, 2026, and August 2, 2025, includes tax effect of $1.4 billion and $1.3 billion, respectively, related to EBIT, and $39 million and $38 million, respectively, related to operating lease interest.

(c)Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities, respectively.

(d)Average based on the invested capital at the end of the current period and the invested capital at the end of the comparable prior period.

(e)For the trailing twelve months ended August 1, 2026, includes the impact of tariff refunds, which increased after-tax ROIC by 2.4 percentage points, and business transformation costs recognized in the trailing twelve-month period, which decreased after-tax ROIC by 0.6 percentage points. For the trailing twelve months ended August 2, 2025, includes the impact of after-tax net gains on interchange fee settlements, which increased after-tax ROIC by 1.4 percentage points.

Analysis of Financial Condition

Liquidity and Capital Resources

Capital Allocation

We follow a disciplined and balanced approach to capital allocation based on the following priorities, ranked in order of importance: first, we fully invest in opportunities to profitably grow our business, create sustainable long-term value, and maintain our current operations and assets; second, we maintain a competitive quarterly dividend and seek to grow it annually; and finally, we return any excess cash to shareholders by repurchasing shares within the limits of our credit rating goals.

Our cash and cash equivalents balance was $5.4 billion, $5.5 billion, and $4.3 billion as of August 1, 2026, January 31, 2026, and August 2, 2025, respectively. Our cash and cash equivalents balance includes short-term investments of $4.3 billion, $4.6 billion, and $3.3 billion as of August 1, 2026, January 31, 2026, and August 2, 2025, 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 three months or less. We also place dollar limits on our investments in individual funds or instruments.

Operating Cash Flows

Cash flows provided by operating activities were $4.5 billion and $2.4 billion for the six months ended August 1, 2026, and August 2, 2025, respectively. The increase was primarily due to higher accounts payable leverage that more than offset increased inventory purchases to support sales growth, as well as higher net earnings.

Inventory

Inventory increased to $13.2 billion as of August 1, 2026, compared with $12.3 billion and $12.9 billion as of January 31, 2026, and August 2, 2025, in support of sales growth.

Investing Cash Flows

Cash used in investing activities increased to $2.4 billion for the six months ended August 1, 2026, compared to $1.9 billion for the six months ended August 2, 2025, due to higher capital expenditures.

Dividends

We paid dividends totaling $518 million ($1.14 per share) and $1,034 million ($2.28 per share) for the three and six months ended August 1, 2026, and $509 million ($1.12 per share) and $1,019 million ($2.24 per share) for the three and six months ended August 2, 2025, a per share increase of 1.8 percent. We declared dividends totaling $539 million ($1.16 per share) during the second quarter of 2026 and $529 million ($1.14 per share) during the second quarter of 2025, a per share increase of 1.8 percent. We have paid dividends every quarter since our 1967 initial public offering, and it is our intent to continue to do so in the future.

Share Repurchase

We did not repurchase any shares during the six months ended August 1, 2026. See Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds of this Quarterly Report on Form 10-Q and Note 10 to the 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 August 1, 2026, our credit ratings were as follows:

If our credit ratings were lowered, our ability to access the debt markets, our cost of funds, and other terms for new debt issuances could be adversely impacted. Each of the credit rating agencies reviews its rating periodically, and there is no guarantee our current credit ratings will remain the same as described above.

We repaid $1.0 billion of unsecured debt in April 2026. Note 8 to the Financial Statements provides additional information.

We have the ability to obtain short-term financing from time to time under our commercial paper program and credit facilities. In August 2026, we obtained a committed $4.0 billion unsecured revolving credit facility that will expire in August 2031. This new facility replaced our $1.0 billion and $3.0 billion unsecured revolving credit facilities that were set to expire in October 2026 and October 2028, respectively. These credit facilities provide a liquidity backstop to our commercial paper program. No balances were outstanding under any credit facility or our commercial paper program at any time during 2026 or 2025. Note 8 to the Financial Statements provides additional information.

Most of our long-term debt obligations contain covenants related to secured debt levels. In addition to a secured debt level covenant, our credit facilities also contain a debt leverage covenant. We are, and expect to remain, in compliance with these covenants. Additionally, as of August 1, 2026, no notes or debentures contained provisions requiring acceleration of payment upon a credit rating downgrade, except that certain outstanding notes allow the note holders to put the notes to us if within a matter of months of each other we experience both (i) a change in control and (ii) our long-term credit ratings are either reduced and the resulting rating is non-investment grade, or our long-term credit ratings are placed on watch for possible reduction and those ratings are subsequently reduced and the resulting rating is non-investment grade.

We believe our sources of liquidity, namely operating cash flows, credit facility capacity, and access to capital markets, will continue to be adequate to meet our contractual obligations, working capital, and planned capital expenditures, finance anticipated expansion and strategic initiatives, fund debt maturities, pay dividends, and execute purchases under our share repurchase program for the foreseeable future.

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 "anticipate," "believe," "could," “expect,” “may,” “might,” “seek,” "will," “would,” or similar words. The principal forward-looking statements in this report include statements regarding: our future financial and operational performance, changes in the consumer landscape, evolution in tariffs and global trade policy, the availability, timing, and amount of any tariff refunds, the impacts of business transformation efforts, the adequacy of and costs associated with our sources of liquidity, the funding of debt maturities, the execution of our share repurchase program, our expected capital expenditures and new lease commitments, the expected compliance with debt covenants, the expected impact of new accounting pronouncements, our intentions regarding future dividends, the expected return on plan assets, the expected outcome of, and adequacy of our reserves for, claims, litigation, and the resolution of tax matters, and changes in our assumptions and expectations.

All such forward-looking statements are intended to enjoy the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, as amended. Although we believe there is a reasonable basis for the forward-looking statements, our actual results could be materially different. The most important factors which could cause our actual results to differ from our forward-looking statements are set forth in our description of risk factors included in Part I, Item 1A, Risk Factors of our Form 10-K for the fiscal year ended January 31, 2026, 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.