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TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended August 2, 2003

Commission file number 1-6049

The registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, (2) has been subject to such filing requirements for the past 90 days, and (3) is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

The number of shares outstanding of common stock as of August 2, 2003 was 910,937,907.

TABLE OF CONTENTS

TARGET CORPORATION

PART I. FINANCIAL INFORMATION

See accompanying Notes to Consolidated Financial Statements.

*    The February 1, 2003 Consolidated Statement of Financial Position is condensed from the audited consolidated financial statement.

See accompanying Notes to Consolidated Financial Statements.

Amounts in this statement are presented on a cash basis and therefore may differ from those shown elsewhere in this 10-Q report.

See accompanying Notes to Consolidated Financial Statements.

Accounting Policies

The accompanying consolidated financial statements should be read in conjunction with the financial statement disclosures contained in our 2002 Annual Report to Shareholders throughout pages 28-36. The same accounting policies are followed in preparing quarterly financial data as are followed in preparing annual data. In the opinion of management, all adjustments necessary for a fair presentation of quarterly operating results are reflected herein and are of a normal, recurring nature.

Certain prior year amounts have been reclassified to conform to the current year presentation.

Due to the seasonal nature of the retail industry, quarterly earnings are not necessarily indicative of the results that may be expected for the full fiscal year.

New Accounting Pronouncements

During 2002, the Emerging Issues Task Force reached a consensus on Issue No. 02-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor." Under the new guidance, if the consideration received represents a payment for assets delivered to the vendor, it should be classified as revenue. If the consideration is a reimbursement of a specific, incremental, identifiable cost incurred in selling the vendor's product, the cost should be characterized as a reduction of that cost incurred. Generally, all other cash consideration received from a vendor should be classified as a reduction of cost of sales. As required, we adopted this guidance in the first quarter of 2003 and its adoption had no material impact on our sales, net earnings, cash flows or financial position.

In April 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting for derivative instruments, and is effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 had no material impact on our net earnings, cash flows or financial position.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 clarifies the classification and measurement of certain financial instruments with characteristics of both liabilities and equity, and is effective for financial instruments entered into or modified after May 31, 2003, or otherwise for the first interim period beginning after June 15, 2003. We do not believe the adoption of SFAS No. 150 will have a material impact on our net earnings, cash flows or financial position.

Per Share Data

Share Repurchase Program

We maintain a share repurchase program under which our Board of Directors previously authorized the repurchase of $2 billion of our common stock. Since the inception of our share repurchase program, we have repurchased a total of 42 million shares of our common stock at a total cost of $1,223 million ($29.34 per share), net of the premium from exercised and expired put options.

Common stock repurchases under our program have been essentially suspended. Consequently, common stock repurchases did not have a material impact on our second quarter or year-to-date 2003 net earnings and financial position.

Long-term Debt and Derivatives

During the second quarter and first half of 2003, we repurchased $295 million and $297 million, respectively, of long-term debt with a weighted average interest rate of approximately 7.8 percent for each period. These transactions resulted in a pre-tax loss of about $15 million (about $.01 per share), which is included in interest expense in the Consolidated Results of Operations.

During the second quarter, we issued $500 million of long-term debt maturing in June 2013 at 4.00 percent. During the first quarter we issued $500 million of long-term debt maturing in March 2008 at 3.38 percent and $200 million of long-term debt maturing in May 2018 at 4.88 percent. Proceeds from these issuances were used for general corporate purposes.

Also in the first quarter, concurrent with the issuance of the $200 million of long-term debt maturing in 2018, we entered into an interest rate swap with a notional amount of $200 million. The effect of this swap converts our interest expense to a floating rate, initially set at 1.13 percent.

The fair value of our outstanding swaps is reflected in the financial statements as a component of other long-term assets. No ineffectiveness was recognized in the second quarter or year-to-date related to these instruments. At August 2, 2003, the fair value of our existing swaps was $64 million, compared to $110 million at February 1, 2003 and $80 million at August 3, 2002.

Subsequent to August 2, 2003, we entered into two interest rate swaps with notional amounts of $400 million and $500 million. The swaps hedge the fair value of certain debt by swapping a fixed rate to variable, initially set at approximately 1.4 percent and 1.3 percent, respectively. We also terminated an interest rate swap with a notional amount of $400 million. These transactions will not have a material impact on net earnings.

Stock Option Plans

In the first quarter, we adopted SFAS No. 123, "Accounting for Stock-Based Compensation," in accordance with the prospective transition method prescribed in SFAS No. 148 "Accounting For Stock-Based Compensation—Transition and Disclosure." The fair value based method has been applied prospectively to awards granted subsequent to February 1, 2003 (the last day of our 2002 fiscal year). Awards granted in fiscal year 2002 and earlier years will continue to be accounted for under the intrinsic value method, and the pro forma impact of accounting for those awards at fair value will continue to be disclosed until the last of those awards vest in January of 2007. The adoption of this method did not have a material impact on our earnings in the first quarter.

Historically, and through February 1, 2003, we applied the intrinsic value method prescribed in APB No. 25, "Accounting for Stock Issued to Employees," to account for our stock option plans. No compensation expense related to options was recognized because the exercise price of our employee stock options equals the market price of the underlying stock on the grant date. The expense related to the intrinsic value of performance-based and restricted stock awards issued was not significant to second quarter or year-to-date 2003 net earnings, cash flows or financial position. If we had elected to recognize compensation cost based on the fair value of the awards at the grant date, net earnings would have been the pro forma amounts shown below.

Accounts Receivable

Accounts receivable is recorded net of an allowance for expected losses. The allowance, estimated from historical portfolio performance and projections of trends, was $411 million at August 2, 2003, compared to $399 million at February 1, 2003 and $332 million at August 3, 2002.

Segment Disclosures (millions)

Revenues by segment were as follows:

Pre-tax segment profit and the reconciliation to pre-tax earnings were as follows:

Analysis of Operations

Second quarter 2003 net earnings were $358 million, or $.39 per share, compared with $344 million, or $.38 per share, for the same period last year. First half 2003 net earnings were $707 million, or $.77 per share, compared with $689 million, or $.75 per share for the first half of 2002.

Revenues and Comparable-Store Sales

Total revenues for the quarter increased 9.1 percent to $10,984 million compared with $10,068 million for the same period a year ago. For the six month period ending August 2, 2003, total revenues increased 8.4 percent to $21,306 compared with $19,662 million for the same period a year ago. Our revenue growth reflected Target's new store expansion and comparable-store sales increases, as well as the growth in our credit card operations.

Total comparable-store sales (sales from stores open longer than one year) increased 1.5 percent and 0.7 percent, respectively, for the quarter and six month period ended August 2, 2003.

Year-over-year changes in comparable-store sales by business segment were as follows:

Gross Margin Rate

Gross margin rate represents gross margin (sales less cost of sales) as a percent of sales. In the second quarter, our overall gross margin rate was unfavorable to the prior year, principally due to the mix impact of more rapid growth at Target, our lowest gross margin rate division.

Operating Expense Rate

Operating expense rate represents selling, general and administrative expense as a percent of sales. It includes buying and occupancy, advertising, start-up and other expense, and excludes expenses associated with our credit card operations and depreciation expense because these items are separately disclosed in our Consolidated Results of Operations. In the second quarter and first half of 2003, our operating expense rate was slightly unfavorable to last year due to a lack of sales leverage at all three divisions.

Pre-tax Segment Profit

Our second quarter pre-tax segment profit increased 1.0 percent to $793 million compared with $785 million for the same period a year ago. Pre-tax segment profit in the first half of 2003 increased 1.5 percent to $1,570 million compared with $1,547 million for the same period a year ago. During the second quarter of 2003, Target's pre-tax profit increased 5.7 percent. Mervyn's pre-tax profit declined 46 percent and Marshall Field's pre-tax profit declined 31 percent. We define pre-tax segment profit as earnings before LIFO, interest, other expense and unusual items. A reconciliation of pre-tax segment profit to pre-tax earnings is provided in the Notes to Consolidated Financial Statements.

Other Performance Factors

In the second quarter and first half of 2003, total interest expense was $156 million and $298 million, representing a $2 million and $9 million increase from the second quarter and first half of 2002. The increase in interest expense was due to higher average funded balances, partially offset by the benefit of a lower average portfolio interest rate.

The estimated annual effective income tax rate is 38.0 percent in 2003 compared with 38.2 percent for 2002.

Analysis of Financial Condition

Our financial condition remains strong. We continue to fund the growth in our business through a combination of internally generated funds and debt.

During the second quarter, total gross receivables increased $1,118 million, or 24 percent, over the second quarter of last year. Inventory increased $395 million, or 8.7 percent, over the second quarter of last year primarily reflecting square footage growth at Target. The inventory growth was partially funded by a $283 million, or 6.8 percent, increase in accounts payable.

Capital expenditures for the first half of 2003 were $1,541 million, compared with $1,479 million for the same period a year ago. Investment in Target stores accounted for 92 percent of current year capital expenditures.

We contributed $100 million to our defined benefit plans in both the first half of 2003 and 2002.

Our share repurchase program is described in the Notes to Consolidated Financial Statements.

Credit Card Operations (millions)

Our credit card programs strategically support our core retail operations and are an integral component of each business segment. Therefore, included in each segment's pre-tax profit is revenue and expense from its credit card operations.

Credit card contribution to pre-tax segment profit was as follows:

Total receivables were as follows:

The allowance for doubtful accounts on receivables was as follows:

A summary of other credit card contribution information is as follows:

Total revenues as a percent of average receivables (annualized):

Net write-offs as a percent of average receivables (annualized):

Store Data

During the quarter, we opened a total of 28 new Target stores. Net of relocations and closings, these openings included 20 discount stores and 4 SuperTarget stores. We also opened a new Mervyn's store in Folsom, California. At August 2, 2003, our number of stores and retail square feet were as follows:

* Includes 106, 94 and 82 SuperTargets as of August 2, 2003, February 1, 2003 and August 3, 2002, respectively.

** In thousands, reflects total square feet, less office, warehouse and vacant space.

Supplemental Information (millions)

We provide the following supplemental information derived from our financial statements because we believe it provides a meaningful aid to the analysis of our performance by segment. We define segment EBITDA as pre-tax segment profit before depreciation and amortization expense. Our definition of EBITDA and pre-tax segment profit may differ from definitions used by other companies. This presentation is not intended to be a substitute for GAAP reported measures of profitability and
cash flow. A reconciliation of pre-tax segment profit to pre-tax earnings is provided in the Notes to Consolidated Financial Statements. Segment EBITDA and the reconciliation to pre-tax segment profit were as follows:

Outlook for Fiscal Year 2003

For the full year, we believe that we are well positioned to deliver another year of profitable market share growth. We expect this performance to be driven by increases in Target stores comparable-store sales, contributions from new store growth at Target and continued growth in contribution from our credit card operations, primarily through the Target Visa credit card.

We may or may not enter into long-term debt repurchase transactions during the balance of the year. Excluding the effect, if any, of such transactions, we expect interest expense to be modestly below prior year levels during this period, because we expect the adverse effect on our interest expense of our incremental funding needs will be more than offset by the ongoing benefit of lower interest rates.

Forward-Looking Statements

The preceding Management's Discussion and Analysis contains forward-looking statements regarding our performance, liquidity and the adequacy of our capital resources. Those statements are based on our current assumptions and expectations and are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. We caution that the forward-looking statements are qualified by the risks and challenges posed by increased competition, shifting consumer demand, changing consumer credit markets, changing capital markets and general economic conditions, hiring and retaining effective team members, sourcing merchandise from domestic and international vendors, investing in new business strategies, achieving our growth objectives, the outbreak of war and other significant national and international events and other risks and uncertainties. As a result, while we believe that there is a reasonable basis for the forward-looking statements, you should not place undue reliance on those statements. You are encouraged to review Exhibit (99)C attached to our Form 10-K Report for the year ended February 1, 2003, which contains additional important factors that may cause actual results to differ materially from those predicted in the forward-looking statements.

As of the end of the period covered by this quarterly report, we conducted an evaluation, under supervision and with the participation of management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (Exchange Act). Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective. Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-15(e) of the Exchange Act as controls and other procedures that are designed to ensure that information required to be disclosed by us in reports filed with the Securities and Exchange Commission (SEC) under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect internal controls subsequent to the evaluation date.

PART II. OTHER INFORMATION

Item 6.    Exhibits and Reports on Form 8-K

a)

Exhibits