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Analysis of Revenues

Difficulty: Advanced


Revenue Recognition Accounting Policy

Target’s retail stores generally record revenue at the point of sale. Digital channel sales include shipping revenue and are recorded upon delivery to the guest. Total revenues do not include sales tax because Target is a pass-through conduit for collecting and remitting sales taxes. Generally, guests may return national brand merchandise within 90 days of purchase and owned and exclusive brands within one year of purchase. Revenues are recognized net of expected returns, which Target estimates using historical return patterns as a percentage of sales and the expectation of future returns. Commissions earned on sales generated by leased departments are included within sales and were $44 million, $42 million, and $37 million in 2017, 2016, and 2015, respectively.

Revenue from gift card sales is recognized upon gift card redemption. Target’s gift cards do not expire. Based on historical redemption rates, a small and relatively stable percentage of gift cards will never be redeemed, referred to as "breakage." Estimated breakage revenue is recognized over time in proportion to actual gift card redemptions and was not material in any period presented.

Guests receive a 5 percent discount on virtually all purchases and receive free shipping at Target.com when they use their Target Debit Card, Target Credit Card, or Target MasterCard (REDcards). The discount is included as a sales reduction in Target’s Consolidated Statements of Operations and was $933 million, $899 million, and $905 million in 2017, 2016, and 2015, respectively.

In 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). Target will adopt the standard in the first quarter of 2018 using the full retrospective approach. The standard will not materially affect Target’s consolidated net earnings, financial position, or cash flows. Target expects minor changes to the timing of revenue recognition, primarily related to promotional gift cards, which Target estimates will increase 2015 beginning retained earnings by less than $20 million upon adoption.

Target completed the evaluation of the impact the standard has on the determination of whether Target acts as principal or agent in certain vendor arrangements where the purchase and sale of inventory are virtually simultaneous. Target will continue to record revenue and related costs on a gross basis for the vast majority of these arrangements, which represent approximately 4 percent of consolidated sales.

Target will present certain other income streams, including credit card profit sharing income, in an Other Revenue line on the Consolidated Statements of Operations beginning in 2018.

Source: 10-K (filing date: 2018-03-14).


Revenues as Reported

Target Corp., Income Statement, Revenues

USD $ in millions

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12 months ended Feb 3, 2018 Jan 28, 2017 Jan 30, 2016 Jan 31, 2015 Feb 1, 2014 Feb 2, 2013
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Based on: 10-K (filing date: 2018-03-14), 10-K (filing date: 2017-03-08), 10-K (filing date: 2016-03-11), 10-K (filing date: 2015-03-13), 10-K (filing date: 2014-03-14), 10-K (filing date: 2013-03-20).

Item Description The company
Sales Amount of revenue recognized from goods sold, services rendered, insurance premiums, or other activities that constitute an earning process. Includes, but is not limited to, investment and interest income before deduction of interest expense when recognized as a component of revenue, and sales and trading gain (loss). Target Corp.’s sales declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level.