Earnings call: Target outlines growth strategy and loyalty program revamp

In a recent earnings call, Target Corporation (NYSE:TGT) detailed its strategic plan to drive long-term growth and enhance its loyalty program, Target Circle. The company announced its intention to remodel existing stores, open over 300 new locations, and invest in technology to improve customer experience and supply chain efficiency.

Target's CEO highlighted the strong performance in the past year, with notable growth in digital sales and own brand products, such as Good & Gather. The revamped loyalty program, Target Circle 360, is set to launch on April 7th, offering a more seamless experience with automatic deals and expanded delivery options.

Despite a projected decline in Q1 sales, Target remains optimistic about its growth roadmap and plans to resume share repurchases later in the year.

Key Takeaways

• Target plans to remodel and open over 300 new stores in the next decade, focusing on long-term growth.
• Investment in technology, including AI, will support expansion of same-day delivery services.
• The Target Circle loyalty program is being relaunched with enhanced features and benefits.
• Target's own brands, such as Good & Gather, play a significant role in revenue and margin.
• The company expects a modest increase in comparable sales and adjusted EPS for 2024.
• Target is confident in its strategy to drive growth and regain market share.

Company Outlook

• Target aims for a low to mid-single digit range growth in comparable sales.
• Plans to open new stores expected to generate around $15 billion in sales.
• Anticipates a modest increase in 2024 comparable sales between 0% to 2%.
• Projects 2024 GAAP and adjusted EPS to be between $8.60 and $9.60.
• Annual capital expenditures are expected to range from $3.5 billion to $5.5 billion.

Bearish Highlights

• Operating profitability declined over the past decade due to inventory shrink and higher digital penetration.
• Comparable sales are expected to decline by 3-5% in Q1.

Bullish Highlights

• Over the past decade, Target's U.S. business saw an average growth rate of 4% per year.
• Digital sales increased by $18 billion, with same-day services accounting for 70% of that growth.
• Adjusted EPS grew by an average of 7.6% per year.

Misses

• Last year, Target experienced a decline in comparable sales.
• Operating margin rate in 2023 was 5.3%, down from 6.7% in 2013.

Q&A Highlights

• In response to J.P. Morgan, Target expects Q1 pressure but growth later in the year.
• The company is focused on taking market share and driving top-line growth across its portfolio.

Target's commitment to long-term strategy and customer-centric approach, including its investment in stores, technology, and the revamped Target Circle program, positions it to adapt to evolving market trends and consumer needs. The company's emphasis on partnerships and its own brand offerings, as well as its focus on retail fundamentals, signal a dedication to maintaining relevance and driving growth in a competitive retail landscape.

InvestingPro Insights

As Target Corporation (TGT) continues to focus on strategic growth and customer engagement, key metrics from InvestingPro provide a snapshot of the company's financial health and market performance. With a Market Cap of approximately $79.64 billion and a P/E Ratio of 19.29, Target shows a robust market presence. The company's commitment to shareholder returns is evident, having raised its dividend for 54 consecutive years, a testament to its financial stability and long-term investor appeal.

InvestingPro Tips highlight that Target is trading at a high P/E ratio relative to near-term earnings growth, with a PEG Ratio of 3.17, signaling that investors are expecting higher earnings growth in the future compared to the broader market. Additionally, Target's strong performance is reflected in its significant return over the last week, with a 1 Week Price Total Return of 11.32%. This recent uptick is part of a broader trend, as the company has also experienced a 38.7% price total return over the last six months.

For readers looking to delve deeper into Target's financials and market performance, additional InvestingPro Tips are available at https://www.investing.com/pro/TGT, including insights on the company's trading activity and analyst predictions. Subscribers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to a total of 17 InvestingPro Tips that provide a comprehensive analysis of Target's market standing and potential investment opportunities.

Full transcript - Target (TGT) Q4 2023:

John Hulbert: Good morning, everyone, and welcome to our 2024 Financial Community Meeting. I'd like to start by welcoming the investors and others who are attending this meeting in person with us. And of course, we're happy that many, many more of you are attending the meeting remotely. Brian's going to kick off the meeting in a minute, but first I have a couple of important disclosures. First, any forward-looking statements that we make this morning are subject to risks and uncertainties, the most important of which are described in our SEC filings. And second, in today's remarks, we refer to non-GAAP financial measures, including adjusted earnings per share. Reconciliations of all non-GAAP measures to the most directly comparable GAAP measure are included in our financial press releases, financial presentations and SEC filings, which are posted on our investor relations website. With that, I'll turn it over to Brian to get things started.

Brian Cornell: Good morning, and thanks for joining us. We're looking forward to providing our perspective on the results we shared this morning, and I can't wait for you to hear from several of our top leaders, including Christina Hennington, Rick Gomez, Jill Sando, Cara Sylvester, and Michael Fiddelke. While Michael still has his hands firmly on the wheel as CFO, this is his first FCM in his new role as our Chief Operating Officer. I can tell you; we're looking forward to discussing Target's growth horizon and how it transcends volatility over any particular quarter or year. Our preference is always to think long term. It's why for years now, we've emphasized the durability of our business model. And many of you have validated that orientation in the conversations we've had with you over the years. So, our session today will focus squarely on the long-term thinking that has driven top and bottom-line growth over the last decade and positions us for continued profitable growth in the years ahead. You might be asking, why focus on decades? In part, because that feels like a long enough time frame to be meaningful. But it's also because we look at longer horizons when evaluating growth potential for investments, like new stores, supply chain, and other assets. And it's good to ask, what else would need to be true for those investments to succeed? So, we'll analyze our 2023 performance in that context. We'll provide insights on how our 2024 plans and guidance fit into that vision and we'll spend time outlining our plan for sustained growth as well as our capacity to react to unforeseen realities. Both have been important over the last 10 years. By designing for steady growth before 2020, we were positioned to absorb exponential growth during a demand boom that none of us could have anticipated. Even now, the country and the retail industry are in a prolonged post pandemic return to normal, which has been nearly as unpredictable as the pandemic itself from a consumer, social, political and economic perspective. By staying agile as a team, and by continuously refining our approach and innovating, we've been able to navigate this time frame. In fact, if you think back to our earlier algorithms and long-range plans, we're well ahead of where we believe we'd be just a few short years ago. At the same time, we recognize this is a unique moment to clarify our road map for growth. Let me be really clear. Our goal is to recapture profitable sales, traffic, and market share gains by expanding what makes Target different and better for our guests, amplifying our appeal to consumers beyond our existing guest base, and reinforcing the innovation and investment that drive durable and consistent results for our business and shareholders. So, I might start today with the elements of the overall strategy that have been staples all along, and will continue to be staples going forward. Starting with our stores, the most visible and tangible proof of our long-term planning and investment. When I arrived at Target, we had just over 1800 stores that didn't quite cover all 50 states. Since then, we built more than 200 new stores. We've invested in more than 1200 existing locations through remodels and partnerships and our store footprint has expanded to cover the entire U.S. While retail is decades in the new digital era, on any given day 2/3 to 3/4 of all U.S. shopping is still done in stores. And thanks to the stores as hub model, we invented in the last decade, nearly all Target shopping, including our significant digital penetration growth and our $30 billion plus in revenue growth was made possible by our stores. So, if you think store shopping will wind down anytime the next decade, we'll politely disagree on that point once again. Over the next decade, we expect to open more than 300 new, mostly full-size stores, adding billions of dollars in incremental growth. We'll continue to remodel stores with plans to invest in the vast majority of our nearly 2,000 stores in the next 10 years. We'll also continue to invest in our supply chain and technology. In less than 10 years, we've created, acquired, and constantly advanced sortation centers, upstream distribution centers, food distribution centers, and a steady stream of replenishment, technology, and logistics innovation. At least 10 additional supply chain facilities are in the pipeline and will be operating within the next decade. Underpinning all of this is our long standing and ongoing investment in technology. This includes a leading team of engineers, data scientists, and product managers focused on further integrating AI and machine learning and driving early adoption of generative AI, all geared towards making it easier for our team to best serve our guests across both the digital and physical assets. Take same day fulfillment. Our initial investments gave us an early lead in same day. Today, same day is much more competitive. But continued innovation and better integration with our Target ecosystem means we're ready to expand same day delivery for our guests while also building on our next day capabilities. You'll hear more about this from Christina and Cara, including big moves we're making with Target Circle. A program that didn't exist 10 years ago, but today has well over a 100 million members. Cara will talk about the incredible progress the team has made with Target Circle and where we're headed next. For now, I'll just emphasize the focus we're placing on unlimited, same day delivery. Through a new membership feature called Target Circle 360, which is launching next month. Here's the takeaway. Without huge investments in stores, supply chain, and tech, there is no drive up or order pickup, which were monumental growth drivers during covid and today. And without stores, supply chain and tech, and providers like UPS, FedEx (NYSE:FDX), and Shipt, there is no home delivery, which is ready for a step change in guest acquisition, satisfaction, and loyalty. As we move forward, we'll leverage our 2017 acquisition of Shipt to help us build unmistakable recognition for Target same day delivery. Target's Roundel advertising business is another example of something that didn't exist 10 years ago but today, it's the fastest growing contributor to the other revenue line on our P&L. In a crowded field of similar offerings, we're punching way above our weight, relative to the scale of our retail footprint. The unique relationship we have with our guests and the value our ad business unlocks for the brands that advertise with us are at the heart of Roundel's performance to date. And since our roadmap for growth focuses on strengthening our relationship with guests and converting more consumers into guests, we see tremendous growth potential for Roundel for years to come. There are a number of other points of continuity and cohesion in our strategy, but for this intro, I'll focus on just one more. That's the strength of our multi-category portfolio, and the balance and stability offered by our mix of frequency and discretionary categories. The way we bring those categories to consumers is a standout strength we'll continue to build on. The curation, the authority in trend and newness, and the competitive advantage and assortment built around beloved national brands, world class brand partnerships, and a fleet of owned brands that drives about a third of our business and puts us in a league of our own. Ten years ago, our Starbucks (NASDAQ:SBUX) and Disney collaborations were strong and growing, and we were building our partnership with Apple (NASDAQ:AAPL). Those three relationships continue to grow throughout this time frame, and we added and expanded outstanding partnerships with CBS, Levi's (NYSE:LEVI), Hearth & Hand with Magnolia, and Ulta Beauty (NASDAQ:ULTA) at Target that drive traffic, sales and loyalty. This element of our strategy has been a bright part of our future. It will continue to play a big role in the decade ahead. And our team's expertise in product design and development, and brand creation and management, they're towering strengths that really fuel our own brand portfolio. Brands like Cat & Jack, Threshold, Good & Gather, they bring millions of guests to Target. They're three of the 11 brands that generate $1 billion or more in sales each year, a lineup that looked much more modest a decade ago. And they laid a roster of Target brands that contribute to more than $30 billion in annual sales, plus outstanding margins for our bottom line. A steady cadence of brand launches like Figmint last year and Dealworthy last month helped keep our edges sharp on the newness, discovery, and affordability consumers crave in the market and find at Target. I believe our own brand capabilities will only become more prominent in the decade ahead. Which is why we'll spend time this morning taking you behind the scenes on where we're headed with our own brands. Another area where we'll continue to excel is our commitment to our team. In the last decade, we've taken a leadership position in both pay and benefits, and learning and development, and we'll continue to be a pacesetter as we ensure our team has all the support they need to take care of our guests, themselves, and their families. So, if we start to pull all this together, you might be saying, Brian, clearly Target has some strong assets and advantages and cultivated a great team, but what does that mean for 2024 or 2034? I can tell you, our team has been humble enough to ask that and many other related questions. We're not taking anything for granted. There's no complacency about our past success. And while we recognize that a rebound in discretionary spending will favor our brand and our business, we're not waiting for economic changes or a different consumer outlook. I've been on the road nonstop since November, walking our stores, distribution floors, and I can tell you the energy and initiative of our frontline team, what they're bringing to our business this year simply can't be conveyed on the slides behind me. This team has shifted to their front foot and they're changing the momentum of our business, which is why we've seen sequential improvement from Q2 to Q3 to Q4. Discretionary declines moderated. Traffic trends rebounded. Our Q4 comps were at the high end of our guidance. We drove major gains in efficiency and outperformed our guidance of $1 billion in full year profit growth. Recognizing that we needed to clear the volatility and the challenges of the last two years, our team buckled down and said, go time. But in recent weeks, I've seen the spelling expand by two letters, and I've seen the ambition expand even more than that. What our team is talking about now is grow time. That's the mantra I hear bubbling up from the front line. All of the commitment to recapturing top line growth, traffic, and share gains in the years immediately ahead. That starts with ensuring our team can deliver for our guests each and every day. A major step is coming soon with the upgrades we're launching in Target Circle. Upgrades that will make it even easier to unlock the best of Target. At the same time, a focused list of priorities, along with a continued concentration on retail fundamentals, like affordability and in stock reliability, will make our guest experience easy and dependable in every interaction. We'll continue to focus on delighting our guests with the products, partnerships, and value that make Target feel both elevated and accessible. The hallmarks here are expert curation, style and trend authority, newness, great design, and incredible value. We'll also accelerate our progress in omnichannel discovery. We've all seen how shopping is changing into an always on activity that's integrated across several aspects of our lives, well beyond physical and digital stores. Discovery (NASDAQ:WBD) and inspiration has always been a hallmark of our shopping experience. We started by providing inspiration and easy access at our stores with no barriers between impulse and purchase. But we see an opportunity to do even more, to think differently about the intersection of physical, digital, and social so consumers can discover Target products wherever they're spending their time. So, you'll hear from Christina and Cara this morning. We're gonna keep building our capabilities in omnichannel discovery since we see this as an advantage that's ownable over our retail rivals. So, I've thrown a lot on the table, and there's more definition and detail to come. Having tackled both industry and in house challenges over the last couple of years, I can tell you I'm not satisfied and our team is not satisfied with our recent top line results. We wanted to be even further along than we are today, but we're confident in our path forward, and we're eager to share what's next. Target is not just a bigger company than it was 10 years ago. It's stronger, healthier, and more resilient. A company that's flipping the switch from go time to grow time. Over the next hour or so, I'll ask Christina, Rick, Jill, Cara, Michael to add some texture to those claims. Thanks again for being here. Christina, over to you.

Christina Hennington: Thanks, Brian, and good morning, everyone. Continuing on what you've heard so far this morning, I wanna emphasize two key themes. First, we build the foundation for long-term growth with a strategy that is both unique to Target and durable and second, we're committed to building on that foundation for years to come. So, this morning, I'll walk through the ways we're leaning into our core strengths, capabilities, and differentiators we've built and refined over time to make consumers where they are and drive long-term market share gains, sales growth, and profitability. I wanna start with an outlook on the consumer, which remains mixed. While there are some encouraging signs in the economy, there are also stubborn pressures impacting families and retails. Consumers say they still feel stretched. They are balancing a lot and having to make tradeoffs to meet their needs of their needs of their families while sprinkling in the occasional luxury. And yet their affinity for style and newness, plus early signs of disinflation, contributed to a sequential uptick in discretionary category performance over the last two quarters, something we aim to build on and accelerate. At the same time, we expect consumers will remain highly value conscious, hunting for great promotions and seeking comprehensive value in their purchases. Consumers are also craving stability with small doses of everyday joy. After the volatility of the global pandemic, they're now coping with geopolitical tensions, social and political divisiveness, and uncertainty around personal finances. This all demonstrates that our purpose to help all families discover the joy of everyday life remains incredibly relevant. And the assets and capabilities we've cultivated over time, like new and remodeled stores, investments in digital shopping, supply chain, and loyalty, they've all increased consumers' view of us as an omnichannel powerhouse. Those enhanced strengths were built on long established differentiators like design, curation, a well-balanced multi category assortment, and outstanding value. And those are just some of the elements we'll build upon and amplify through our strategy as we move through 2024 and beyond. Think about the opportunities around something like omnichannel discovery. Designing experiences that support discovery has always been one of our strengths. Our stores are famous or perhaps infamous for inspiring guests to discover more than they expected. Millions of guests have experienced the joy of entering a Target store for a few items and end up leaving with extra treasures they didn't anticipate. This is a key aspect of how we set ourselves apart from our competitors and something we'll continue to build on regardless of where or how the shopping trip begins. After all, shopping looks very different now than it did a few years ago. It's no longer a point in time transactional event. Consumers today are constantly taking in new information and seeking inspiration from influencers and trendsetters. Target is already a trend shaper, but there's an opportunity to accelerate this further on both the platforms we own and on external platforms like TikTok and Instagram. Cara will share more specifics later, so I'll just say that our team's energy and engagement in building these discovery-driven experiences are truly inspiring. It's indicative of an ambition to meet consumers where they are so that wherever and however a shopping journey starts, the path leads back to Target as the destination. We have long been known for delighting guests through a carefully curated set of products and partnerships. We believe that a well curated assortment isn't just good for managing inventory. It can be additive to the shopping experience too. Here's an extreme example. Imagine a restaurant with a seemingly infinite menu, with countless of pages of every type of cuisine and no cohesive point of view, endless choice creates decision fatigue, taking away from an otherwise joyful outing. Sometimes, less is truly more. We make choices that allow us to offer a menu of products designed to serve a wide variety of guests' needs, helping to guide their shopping journey while ensuring a joyful and productive trip. Now to be clear, this does take balance. We don't offer an endless aisle, but we do offer a compelling range of choices and price points throughout our assortment. We think of our assortment like a three-legged stool. It works best when we develop own brands that offer unmatched value and quality, provide the best industry leading national brands, and cultivate partnerships that enhance our assortment. So, let's start with our own brands. We've invested heavily over the past several years to continue to innovate and differentiate through our own brands, and we're not slowing down. Across the portfolio, we're launching new brands and expanding upon those already loved by our guests. In fact, own brands are so core to who we are following my remarks, I've asked Jill Sando and Rick Gomez to join me and highlight how our unique skills and assets allow us to sustain and grow this massive own brand portfolio. And it's because of these differentiated end-to-end capabilities that we're able to rapidly scale affordable own brands without compromising quality. These capabilities also make us an attractive partner to some of the greatest designers around. Recently, we announced an upcoming partnership with iconic fashion designer Diane von Furstenberg. This collection will feature the signature patterns and colors that DVF is known for along with her iconic wrap dresses. With a multi-generational appeal and offerings in extended sizes as well as options for kids, this collection features more than 200 items spanning apparel, accessories, beauty, and home, combining timeless fashion with only at Target prices and value. Our second priority is to extend our assortment with the best national brand consumers want from Target. Stanley drinkware is a timely example. Well before it became a cultural moment, we were early to recognize this brand's potential, allowing us to get a big jump on this trend. We secured great allocations across the portfolio and partnered with Stanley to create exclusive colors for our guests, both in the core line and through our only at Target brand, Hearth & Hand with Magnolia. Similarly, celebrity founded beauty brands are taking over social media and our guests say they want to find them at Target, that’s why we partnered with Ashley Tisdale on our exclusive to Target launch of Being Frenshe, a line of personal care products powered by mood boosting sense and self-care rituals. It's also why we've recently added Lemme, Kourtney Kardashian Barker's new line of vitamin and botanical supplements to our assortment. These trending brands add to the credibility we've built in the beauty space and will continue to support our leadership role in these categories. Our third priority is to round out our assortment with a focus on partnerships, which provide deeper expertise and brand recognition for our guests. We've had tremendous success attracting and cultivating these unique collaborations, and in the years ahead we expect they'll play an even bigger role given the incrementality they've delivered. We continue to expand the presence of Ulta Beauty at Target, Levi's, Apple, Disney, and more, bringing industry leading offerings and continued differentiation for Target. And last year, we launched a new partnership with Kendra Scott, and our guests couldn't get enough. These colorful jewelry and accessory pieces not only look good, but they do good too. With a shared vision for philanthropy, this collaboration shines bright on multiple levels. Expect plenty of new offerings in this partnership in 2024 and for years to come. Surrounding all our assortment choices is an unwavering focus on value, which starts with price but encompasses so much more. We continue to offer fantastic everyday low prices, and we're focused on clearly and effectively communicating our value proposition. One way we've done this is by simplifying our end caps to feature single price points and promotions. This allows us to clarify the incredible value we offer while helping our guests to effortlessly recognize the value. No games. No confusion. Additionally, our efficiency efforts and the greater size and scale we've achieved in the recent years have allowed us to further sharpen price points across our assortment. We continuously find ways to add quality and newness to our own brand portfolio without increasing prices. And of course, our focus on retail fundamentals serves as a through line supporting guests on their shopping journey before, during, and after they make a purchase. These efforts are an always on focus, and we continue to deliver a unique blend of physical and digital shopping. We'll further leverage our fleet of nearly 2,000 stores to serve as inspiring shopping destinations and as fulfillment hubs for digital orders. And in the same way we focus on our store and digital assets, we continually invest in our team. We took care of our team so they can take care of our guests. From providing world class service to ensuring we're in stock, we want our guests to feel confident that they'll be cared for and find what they seek on every Target run. In fact, it was a dedication of our team that allowed us to maintain leaner, healthier inventory levels last year, which positions us well as we enter a new year. This led to stronger profit outcomes, improved in stocks, and perhaps most importantly, increased flexibility, allowing us to react quickly to changing trends. We're also using technology to reduce costs, increase delivery speed, and improve consistency in our operations. Years ago, we took a bold stance when we outlined our plans to invest in stores at a time when the role of brick and mortar was in question. Investing to automate upstream replenishment and optimize last mile delivery, we developed new ways to increase our delivery speed and reduce operating costs. These technology investments, which increased the throughput of our existing store locations helped to quiet the store versus digital debate as we pioneered the stores as hubs strategy in support of the omnichannel services we provide. We're excited about the impact of continued advancements in technology like generative AI and the additive ways these tools will empower our teams, but we also wanna make sure that human connection remains at the center of the Target experience. This is why we'll continue to invest in technology while never losing sight of what makes life rich, the relationships and interactions we have with one another. Just as we uniquely saw the importance of combining physical stores and digital capabilities, we wanna make sure we lean into emerging technologies and focus on placing them in the hands of our incredible Target team. And finally, we'll continue to invest in technology to support segmentation and personalization. We love it when guests walk into one of our nearly 2,000 locations and says, this is my Target. In the same way, we want to design an experience in which a guest places an item in their cart and says, this was made just for me. This balance of scale and personalization is unique in retail, something we do well and can continue to build on. After all, we have an enviable consumer base that is highly engaged with our brand, and they shop us frequently across our multi category assortment, allowing us to gain invaluable insights across nearly all retail segments, not just one or two. It's also why our round aisle advertising business is so powerful. We're constantly listening and learning from our guest space, allowing us to offer rich insights to our vendors, offer compelling and personalized advertisements to our guests, and grow this aspect of the business in meaningful and lasting ways. You'll hear more from Cara on enhancements to our loyalty ecosystem, Roundel's growing reach, and our digital experience aimed at enhancing digital discovery. It's one thing to hear about these strategic initiatives, and it's another thing to see them in action. I'm often on the road to witness firsthand how our guests are experiencing joy through our assortment, shopping experience, and our team's dedication in serving them every day. On a recent trip to Orlando, I visited one of our smaller stores near Disney World. Our segmentation and assortment planning work let us focus on serving two very distinct segments in this market. One segment consists of the many Disney cast members who utilize this Target store to meet their everyday wants and needs on their way to and from work. The other segment is comprised of families who are visiting the area, looking to get everything they need to support their family vacations. These guest segments have very different Target run missions and yet we're able to provide cohesive experience that satisfies both of them. Similarly, a few weeks back, I traveled to Texas with members of my beauty and apparel teams. We heard directly from guests about the love of finding all their styling needs under one roof from cosmetics and skin care items in Ulta Beauty, to apparel assortments only available at Target to bold jewelry pieces from Kendra Scott. These powerhouse brands have all come together to offer consumers at this store a sum that is greater than the individual parts. On another trip, I visited a store in Mississippi where we'd recently completed a wall-to-wall remodel. We elevated the shopping experience, refreshed the assortment, and even added a Starbucks, the first one ever in this area. Our local team is incredibly proud that their Target store has become the social hub of this tightknit community. These examples illustrate the interplay of our strategies, assortment, experience, and capabilities, showing how we're positioning Target to play a unique role in American retail. So now before I turn things over to Cara, I'm gonna invite Jill and Rick to the stage for a discussion on the power of Target's own brand capabilities and how they help Target stand out in a crowded marketplace. Okay. Well, thanks for joining me. Why don't we start Jill and Rick by telling us a little bit about yourselves and your careers?

Jill Sando: Good morning. I am Jill Sando, and I lead the apparel and accessories home and yard hardlines merchandising organization. I've been with Target for over 25 years. The majority of that time has been in merchandising, running different businesses across our discretionary portfolio. I also spent some time in planning and helped stand up our product design and development capabilities for our non-apparel businesses.

Rick Gomez: Hello. Good morning. I'm Rick Gomez. I lead Target's food, essentials and beauty businesses. I've had the opportunity to lead a variety of different disciplines at Target, including marketing, digital, strategy and then before Target, I spent over 20 years working in the CPG industry developing, launching and managing a bunch of different food and beverage brands.

Christina Hennington: We're happy to have you here. Okay. Our own rent portfolio on its own would be a Fortune 100 company, more than $30 billion in sales, nearly 1/3 of our total revenue and even more of our gross margin. That's because we have amazing capabilities that allow us to produce brands our guests genuinely love. Jill, let's start with one I know you're particularly excited about, a new brand in toys called Gigglescape.

Jill Sando: Kids related categories are huge for Target, and toys plays a key role in keeping Target relevant with families. National brands like Lego and exclusive brands like Our Generation have made Target one of the biggest toy retailers in America. And the addition of Gigglescape gives consumers one more only at Target reason to shop toys. Gigglescape is important for a few reasons. It's consumer centric. It's our first own brand designed specifically for generation alpha and their unique needs. It's filling white space in our own brand assortment and it has us poised to drive growth in a high margin category and Gigglescape is priced to be accessible to all families. Just a few weeks ago, we launched our stuffed animals, most are priced under $10, and soon we'll launch books, puzzles, and toys with all items in our Spring assortment priced under $20. That kind of pricing makes it perfect for gifts and for the spur of the moment purchases because your child is being good today. This is a brand that makes our toys department a destination even when your Target run was inspired by something else and makes Target an even stronger destination for toys.

Christina Hennington: I love them. They're super cute. Okay. Rick, our frequency categories play such a crucial role in driving trips and with up&up and Dealworthy, we're giving our guests new reasons to choose Target. Can you tell us about that?

Rick Gomez: Yes. Well, as you know, Christina, we invest a lot of time listening to consumers to better understand their needs and one of the themes that we are consistently hearing is the need for value and affordability. So to address this consumer need, we are relaunching up&up and introducing Dealworthy. Up&up is one of Target's most popular brands delivering nearly $3 billion in sales, offering over 2,000 everyday items at affordable prices and now we are making it even bigger and even better. We have developed product improvements across 40% of the line. We are also introducing 100s of new items and we are offering great prices with the average item price under $7. We're also launching Dealworthy. It's our new low-price brand with items across the store ranging from socks, laundry detergent, phone charges and I can't stress enough what a great value Dealworthy will be. The most, most items will be priced under $10 and some of those electronics items will be priced 50% lower than what was previously offered at Target. Dealworthy will be the lowest priced item in each category offering absolutely incredible value.

Christina Hennington: Indeed, our frequency businesses are an important part of driving trips to Target, meeting guests' critical needs, but our discretionaries categories have the opportunity to do that as well. Jill, can you tell us a little bit about Cat & Jack?

Jill Sando: Yes. Kids apparel is another area where we have outsized market share, and Cat & Jack is a big part of that. This is the kids' brand that we launched in 2016. Today, it's a $3 billion brand, the biggest kids' brand in America. To put that into perspective, consider this. We sell well over 300 million units of Cat & Jack a year, which comes out to about eight Cat & Jack items for every child in America under the age of 12. Now this is part of discretionary category but Cat & Jack is a brand that drives repeat business for Target because of great prices and great quality which parents love and great design that kids love. And when you think about kids' style, the success of Cat & Jack pays dividends across our portfolio. It drives trips and sales across the store during key moments like back-to-school and throughout the year as kids grow into new sizes. Cat & Jack also compliments brands like Wild Fable. That's our juniors brand worn by millions of teens and tweens who started in Cat & Jack. It's one of the biggest junior’s brands in the country and one we just extended into swim. Wild Fable is a great brand on its own. One fueled by our speed to trend in a very dynamic category, but it also has an important advantage since families are already in the habit of turning to Target for clothes for their kids.

Christina Hennington: Thank you, Jill. Rick, let's switch gears a little bit and talk about Good & Gather because that's a brand that's helped us reimagine our grocery space and experience and really build our credibility in food.

Rick Gomez: Yeah. Absolutely. I'd love to talk about food and beverage. Our food and beverage business delivers over $20 billion in sales and that's up $8 billion in sales since 2019. That's because over the last few years we've been making big strides improving the food and beverage experience. Now I like to say that we have gone from being a retailer that just sells food to a retailer that truly celebrates food. And in doing that we have made Target a destination for food. Now Good & Gather has played a key role in that. At nearly $4 billion in sales, Good & Gather delivers a great value proposition. Delicious products that the whole family will enjoy, high quality ingredients with no artificial colors, no artificial flavors, no high fructose corn syrup, and importantly, great pricing with most items under $5. And we're not done growing the Good & Gather brand. Last fall, we expanded Good & Gather into new incremental spaces that are important to our guests like Good & Gather Baby and Toddler, creating another go to target, another go to category for parents with young children at Target.

Christina Hennington: Well, it's abundantly clear that our guests rely on our own brands. Jill, you've been a part of these launches for so many years in your career. What makes us a leader in this space?

Jill Sando: We have unrivaled design capabilities, amazing talent across our team, hundreds of patents. It is no exaggeration to say that Target pioneered cheap chic. And what we're doing is so hard to replicate because we didn't decide to make a play in own brands 5 or even 10 years ago, we've been doing this for decades. We've had an in-house sourcing capability for 25 years now. Today, it spans 20 offices across 14 countries. Because we own our end-to-end sourcing business, we control our own destiny when you think about issues like country of production and raw material cost. We're more cost effective with far fewer intermediaries in our network, which allows us to grow our bottom line even as we pass savings on to our guests. We can adapt quickly to emerging trends, which keeps us relevant, and we're able to pursue bold sustainability goals, which is important to driving growth by delivering on something that matters so much to millions of consumers. And those sustainability goals will also help ensure both the resiliency of our business model through responsible stewardship of the resources that we rely on and our ability to deliver the quality that our guests rely on.

Rick Gomez: And these capabilities, they really do set Target apart especially considering the scale at which we operate, delivering a steady drumbeat of newness to consumers. In my previous role in the CPG industry, it was a big year if we launched a few dozen new products. But for our food scientists, there's, you know, that's a couple weeks’ worth of work. In food and beverage alone this year, we'll add hundreds of new items to Good & Gather and Favorite Day and that's on top of the hundreds of new items that we launched last year. We are delivering innovation at scale that is unmatched by others.

Christina Hennington: Well, our capability is certainly our first rate. That human touch fueled by the power of insights can't be stressed enough.

Jill Sando: That's right. When we designed All In Motion, our performance brand, the first thing that we did was to engage with 15,000 consumers. We talked to fitness coaches. We attended dozens of workout classes. Because if you're designing for the consumer, it starts with listening to the consumer. And we're not just consumer led when we're launching a product. We're consumer led in how we continue to grow and develop our own brands because you can't mistake performance for potential. Cat & Jack has been a runaway success, but we also learned through listing that we had opportunities to make the brand more appealing to more guests. Among other things, that led to the adaptive items we created to help all kids look and feel their best and the expansions we made to our dressy and mid dressy assortment, giving families more reasons to choose Cat & Jack and Target.

Rick Gomez: You know, consumer insight has also helped to continue to develop and grow Favorite Day. We launched the brand during the pandemic, and we've seen it drive trips, build baskets, delivering double digit growth year-after-year. So as food and beverage has become a go to category for Target during the holidays, we've expanded the role of Favorite Day to offer key seasonal items. You saw that in November and December with gingerbread kits, hot cocoa bombs, a huge range of snack mixes, and just a few weeks ago, Favorite Day was front and center for Valentine's Day. And we'll continue to expand Favorite Day into those big seasonal moments that are so important to our guests and important to keeping Target relevant.

Christina Hennington: Well, Jill, this leads to the enhanced approach we take into brand management, including a team under your leadership.

Jill Sando: We launched our brand management capability years ago and created an end-to-end process to successfully launch own brands, and that has enabled an accelerated rollout of own brands over the past five years. And we've been evolving our capabilities and are now operating more like a CPG company, the research, the market analysis, looking hard at the white space. That's shaped our decision making around existing brands like prioritizing threshold as our flagship home brand and then offering a range of styles within it. That's critical because Target is one of the biggest home retailers in the country and this is making it easier for our consumers to navigate our assortment. And our brand management work was critical to the success of our new kitchenware brand Figmint which debuted last Fall. This isn't the first time selling kitchenware as part of an owned brand, but it is our first owned brand devoted solely to kitchenware, and our guests love it. Baskets with Figmint items are 25% larger than our previous owned brand offering and Figmint was one of several factors that helped us accelerate our kitchenware business by more than 500 basis points between Q3 and Q4, taking us from a negative comp to a positive comp. Guests respond to newness and innovation and great design, and Figmint is just one example of that.

Rick Gomez: There's been a lot of work in food and beverage to sharpen the focus of our brand portfolio. The launch of a flagship brand, Good & Gather, was the first step. We focused Market Pantry on family favorites at our most affordable prices, and we've also retired our previous snack and dessert brand, Archer Farms, and replaced it with Favorite Day, a brand with a much stronger identity around indulgent treats for the whole family. All of this helps Target make consumer centric decisions about our assortment like the addition of 50 new F& B items for Easter and dozens more that were launching just in time for the summer season, including a Favorite Day soda. Now it sounds simple, but the thoughtful, deliberate, holistic approach to designing, launching and managing our brands, it's the difference between rolling out catch all brands and the difference between that and building brands that consumers love because we're meeting their needs in a really meaningful way.

Christina Hennington: Well, thank you both. I love that. And that's a perfect note to close on, consumer centricity. That's a theme running through everything we've covered today. New brands like Gigglescape, Figmint, and Dealworthy. Our relaunched up&up and powerhouses like Gather and Cat & Jack. So, thank you, Rick and Jill, for what for that look into our own brand work. It really is incredible. When I think about Target's right to win in this environment and our ability to meet key consumer needs, our own brands are foundational to so many of our plans. That's because the investments we made in our capabilities and our team over more than two decades combined to form competitive advantage that few retailers anywhere can match. And it's not just a competitive moat we're talking about here because we're not hunkering down playing defense. This work is our springboard into the future. And through the incredible value our own brands offer across each of our key categories and the compelling newness they're adding to our entire assortment, we'll continue to deepen our relationships with our guests and we'll give all consumers compelling reasons to choose Target. Now I'll hand it off to Cara Sylvester, who'll tell us more about how we're getting these products in front of consumers and engaging with our guests and potential guests more broadly. Thank you. Cara?

Cara Sylvester: Thanks, Christina. And hello, everyone. Today, I'm excited to talk about our guest experience. And you might ask, Cara, how do we define guest experience at Target? Well, we think of it as the way we engage across America. From simply saying hello to consumers in a warm Target way, to deepening the relationships we have with existing Target guests, to how we create moments of discovery, connection, and joy that invite people to choose Target again and again. But before we look back at the previous year and preview what's ahead, I wanna ground us in a consumer point of view. Because to understand how Target designs its guest experience, we should start with how people are shopping today. As you heard from Christina, gone are the days when people would follow a consistent and well-defined path from discovery to purchase. Today, shopping is nonlinear and simply a part of the general ecosystem of our lives. Instead of a standalone experience that feels planned or predictable, shopping has become immersive, always on, and fully integrated into how we all go about our days. A large portion of U.S. consumers, about 40%, start their purchase online, and 20% start on social platforms. And those are just the people who are actively looking to shop. Many more are enticed to shop by the inspiration they find scrolling their social feeds for hours every day. This is expansive retail. Nontraditional entry points, seamless transition between stores, online and social, and fully in tune with what shoppers want and need. To meet these shoppers where they are, we spend a lot of time getting to know what matters to them and seeing the Target experience through their eyes. Our guest base is broad and diverse. In fact, 96% of U.S. adults have shopped Target at some point in their life. Yet, we know that your shopping experience and mine are gonna look and feel very different based on a variety of factors. Our families, our interests, our budgets, our schedule, and simply what brings us joy. Expectations also differ by category. If you're on a grocery run, you're looking for reliability and value. And if I'm shopping for one of my daughter's birthdays, I'm looking for inspiration and fun. These nuances are especially important for Target given our diverse multi category portfolio. Yet even though shopping journeys vary, after gathering feedback from millions of guests about what they care about and how Target fits into their lives, there are a few important truths that unite our guests and shape how we design our experience. First, Target guests love to shop. They consistently list shopping as one of their favorite activities, more so than your average consumer. 90% of guests tell us they're looking for quality products. They also want a meaningful connection with the brand and they're ahead of the curve when it comes to keeping up with trends. Second, our guests are whenever, wherever, however shoppers using multiple channels to create the experience that fits into their lives. They're in the driver's seat when it comes to creating the experience that works best for them, and we have to meet them where, when, and how they need us. Finally, one more important fact that it defines Target guests, they are loyal, really loyal. Our most engaged guest account for a greater share of sales than we see at other competitors, showing that the connection we have with guests is sticky and drives growth and profitability. Quite simply, guests look to Target for inspiration, to find on trend high quality items at a great price and to have some fun. Are we affordable? Yes. Are we fast and convenient? Absolutely. Can you check off everything on your list no matter how you prefer to shop? You bet. But there are other retailers who can say the same. What makes Target different, what makes guests consistently choose us over any other retailer is how we make them feel when they interact with us. How we design our experience to elevate ordinary moments into extraordinary ones with a carefully curated assortment, bursts of discovery and delight, and plenty of human connection along the way. There, of course, are the big splashes of the Target brand that grab headlines, generate buzz, and make people smile, like our Halloween Ghoul, Lewis, who took the season by storm, or the ugly squirrel sweater that we created in 48 hours to pay homage to the version worn by Taylor and Travis over the holidays, or turning the Las Vegas sphere into a huge holiday snow globe complete with bull's eye in residence. But there are also millions of smaller everyday moments that strengthen the bonds we have with our guests, making their lives a little bit easier and a little bit brighter. So, when visiting one of our stores in San Antonio, Texas last year, I kept hearing about a team member who I needed to meet. In fact, even some guests stopped me and said I absolutely needed to meet her. And they were right. She was somebody I absolutely needed to meet, and I wanted you to meet her too. Let me introduce you to Amelia. VIDEO CALL

Cara Sylvester: Yeah. So, I love that video because it captures who we are as a brand and what we aim to deliver across our entire guest experience. Our team brings so much empathy to their work. And it's not just the face-to-face interactions at checkout or in the aisles. Empathy is infused into how we design every part of the guest experience. Drive Up's a perfect example. The reason guests love Drive Up the Target because it's a service reflects what's most important to them. It's easy. Swing by, we'll bring out your order to you or even pick up your return. It's fast. Just tell us you're on your way. We'll be ready when you are. No pick-up windows to worry about because we work on your schedule. It's fun at a Starbucks to make your trip that much more relaxing and its all free. This is what we mean by designing an experience for our guests, looking at a service through their eyes, using Target technology to rapidly iterate and introduce new capabilities, and finding ways to not only meet their needs but add something extra to make their day. That's the Target experience. You saw that from us in 2023 as we continued on our path to be America's favorite discovery destination. Our stores are known as a getaway spot, somewhere you can go and enjoy a few minutes or a few hours browsing the aisles with friendly team members to help you find just what you need. We're bringing that same sense of exploration and relaxation to guests who walk through our digital front door. Last year, shoppers visited us more than 6 billion times on our digital channels looking for the same warmth, newness, and discovery that greets them when they walk into one of front doors. In fact, more than half of guests who make a purchase in our stores have visited our app or our site that very same day, reinforcing how shoppers move fluidly from physical to online and back again. Target is uniquely suited to be there for our guests when inspiration strikes because of our agile technology and the pathways we create between stores, digital, social, marketing and more. The experience we created this past holiday season is a great example. This year, there was clear connectivity across our experience to create a memorable and meaningful visit no matter how you chose to shop with us. Holiday gateways in store and online, digital gifting stations, product packaging to make you smile, in-store playlists to set the mood, festive TikTok content, and Target Wonderland community pop up events. These all work together to celebrate the holidays with our guests in a way that only Target can. Our ongoing investment in our digital capabilities enabled this year's fully connected holiday celebration. In 2023, we transformed our digital experience from a utilitarian shopping platform that was one size fits all to one that is filled with warmth, greets you personally just like Amelia would, and delivers a custom blend of newness, trend, value, and ease just for you. And it's not just what the guests see, but what's happening behind the scenes to power these personalized experiences. We're using generative AI to power our product detail pages to provide more friendly and relevant explanations of what guests wanna know about our assortment. AI also powers features like Shop the Look and our Get It Now assistant, which lets you know when items in your cart are available for pickup at a nearby store. It's also the engine behind the insights we use to give guests more personal experiences and rewards through our loyalty program, Target Circle. And it's a key element of how we create thoughtfully curated campaigns for consumers through our advertising business, Roundel. This might be a good time to talk about how Roundel seamlessly integrates into the guest experience and continues to drive more than $1.5 billion in value for our business. Growing more than 20% in 2023, Roundel is the powerful bridge between our guests and the brands they love. Roundel works with more than 2600 vendors to deliver creative that is resonant and wholly consistent with the Target experience. In return, our guests receive content that speaks directly to their interests and preferences. Take our holiday campaign with Apple. Tech products top many guest holiday gift lists, so we work with Apple on a comprehensive campaign to keep their products front and center for our guests this holiday season. With custom content designed to reach our guests across a number of platforms, including Connected TV, YouTube and social media. Our co-created holiday video ad made us the first Apple partner to highlight the new double tap feature on its Watch Series 9 in a spot. To add relevance, we used AI on our site to position the right products in the right moments. Think serving up promotions to RedCard holders so they get the best deal plus extra 5% off by using their card. Or helping a guest find the perfect gift for their teenager. Hint, go for the AirPods Pro. This integrated campaign tapped into our powerful ecosystem of digital, social, marketing, and merchandising absolutely resonated with shoppers. We deepened relationships with existing fans and attracted new ones with a significantly higher new guest rate compared to prior Apple campaigns at Target. In addition to the way Roundel powers the guest experience when guests are browsing our app or website, unique to Target is our media mix. With 35% of revenue being generated outside of our own properties. That means that we're able to connect with consumers wherever they are like on social or streaming platforms, driving more than 250 million visits to Target properties in 2023. And social is increasingly where our guests are. We have more followers than any other mass retailer on TikTok with incredibly high engagement, which underscores our opportunity to connect the love that guests have for us on social to a smooth path to purchase in stores and on our digital properties. Our guests use social to stay in touch with the latest trends in a way that feels specifically designed for them. So, we're working across the spectrum of social from user generated content and Target creators to our talent partners and Target owned platforms to make it easier for guests to maintain that discovery mindset as they shop. Over the coming year, you'll see us experimenting to bring off platform content onto our digital properties so guests can find inspiration right on their site in our app. And we'll blend social and commerce to create an experience that taps into real time trends and makes offline inspiration to online purchase intuitive and easy. So, imagine a guest looking for just the right things for a housewarming celebration. They open our app which is personalized just for them and type in housewarming party ideas. Using generative AI search, they see the latest products that fit their style and preferences, including delicious snacks from Good & Gather, chic party supplies, modern glassware, and even some new party outfits. We brought the fun of wandering the aisles of our stores alongside inspiration from lifestyle influencers to spark new finds, like beautiful living room decor. Our guest uses 3D visualization to see it in their space and AI powered reviews to learn more. They love it and snap it up along with their must have party supplies. Within a few hours, their hall arrives thanks to same day delivery. They love the items so much, they share their finds on social media, inspiring other guests to shop Target. This is the future our teams are working on today. A seamless fluid shopping experience across stores, digital, and social, and centered on what our guests want and need. And knowing what our guests want and need, deepening our connection with them and making millions of guests feel that every visit is made just for them is at the heart of our loyalty program, Target Circle. We introduced the program in 2019 as a way to say thank you to guests with deals, rewards, and perks. Today, we have more than a 100 million members who have earned $2 billion in rewards. Members have told us how much they value the program and it shows. Last year, they visited us five times more often and spent 5 times more than guests who aren't members of Target Circle yet. And our personalized deals and bonus offers powered by our proprietary technology drove $1.5 billion in incremental sales last year. Yet members have also told us that it could be even easier to save and know how much they're saving. So we took this opportunity not just to improve our program but to reimagine how we think about loyalty across the entirety of our experience. So today, I am thrilled to introduce a new Target Circle. One that brings the best of Target together under one loyalty program. Here's a short video that we created to sum up what's new and what's next. Female Voice Since Target's inception, we've been focused on loyalty and really deepening the relationships that we have with our guests. More than 30 years ago, we debuted our Target RedCard credit card. We took another step forward in 2019, introducing our formal loyalty program, Target Circle. Target Circle allows us to connect with guests and have a two-way relationship where we really get to understand you, and we're able to deliver personalized deals and offers and an experience that's just right for you. We knew we needed to evolve Target Circle by listening directly to our guests, and we listen deeply. And the reality is that we have some friction in the program today, and so we are leaning in to ease. We want all of our guests to feel welcome and appreciated each and every time that they shop with us, and the upgraded Target Circle experience allows us to do just that. So, we know our guests like Target Circle, but our ambition is to have our guests love Target Circle, and that is why we're bringing three programs together. We are investing in ease and simplicity within Target Circle. Scan your app at checkout, and you get deals automatically. We are investing in instant 5% savings, free two-day shipping, extended return windows in Target Circle Card, and then we are bringing unlimited same day delivery in as little as an hour to our guests within Target Circle 360. By evolving and upgrading our experience, we're gonna make it even easier for our guests to interact with Target in a way that feels right for them. We're confident with the relaunch of Target Circle that not only will our current guest shoppers more often, but we're well positioned to welcome even more new shoppers to Target. It really is the best way to get more Target. Reimagining Target Circle is one of the biggest initiatives for us as a company in the next year and really accelerates the company's next phase of growth.

Cara Sylvester: So bringing together Target Circle, Target Circle card, and Target Circle 360 simplifies and expands how we deliver value to our guests. And as we've been talking about, we've designed the program to give guests flexibility and control in how they shop. There's the Target Circle our guests know and love today that gives every member access to the best deals and rewards at Target. There's absolutely no cost to join. What's new is they can now shop Target without having to search for and add offers. Deals are automatically applied at checkout, plus, they'll continue to receive partner perks with Ulta Beauty and Apple and even more rewards through personalized bonuses based on their shopping behavior. For those guests who wanna save even more, Target Circle card offers an extra 5% off each trip. This is on top of the automatic savings they receive as Target Circle members, plus free two-day shipping, extended time for returns, and no annual fee. And with credit card, debit card, or reloadable card options, consumers can find the product that's right for them. And finally, for those who want the magic of Target delivered to their door in as little as one hour, there's Target Circle 360. An extension of the same day capabilities we've built since our acquisition of Shipt in 2017, Target Circle 360 members can order everything from groceries to household essentials to the newest must have item with no additional fees, no markups, and support from a preferred shopper. Members even have access to Shipt's multi retailer marketplace, which gives them access to even more items from their favorite local stores. No waiting for days for boxes to arrive on your doorstep, just unlimited same day delivery that we're rolling out to guests at the promotional price of $49, which will be the standard price for Target Circle card holders. Guests will have access to the new Target Circle starting April 7th, and we can't wait for them to feel the difference. This is just the beginning for Target Circle. Our AI powered models will continue to deepen our relationship with guests and enable us to deliver one-on -one personalization at scale. And with this new foundation in place, we'll continue adding benefits and perks based on what matters most to our guests, like exclusive partnerships, product offers, and more so they can get the most out of shopping at Target. This goes back full circle, pun intended, to how people are shopping today. Shopping's dynamic and so are we. The investments we're making reflect our focus on consumers' preferences and needs. So, we continue to be their first choice for discovery, delight, and experiences that make them smile. That's Target's guest experience at its best. Building connection and celebrating everyday moments in meaningful and memorable ways. Moving with our guests through their lives so we're able to bring joy whenever we can. That's the Target magic, and it's what fuels our future. Now I'd like to welcome a familiar face with an expanded title to the stage, Michael Fiddelke.

Michael Fiddelke: Thanks, and good morning everyone. As Cara just mentioned, I've recently taken on a new role. And while I'll be staying on as CFO for a little while longer, I'm honored and excited to be leading our incredible operations team as Chief Operating Officer. As an engineer by training, I've always had a passion and respect for the work of my new team and I've learned a lot working with them and alongside them during my 20 plus years at Target. As John Hulbert would tell you, over the years, I've often added complexity to our investor travel so we could squeeze in just one more store visit. And throughout the recent holiday season and so far this new year, it's been great to have an opportunity to spend even more time with teams in both our stores and supply chain facilities. While our financial conversations often focus on the metrics we use to assess our performance, there's no substitute for seeing firsthand the strength of our operations, the benefits that come from well managed inventory and newness, and hearing what our talented team is focused on building for the future. So before I move into the financial portion of my remarks, I'm gonna spend a few minutes on my priorities as I move into this new role. And as I've mentioned to my new team, I'm coming into this job at a time when our operations are in a very strong position. As such, my top priority is to build on the foundation that John Mulligan and the team have already established, and I'm fortunate to have an outstanding group of leaders already in place. As you've heard from John over the years, the operations team is focused on advancing multiple long-term initiatives to expand our footprint, modernize how we support our business and advance our company strategy. These efforts begin with investments in our store network, developing new locations, remodeling existing ones, supporting key partnerships like Ulta Beauty, enhancing our same day services and more. We're also transforming our supply chain. This includes our journey to automate upstream replenishment with a focus on reducing store workload and increasing reliability. It also includes the build out of our sortation center network which offers faster delivery times while meaningfully reducing the cost of last mile delivery. Beyond this investment in our infrastructure, we're partnering with teams across the company to enhance our inventory positioning and demand forecasting, leveraging AI and machine learning to enhance our speed, consistency, and efficiency. And of course, we're focused on the support and development of our team including their pay, benefits, training and well-being. As I've said consistently during my time as CFO, our team is our most valuable asset and I'm bringing that perspective into my new role. As Christina mentioned earlier, beginning last year our team renewed their focus on retail fundamentals after several years of managing through unusually high volatility. These efforts focus first on in stocks but encompassed a broad array of measures relating to guest experience. In total last year, our store teams rolled out new training on 25 separate best practices and we've seen the benefit in our recent guest surveys. While those initial improvements are encouraging, we'll continue on that journey throughout this year to ensure we're setting the standard for the shopping experience in U.S. retail. So now let me turn to our financial results. And while our focus today is on the future, I'm also gonna give a look back for perspective on our longer-term trajectory. I'll begin with a review of last year's financial performance and then examine how it compares with a decade ago. With that context, I'll look ahead to our aspirations over the next 10 years and conclude with our outlook for 2024. It's clear that last year was unusual as top line results came in below our guidance. But our bottom-line performance came in well ahead of expectations. For the full year, we saw a 3.7% decline in our comparable sales reflecting quarterly traffic trends that varied widely from the strongest performance in Q1 to the softest in Q2 and an improving trend in Q3 and Q4. As traffic improved, we saw a better comp sales trend, better digital sales and a dramatic improvement in discretionary categories. On the operating margin line, our business delivered dollar growth of nearly $2 billion last year, well beyond our initial guidance of $1 billion or more. This was driven by a rebound in our operating margin rate from historic lows in 2022, a year where we faced unusually high markdown rates, sky high freight and transportation costs and rising rates of inventory shrink. Last year as the team managed inventory really well, markdown rates improved dramatically and we saw a huge reduction in freight and transportation costs, more than we expected as we entered the year. Healthy inventory levels also helped our operations. Without the need to manage overfilled back rooms, store teams were able to flow product onto their sales floor more easily and increase their focus on guest facing work. Similarly, our supply chain facilities were able to operate more smoothly without the necessary labor hours and extra touches required to manage overly full buildings. Last year, we also benefited meaningfully from the efficiency efforts we launched about a year ago. When we began this work, we said we expected to realize $2 billion to $3 billion in permanent efficiency gains over a three-year period. And with the first of those three years behind us, we continue to feel very good about our progress. More specifically, we estimate that these efforts delivered savings of more than $0.5 billion last year, helping to offset other profit pressures, including the deleveraging effect of a soft top line, continued investments in paying benefits for our team and higher inventory shrink. And finally, last year we continued to benefit from our Roundel ad business which grew more than 20% in a year when we were facing challenging trends on the top line. Altogether, last year's profit performance led to growth in our GAAP and adjusted EPS of nearly $3 or just under 50% compared with the prior year. In addition, cash from operations more than doubled from $4 billion in 2022 to $8.6 billion last year. And finally, after tax return on invested capital expanded by well over three percentage points from 12.6% in 2022 to 16.1% last year. Before I include my recap of 2023, I want to provide an update on inventory shrink, which includes the impact of retail theft. Last year, consistent with expectations, shrink cost increased more than $500 million compared with 2022 representing about 50 basis points of incremental rate pressure. Even more notable, compared with 2019, shrink costs have reduced our operating margin rate by a cumulative 1.2 percentage points over a four-year period. Happily, we've seen some encouraging trends recently resulting from both the actions we've taken and the community efforts we're seeing across the country. I wanna pause and give a quick shout out to our assets protection and information security teams who are working around the clock to protect the safety of our team and our guests. I'll add, however, that because it's a lagging metric, we're planning for shrink rates to remain approximately flat in 2024. So now with last year in the books, I want to briefly pull back the lens and look back over the last decade, which is a very long time in retail. This will help to highlight the journey we've been on and the capabilities we've developed, serving as the foundation for the next decade of profitable growth. As you all know, the last 10 years were a time of rapid change in retail. This led to some sluggish results at Target in the early years as our business faced some significant challenges. Those periods were followed by rapid progress in later years based on the steps we took to address those challenges. Let's start with the top line. In 2013, our U.S. business generated about $71 billion in sales, while 2023 sales were about $34.5 billion higher, representing an average growth rate of about 4% per year. Breaking down that growth by channel, about $16.5 billion occurred in our stores while digital sales grew by another $18 billion becoming nearly 13 times larger over that decade. Within our digital sales, same day services which didn't exist 10 years ago accounted for $12.5 billion or 70% of our digital growth between 2013 and 2023. On the bottom line, our adjusted EPS in the U.S. grew by an average of about 7.6% per year from $4.29 in 2013 to $8.94 last year, while GAAP EPS from continuing operations grew slightly faster. On top of those EPS gains, our per share dividend grew at an average rate of 10.7% per year from a dollar $1.58 in 2013 to $4.36 last year. I'd note that these bottom-line returns were delivered during a decade in which our operating profitability experienced a meaningful amount of compression from a 6.7% operating margin rate in 2013 to 5.3% last year as we experienced significant pressure from inventory shrink and higher digital penetration. Going forward, we expect to offset at least a portion of this decline over time as we work to achieve an optimal and sustainable operating margin rate. Turning to capital deployment, our priorities have remained consistent for decades, so I'll briefly reiterate them here. We first look to reinvest capital in our business in projects that meet our strategic and financial criteria. Second, we look to support the dividend and build on our 52-year record of annual increases in the dividend per share. And finally, we deploy any excess cash after these first two uses to repurchase shares within the limits of our middle a credit ratings. Over the last decade, our operations generated just over $67 billion of cash. And during that time, the lowest level of any single year was still more than $4 billion. These cash returns demonstrate the durability of our business as we navigated through several challenging periods over those 10 years. They also give us a lot of confidence in our prospects for making continued productive investments in the years ahead. Throughout that entire decade, deployment of cash was consistent with our long-term priorities. Just over $30 billion was devoted to CapEx accounting for about 45% of the total. Another $14.5 billion was paid as dividends and cumulative share repurchases accounted for the remainder of just over $22 billion as we retired more than 206 million shares at an average price of about $108 all while maintaining our middle A ratings over the entire period. So now with that long term look back as context, I want to turn to what we expect to achieve over the next 10 years beginning with the top line where we're focused on three separate growth drivers, comparable sales, new stores and other revenue. Comps are expected to be the primary source of growth with increases in the low to mid-single digit range in a normal year, consistent with our average over the last decade. We'll support this comp growth with continued investments in our business, in remodels, own brands, national brands, signature partnerships and value-added services across all channels. Turning to remodels, we plan to invest in the vast majority of our nearly 2,000 store fleet over the next 10 years. Each year projects will range from full scale remodels in which we touch the entire store to more surgical investments including the addition of Ulta Beauty locations, fixture upgrades, support of our same day services and more. On top of existing stores, we'll continue opening new locations based on the strong financial returns they generate. As Brian mentioned, most of these new stores will be larger on average than we've opened in recent years. Based on the opportunities we've already identified, we expect to open more than 300 additional stores over the next decade, meaningfully extending our reach into new neighborhoods. By the end of those 10 years, we expect those new stores will be generating incremental sales of around $15 billion annually. Beyond our buildings, we'll continue to focus on the well-being of our team members who enable our growth and serve as the face of Target every day. As Christina and Cara highlighted earlier, the human element as exemplified by our team is a continued differentiator for Target in a world where commerce is becoming increasingly mechanized and impersonal. Finally, over the next decade, we expect to continue seeing outsized growth in other revenue. This has been driven in recent years by our Roundel ad business, which contributed more than $1.5 billion of value to Target last year to the benefit of both gross margin and other revenue. On top of Roundel, we also expect our digital marketplace, Target Plus, to make a more meaningful contribution over the next 10 years. Putting this all together, over the next decade we expect our total revenue will grow by an average rate of roughly 4% per year over the next 10 years. If we attain that goal, our business will add more than $50 billion of revenue on top of the $107 billion we delivered in 2023. That growth will enable our business to further benefit from scale efficiencies as we continue to extend our reach in the U.S. market. On the operating margin line, our ambition is to reach the optimal rate to maximize profit dollar growth over time. While we don't yet know what that rate will be, we believe it will be at least as high as our pre-pandemic rate of 6%. We made enormous progress in moving back towards 6% last year and expect to make continued progress in 2024 and beyond. Once we reach that 6% milestone, we'd be happy to continue moving higher as long as we're seeing appropriate dollar growth. For example, if we're successful in reducing shrink over the next few years, that might support our ability to sustainably operate above 6% over time. Regarding CapEx, we don't apply a rule of thumb to determine annual spending. Rather, we maintain a bottom-up plan and allocate capital to all the projects that meet our strategic and financial criteria. As you've seen in recent years, annual CapEx will vary based on the external backdrop. And individual project investments, which naturally follow the evolving needs of the business, will vary as we snap this chalk line in a specific year. For example, while in 2022 we needed to rapidly expand our upstream replenishment capacity, We're no longer feeling that same urgency today. Similarly, while we love what we're seeing in our sortation centers and expect to meaningfully grow their capacity over time, the pacing of sort center investments has slowed somewhat in the near term given that brown box last mile delivery volumes declined significantly last year. When we put together all of those considerations along with our long-term growth ambitions, we believe annual CapEx will typically range between $3.5 billion and $5.5 billion in 2025 and beyond. Regarding our second capital priority, we expect to continue growing the per share dividend over the next decade and we'll manage the rate of annual increases with a goal of reaching a 40% payout ratio over time. As for our third capital priority, we expect share repurchases will continue to play a meaningful role in our EPS growth in years ahead. Our strong balance sheet successfully absorbed a number of powerful shocks in 2022. And last year, we made significant progress in moving our debt metrics back to appropriate levels. This sets the stage for a potential resumption and repurchase activity later this year. Altogether, we believe we can deliver high single digit growth in earnings per share in a typical year, at or above the average you've seen over the last 10 years. And lastly, we believe our after tax ROIC can continue to move higher into the high teens over the next decade. So now let me turn briefly to our expectations for 2024. On the top line, we're still planning cautiously given the consumer spending patterns we've seen for two full years now. More specifically, on the discretionary side of our business, even as we've seen improving trends over the last two quarters, overall demand remains soft as spending patterns continue to normalize from pandemic peaks. In our frequency businesses, we're anticipating a further recovery in unit trends this year as inflation continues to moderate. Altogether, we're planning for a modest increase in comparable sales in the 0% to 2% range for the year. Within the year, our top line will face the highest hurdle in the Q1, while over the remainder of the year we'll be comparing over notably softer results. As a result, while we're looking to build on the momentum we've seen in recent quarters, our plans anticipate a comp decline in the Q1. After that, we're planning for a resumption of top line growth over the remaining three quarters of the year. On the operating margin line, we expect the impact of inventory shrink will be roughly flat to last year. In addition, given our cautious top line expectations and continued investments in long term growth, we'll likely see some deleveraging on the SG&A line. In terms of tailwinds, we're planning for modest improvement modest rate improvement in shipping and transportation as we annualize the benefit of the lower rate contracts negotiated throughout 2023. We're also planning for continued outsized growth in our Roundel ad business, contributing to both gross margin and other revenue. And of course, we expect our efficiency work will benefit both our gross margin and SG&A expense rates. Altogether, in 2024, we're planning for a modest increase from last year's 5.3% operating margin rate as we continue moving toward our 6% goal. On the bottom line, our 2024 expectations translate to a full year range for both GAAP and adjusted EPS of $8.60 to $9.60. On first glance, the midpoint of this range represents growth of just under 2% versus 2023. However, I'd note that it's equivalent to a mid to high single digit increase on a 52-to-52-week basis given that last year had an extra week. Regarding the first quarter, our full year plans translate to a range of $1.70 to $2.10 for both GAAP and adjusted EPS on an expected 3% to 5% decline in comparable sales. Turning to our balance sheet and capital deployment, we continue to expect a CapEx range of $3 billion to $4 billion for the year and are planning for another strong year of cash generation. Later in the year, we'll recommend that our board approve another increase in our per share dividend. And finally, while we don't expect to repurchase any shares in Q1, we may be able to resume that activity later in the year within the limits of our middle A ratings. As I get ready to close, I want to pause and thank the entire Target team with a particular call out to my colleagues in finance. It's been an honor to serve as your chief financial officer for the last four and a half years. Just as I have been, I'm confident my successor will be incredibly grateful for the leadership, integrity, passion and discipline you bring to your work every day. Until a successor is named, I'll continue to fully occupy the CFO role and partner with all of you on behalf of Target and our stakeholders. To my new team, I'm incredibly excited to be working with all of you. As I said earlier, our operations are already in great shape and I'm fortunate to be working with a strong set of leaders. I can't wait to see what we can accomplish together as we build and sustain the foundation for another decade of profitable growth at Target. Thank you. Now I'll turn it over to Brian for some closing remarks.

Brian Cornell: Michael, thank you. As we get ready to take your questions, I might get started with some of the questions I can imagine are on your mind this morning. First, are the updates we shared enough to get Target back to growth? The answer is absolutely. We're confident that the roadmap we've outlined today puts our core strengths, capabilities, and points of difference to work in new ways with even greater value, relevance, ease for our current guests and U.S. consumers more broadly. This roadmap will help us meet consumers where they are to drive traffic, profitable sales growth, and long-term market share gains. Another question might be, can Target keep building on the profit improvement you put up last year? You just heard it from Michael. Nearly $2 billion in 2023 of operating income growth, far outpacing our guidance. More than a half $0.5 billion in cost savings from our ongoing efficiency efforts, giving us a fast start on our multiyear efficiency goals, and realistic expectations for additional improvement in our operating margin rate this year as we move towards our 6% goal. Ultimately, I'm sure you're asking, what does this mean for shareholders over time? And that brings us back to our emphasis on long term horizons and the durability of our business model. Again, you heard it from Michael. From 2013 to 2023, revenue grew by almost 50%, while earnings per share and the annual dividend more than doubled. The progress we made last year in shifting momentum of our business, defining our road map for growth, and improving our profit performance has set us up to resume share repurchase, potentially later this year. We know that's been an important source of shareholder returns over time. But since most of you know our capital priorities as well as we do at this point, I'm guessing you noticed that I'm ending with a priority that's been on top of the list for decades. Simply put, investing in the right strategies and capabilities for our consumers and our business is the surest way to deliver outstanding shareholder returns over decades. As you've seen in the last decade, there's a lot we can't control in the operating environment. But we are in charge of our financial decisions and the business plans and investments that drive our performance. We know that if we perform well for consumers, their market will reward investors who are fueling those efforts. That's why you've seen us highlight our road map this morning. It reflects our team's eagerness to grow, and more importantly, our plan to execute on that ambition. It's how we're putting the assets and capabilities we've built in the last decade to work in ways that are inspiring and in step with how consumers will be shopping in the next decade. It combines strengths that are unique to us into a comprehensive competitive position. A position that's difficult to replicate because no one can put it all together like Target. We've said it before, it's the power of and from our stores and digital experiences, to our fulfillment options, our multi category portfolio, our signature brand partnerships, our own brand Domus, and above all, our global team. Our 400,000 Target team members, and a talented and dedicated and determined leadership team who have led and will keep leading our team through go time. But make no mistakes, everyone at Target, from the check lane to the C-suite, is committed to the next era of grow time. Now, we look forward to hearing from you. I'll ask Christina, Cara, and Michael to join me back on stage so we can take your questions.

Operator: We will now transition into taking questions from our audience. If you have a question, please raise your hand and a member of our team will hand you a microphone to use. When you've finished asking your question, please hand the microphone back to our team. This will help us get to as many people in the audience as possible. Thank you.

Brian Cornell: The hands are going up. Why don't we start right here?

Simeon Gutman: It's Simeon Gutman from Morgan Stanley. My first question is on the buying discipline. So, Target makes a lot of its profit on discretionary products. Do you think you've developed new muscle over the last year or so or you just reacted to the environment and we'll see some of this go back?

Brian Cornell: Christine, I think that's a great place to start. And you can talk about the work we've done with our global sourcing teams to make sure we are evolving the way we buy goods across the country.

Christina Hennington: Yeah. Thank you for the question. We have evolved significantly over the last year and a half plus. What we've been living through over the last couple of years really has been quite unprecedented. And the opportunity has been to infuse more agility and flexibility into our model. So, in 2023, we bought with the intention of placing bets on the things that we were most excited about. Innovation, newness, our own brands, where we saw, the business trends were. But we also wanted to make sure that we created flexibility in the model. And so overall, we certainly bought less in those down trending categories to manage the inventory. But by buying less led to swifter operations, ease and just clarity in how to operate within this environment. We were also able to introduce levers through dual sourcing capabilities, a country of production diversification, having more domestic backup. So, in categories like apparel, where it's really important that we're on trend and we're able to get the things that we need quickly based on what we're seeing in the market, we have increased our flexibility levers manyfold, and are using reserve open to buy, basically receipts that we haven't spent as well as other flexibility levers to buy into the things that are working. And it is really paying off. Not only did we manage our inventory levels significantly lower, it led to significantly increase in stocks, the best we've had in four years, as well as being able to chase into the things that mattered. Our apparel business is perhaps the best example of that where we've seen green shoots of acceleration quarter-by-quarter. And not totally visible when you look at the aggregate comp. Our discretionary comps were the best in the fourth quarter. They were better than in the first quarter. So we've seen that discretionary comp acceleration through, through the year. That's what we plan to build on in 2024.

Brian Cornell: I'd only add that even in 2023, as we took a more conservative approach in discretionary categories, Christina, Rick, and Jill's teams certainly leaned into key seasonal moments to make sure that we had the right newness, the right affordability. As guests continue to celebrate those key seasonal moments. We'll do more of that in 2024 as we continue to make sure we adjust our flexibility to meet the needs of guests as they continue to change their shopping patterns. I'll go over on this side. Michael?

UnidentifiedAnalyst: Thank you. I have two questions. One, seems like if we were to characterize the strategy today, it would be remodeled the stores, introduced new products, leverage some of the relationships that you have with your customers through a reintroduced circle program. You have a lot of experience with those strategies. Is it right for us to think that each one of those could contribute a 100 basis points to your comp and that's how you build to getting low to mid-single digit comp over the long term? And then a more near-term question, you're guiding to 3% to 5% comp decline for the first quarter flat to up 2%. How do you go from point A to point B? And how have you factored in some of the uncertainties like changes in credit card fees and the overall uncertain environment given that this election year, in the year ahead? Thank you very much.

Brian Cornell: I'm happy to start, Michael, and we're not gonna provide you the waterfall today that breaks all those components apart, but everything you've talked about is baked into our plans. We certainly expect new stores to be a major contributor as we go forward. Michael talked about over a decade, we expect those 300 new stores to generate about $15 billion of incremental revenue. We'll continue to invest in remodels, and we've got a long track record of seeing those remodels deliver really good returns. We'll continue to lean into our own brands, our national brands and those great brand partnerships to make sure we're providing our guests with the newness and inspiration they're looking for. We're very excited, as you heard from Cara, about the new Target Circle program. The benefits of that base program, Circle Card and the excitement around Target 360 and how it will extend our same day offering to guests, bring it right to their home within an hour. So, each one of those elements plays a key role. We're very excited about the enhancements we've made from an overall digital standpoint to provide more ease and inspiration and discovery for our guests. And both Michael and Cara talked about the upward potential we see in Roundel. So, they'll all play a key role as we go forward. But I think it fundamentally starts with us understanding consumer trends, how consumers are shopping today and will shop differently going forward, and continue to meet their needs no matter how they wanna shop with Target, either in a physical store, in a digital environment, whether it starts with social or they're just walking into a great neighborhood Target store. So each element is going to contribute to our roadmap for growth. And underneath all of that is that continued focus on retail fundamentals, the blocking and tackling that make sure we provide our guests a great physical and digital experience, making sure we're always in stock, that we leverage our proximity, that we provide great affordability and we're there to provide a great guest experience no matter how you shop with our brand.

Michael Fiddelke: Yeah. And maybe just add on that by kind of reinforcing a point Brian made. I love the fact you can't decompose our strategy into discrete things. It's how they work together. Our guests engaging with Circle that finds you know, discretionary category discovery within that experience. And so it's never one plus one equals two. We're hoping, you know, one plus one plus one equals 10. And it's how all of it comes together. You asked a question specifically on the cadence as we move through the year. I touched on it a little bit in my remarks. We anniversaried some of the strongest business last year in Q1, and so we would expect to see a build as we move through 2024.

Scot Ciccarelli: Scot Ciccarelli with Truist. Can you guys provide any more color on your most recent shrink results? And can you help us understand what happens with the sales velocity of products when you put them behind, lock and key?

Brian Cornell: Yeah. Micheal I'm happy to start, because I know it's a topic on everyone's mind. And when I think about shortage, when I think about shrink, I'll start with the word progress. I think we're seeing really solid progress and greater awareness at the national, state, and local level. And certainly, our teams have been working to ensure we provide a great guest experience and provide an experience that's safe for our team and safe for our guests. And Michael, I think our teams have made significant progress, but a lot more to come.

Michael Fiddelke: Yeah. I mean, I can't say enough about the hard work of the teams that have led to that, tone of progress that Brian hit on. And the way that rolls into our guidance is we're expecting shrink to be flat year over year. We will learn a lot in the first quarter. We inventory a lot of stores in Q1, and so we'll be smarter a quarter from now. But that progress has us expecting for a lagging metric flat, and we'll see what we learn as we go through the year.

Mike Baker: Mike Baker from D. A. Davidson. I wanted to talk about your efficiency efforts in the $500 million that you achieved this year. How do we think about that over the next few years? Is that linear? Does it sort of get -- sort of roll downhill and get better? What is assumed in your 2024 outlook? Thanks.

Michael Fiddelke: Yes. Well, I'm happy to start. The team's work against a tough top line to deliver that efficiency progress this year, it's a great start and I can view that as a down payment toward that $2 billion to $3 billion that we expect to get over time. And the things a little closer in that were highlights of that year, I'd call out the continued benefits of something like our sortation centers. When we have a sortation center in a market, we're faster and we're cheaper than other forms of delivery. I also and we touched on a little bit in the conversation already, but it warrants another shout out. The benefit of exceptionally well managed inventory just shows up everywhere. We're so much more productive in store and in our DCs when inventory is well managed. And so feel really good about the team's work there in 2023, feel great about our inventory position as we step into 2024. I would expect our teams to continue taking the growth we've seen and the growth we expect and to translate that more into more efficiencies over time.

Brian Cornell: Michael, I'd only add that taking a very measured approach to setting priorities year-by-year. We see opportunities in stores, in supply chain, opportunities to better leverage technology to continue to build on that efficiency roadmap. So, year after year, we'll reset priorities to make sure we're laser focused on delivering those results and they'll build over time.

Danny Brett Hower: Hi. Congratulations on the presentation. Danny Brett Hower with HSBC. Question to Cara on the new Target Circle program. I mean, is $49 obviously like an introductory price? How long are you willing to sustain at that price level? Because, I think it's hard to make the math with the same day, one hour delivery at $49. And how do you plan to compete with the other programs, loyalty programs out there? What would be some of the key differentiators other than this entry $49 price point. Thank you.

Brian Cornell: Cara, I'll let you take it away.

Cara Sylvester: Take it away. We're really excited to talk about it and I think it's really important that we really anchor on the entire Target Circle ecosystem. That was really important to us and the notion of accessibility and for all is really important. That's why we first are reimagining how we're thinking about delivering value. Our guests are really clear. They want value, affordability, and they want ease. And so we're making it even easier for our 100 million members to actually be able to get the deals and rewards that they want with automatic savings applied at checkout. I'll hit on your question around pricing, in just a minute, but I think it's really important to talk about our cardholders as well. Today, the cardholders, that program doesn't work with Target Circle. And so what we're doing is we're actually bringing these two things together so that not only do you get 5% off every trip and extended returns and free shipping, you also get all the benefits of the base Target Circle program, which are those deals that our guests love and those personalized rewards that are based specifically on your shopping behavior. The other thing that we're adding for our cardholders is an evergreen price of $49 for Target Circle 360. So, if you are a cardholder for us, always on price will be $49 which is an amazing price and it's less than a dollar a week of the magic of Target delivered to your door. For Target Circle 3 60, we're really excited to build on our strength and same day delivery since our acquisition of Shipt in 2017. You will get the magic of Target delivered to your door in less than an hour. You'll also have access to the Shipt marketplace of benefits. You will also have access to all of those deals and rewards and personalized perks as part of the base circle program. It's just the beginning for us. That $49 is an introductory promotional price for Target Circle 360.

Brian Cornell: I just want to take this moment, and I hope many of our leaders back home are listening. And just thank the Circle team, the teams that have been working on this program for months and months, our tech teams have been supporting them and the entire effort that organization has put behind bringing this forward today. As you can tell, we are really excited about the future of Target Circle and think it's going to be a major growth driver and deepen guest relevance and bring new consumers into the Target franchise.

Greg Melich: It's Greg Melich with Evercore ISI. I had two questions. One is, Michael, could you just, you said Roundel will be up again, I think it was 20% last year. For guidance this year, are you thinking that offsets any pressure on credit and just tell us how credit is going? And then my other question goes back to traffic. Great to hear all the initiatives in the Target Circle. In the guidance, what are we thinking about with AUR and average ticket, given that it is a value focused consumer, we heard all the products that are under $10 and all this. So in that 0 to 2 comp, how much would traffic be up. Three while AUR is down, something like that?

Michael Fiddelke: So, if I start with the questions on the credit side of things, we've seen I think we've characterized it throughout the year, kind of an expected return to normal in a lot of those underlying credit metrics. And so, you've seen a little bit of softness year-over-year there that in 2023 was offset nicely and then some by the incredible growth we've seen in the Roundel business. And as a reminder, I think I said this twice in remarks, Roundel is both a little other revenue and a lot of gross margin. And so, it benefits two places to get to that $1.5 billion of value in total. But we've seen outsized growth there and we would expect that to continue this year. We're really confident about our prospects to continue growing our Roundel business to the benefit of the guests that get strong engagement with all of those offers. Another example of how the strategy fits together, the more engagement we have with Circle, the better we know our guests. The better we know our guests, the better we can serve them through Roundel. And so, we're excited about what growth looks like there. Your second question, Greg, refresh my memory. Yes, we won't break out ticket versus traffic. But the theme I'll talk about that we've seen this year is a moderation of inflation, I think, but disinflation is the word of the quarter in retail. That's a good thing for the consumer. You've heard us talk about that being one of the inputs to some share of wallet recovery on the discretionary side of things. And so, we're pleased to see that ticket pressure because we think it's a good thing for the U.S. consumer.

Edward Yruma: Edward Yruma, Piper Sandler. You've spent much of the last decade kind of opening atypical stores, small boxes, urban locations. And it sounds like you're pivoting back to kind of traditional large boxes in in ostensibly suburban areas. We'd love to understand kind of what that what that small box portfolio looks like. Have you been pleased with the returns given some of the changes in the urban dynamic? And then as you look to these larger stores, how should we think about the role of food in some of these bigger boxes? Thanks.

Brian Cornell: Ed, it's a great question. I'm happy to start. And actually, over the last couple of years, you've seen us move from a focus on small stores and we can talk about the performance there to more larger size stores as we see new opportunities and catchments where we haven't competed in the past. And we've been very pleased with performance of these new full-size stores, as well as the continued performance in urban centers and on college campuses. So, as we look at our pipeline going forward, we recognize there's opportunities for more full-size stores, extend our proximity, bring the best of Target into some new trading areas, and as part of that, you will see us continue to expand our food and beverage offering. Rick talked about the progress we've seen in food and beverage, in adding over $8 billion in the last couple of years, and the strength of a brand like Good & Gather. And for many of you who are tracking the consumer-packaged goods industry, there aren't a lot of $4 billion brands out there. And we launched that brand just prior to the pandemic, and we just continue to see the steady growth and how our guests react to the quality and value we bring with Good & Gather. So, we're excited about the pipeline, it will be more larger size stores, there will be a broader food offering, and we're gonna be moving into trade areas where we can pick up incremental volume and market share because we, in many cases, just haven't competed in these trade areas in the past.

Edward Yruma: Michael, you want to talk about some of the returns we're seeing with some of our smaller stores?

Michael Fiddelke: Yes, we feel really good about the returns of those small stores and it's great to have that flexibility in kind of our toolbox of what's the right thing to build for the opportunity in a specific market. And to be clear, going forward, if the right opportunity can be fit with a 25,000 square foot box that brings us closer to a college campus or an urban center, we know how to do that. We like the returns and we'll lean in there. But as we step back and look at what that pipeline looks like in total, it's actually the big box stores where we're able to bring the best of Target that are bubbling to the top in terms of where we expect returns to be strongest. And so, we'll lean in to that shift over time. And if our properties team was here on the stage with us, they could roll out a map of the U.S. and show a bunch of main and main locations where we'd love to bring Targets to new communities and we feel good about what that pipeline looks like.

Brian Cornell: And I'd add three more points as we think about small formats, and we're here in Manhattan. Ten years ago, we really didn't have a brand presence in Manhattan. Today, we have over a dozen locations and we're in many of the different neighborhoods across the city. We've now been connecting with a consumer that we couldn't reach in the past, and we're gonna build a long-term relationship there. We're on many college campuses across the country. We know the value of building a connection with college students while they're on campus and the lifelong benefits that's gonna provide for our brand. As they move into their first apartment or have their first child and start their families. And one of the other things, and I'll let Christina build on it, is the work we've done with smaller formats has allowed us to understand a lot more about segmentation and getting the assortment right geography by geography. So, as we move into new markets, we're gonna get much better at segmentation, having the right assortment that reflects the demand in those local markets. So, there have been three really important benefits of our small format journey. We're touching new cities where we didn't have a presence in the past. We'll build a lifelong connection with college students, and we've learned a lot more about segmenting our assortment.

Christina Hennington: Yeah. The only thing I'd add, even the lifelong relationship with college students, you heard Jill be very intentional. We actually seek to make sure that we are really relevant at certain, life stages, especially early on in, our consumers' lives. Think about the strength that we have in a business, like baby, then we migrate them to toys, then we migrate them into video games and or into, juniors. And then having them presence, we do very well at back to school and back to college time frames. It's very intentional in making sure that our brand stays in touch with families through every life stage. College is the natural next step in that phase and then, of course, back to childbirth. So, afterwards. And so that's been very intentional. But then to build back on segmentation opportunities, yeah, we've learned a lot. I mean, these boxes are small. They're difficult to operate. We certainly have to cut the SKU count intensively and we have to study the microenvironment of competitors. And so, this ability to formulate the right assortment strategy for that community has taught us a lot about the potential to expand that further into our larger size boxes. And we see tons of upside and potential in more sophisticated segmentation and allocation strategies that allow us to optimize the local potential.

Brian Cornell: Cara, one of the things you and I have talked a lot a lot is as we open up new stores, there's certainly a physical store component. We drive a lot of new revenue, but there's also benefits from a digital standpoint. As we introduce the brand to new communities. You want to expand on some of the things we've learned?

Cara Sylvester: Absolutely. We talk a lot about digital influence sales. We know how consumers are shopping today and, so many of us, right, are starting even if you love shopping and only purchase in stores, you're using our app to check out what's new, to see if something is in stock, etc. So, we understand the power of digitally influenced store sales. What we also see though is the power of store influenced digital sales because we know some guests are browsing in stores and actually are pulling up their app right while they're in the store and having, impact digitally. We certainly also see as we enter new markets the power of our same day services. That has been a shining star for us across the entire digital portfolio. I talked in my remarks about why that is in terms of the relationship that we have and once, guests try our same day services, they love it. It is sticky in their lives. We are literally making their lives better, so we'll continue to build on that. But that's another great example.

Michael Fiddelke: Alright. We've got time for a couple more questions. Let's go up here.

Robert Drbul: Hi. It's Robert Drbul, Guggenheim Securities. I just wondered if we could spend a few minutes on gross margin, maybe Q4 buckets and the performance detail around that, your assumptions in 2024 for the full year? And then curious if you could share the financial implications especially around gross margin on target 360, your assumptions for the rollout for this year?

Brian Cornell: Well, Michael, this is a surprise. We've made it all the way to the last few minutes of our conference today and this is the first time we've had a question about gross margin.

Michael Fiddelke: Excited to get the question as always. Well, I can start by unpacking a little bit what we saw in Q4 and there's some consistent themes to what we saw in the broader part of the year because the theme of gross margin recovery this year and I think Q4 and the year, we were just shy of three percentage points of improvement in gross margin, better inventory management. We saved a lot of markdowns and costs that were associated with some of the inventory challenges that we had a couple of years ago. So, on a year over year basis, that's a big source of improvement. Within there too, freight and transportation is in a much better place today from a cost perspective. Not all the way back to 2019 levels, but on a year-over-year basis, another significant source of improvement. In addition, we also see benefit from digital and supply chain, I mean to the tune of I think 50 basis points in the right direction for the quarter the year. And that's a combination of being more productive as inventory levels have been better managed and a little bit of tailwind from fewer brown boxes shipped with our brown box business being down on a year over year basis. As we look ahead to next year, all of our best assumptions are wrapped into the EPS guidance we've given and a little bit of deleveraging given a cautious view on the top line with some continued improvement in gross margin, we think is going to be the right recipe going forward. When it comes to Target Circle, instead of speaking to any specific assumption within that business case, I think of Target Circle as about growth. When we meet our guests with the right value proposition in a free loyalty program and the right value proposition in Target delivered to your doorstep through Target 360. And if you're looking for 5% more every day, we've got a Target Circle card for you. All of that's about stronger relevancy and growth. And so, the line of the P&L I'm most excited about from a Target Circle standpoint is growth. And time and time again, if we think about the P&L through the lens of the guest, we get to the right decisions. It costs us a little bit more to serve a drive-up order than it does an in-store trip. When guests start using drive up, we've described it before, it continues to be true, they spend 20% to 30% more on Target thereafter. And so we're making decisions of what we think drives the most value and growth in total.

Ivan Feinseth: Ivan Feinseth, Tigress Financial Partners. Thank you for taking my question, and congratulations on the great results out this morning. I have three questions. First, Cara, in, thinking about, like, store layout and remodel. Like, for example, in my local Target, you know, food is on, like, the left side, but yet cookware is all the way on the other side of the store. And sometimes, you know, when I'm purchasing food, I find the need I may need some cookware to do the dish I'm looking to cook as an example. And, second is information that you get from using Shipt where a Shipt customer will go outside to other retailers. How much do you take on that information to decide what you're gonna carry in the stores? And then if they're using, let's say, buying premium brand, how high of a premium product point do you see yourself going? Because there are some of your competitors that are using value priced food to bring in customers, but those customers are buying premium priced products. And then third, on the partnership, what other areas do you see and how far of a premium level would you go in adding partnerships within your store?

Cara Sylvester: There's a lot there.

Brian Cornell: Cara, why don't you start with partnerships? And Christina, why don't you talk about some of the learning that we have around how we build assortments?

Cara Sylvester: Absolutely. And so, as I think about, the introduction of Target Circle to 360, we are absolutely, looking at a wide range of what partnerships could look like to add benefits. Importantly though, we are always gonna be listening to our guests. That is how we actually struck up our conversation and partnership with Ulta Beauty as well as what we offer in our base program today with Apple. And so, we'll be guest led, not Target led as we think about the types of partnerships that will add value to our guest lives. I do want to hit on specifically your question around Shipt. We do not leverage any data, of Shipt on their marketplace, internally at Target as we think about our assortment.

Christina Hennington: More specifically on how we build assortment and premium prices to answer some of your questions, our goal is to make sure that we are meeting our guests' needs across a wide range of, shopping occasions. And so we look at -- you heard us describe this especially when we talk about own brands. Right? We look for unmet needs space and white spaces to innovate against. Over the last year, we've spent a lot of time making sure that we have our value equation shored up. And the introduction of Dealworthy is a big deal for us. It is an opening price point brand across the entirety of the portfolio outside of food and beverage where we already have market pantry to just make sure we really have value options for all consumers so that they can meet their budgets. On the flip side, we do really well with Ulta Beauty, which is premium beauty. And it it's based on the insight that we have known for years in beauty. Almost all beauty shoppers shop both. They shop mass and they start shop premium. And for us to be able to service the guests and service all the trips in that category, we needed a solution for both, which allowed us to build this partnership with Ulta, which we're really, really happy about. And we do that across the portfolio to say where's the opportunity for Target to serve a unique need and where are the unmet needs in the category? And our guest has given us a lot of freedom to say, you know, “I'll spend $600 on this item and by the way, I don't wanna spend more than $2 on my body wash” and that's fine.

Brian Cornell: Whatever works for them. I just finish up that discussion by saying, I think we've learned time and time again. We make really good decisions when we listen to the guests and listen to the broader consumer trends. Some of the things we rolled out recently, Starbucks for our drive-up guests. We didn't come up with that. It was the guest saying, “boy, if Target could only provide me with my favorite Starbucks product, I'd enjoy this drive experience even more.” “If you could take my returns, I would really be pleased.” So, we respond to what the guest and the consumer tells us, and that's gonna guide us for years to come. We've got time for one final question. So I guess we're going right over here.

Christopher Horvers: Thanks. Christopher Horvers with J.P. Morgan. Nice to see you. Thank you for the presentation. So I have two questions. The first question is you think about the performance in the fourth quarter, how do you think about share? Do you think it's more give back from the COVID bump? Do you think it's the consumers just so focused on food and value and you're just not getting the trip, so it's not resonating to the power of the Target box? And how you think about recapturing that share going forward? And then my second question is for Michael. As you look at like just the seasonality of your business, it seemed to imply you're implying a step down in operating margin in the first quarter relative to the fourth quarter. So was there anything unique either in the fourth quarter or the first quarter that making that the case? Thank you.

Brian Cornell: Michael, why don't you start with the second half and I'll wrap up with Chris' first question.

Michael Fiddelke: Yes. So as we look at the first quarter, I think the key thing there is our cautious approach on the top line. And there's some differences year-over-year in what we anniversary, but that's a source of pressure in the first quarter. And as we get back to growth deeper in the year, we'll see some of that pressure subside. So that's the headline on that one, Chris.

Brian Cornell: And Chris, from a market share standpoint, I can assure everyone here, we look at market share in a very granular way every single week across our entire portfolio. And we're going to be very focused on taking market share as we go forward. I'll step back and not just look at the last year, but the last several years. And if I go all the way back to the pre-pandemic, we've added billions and billions of dollars of revenue growth. I think, Michael, over $30 billion. And we've deepened our relationship with guests along the way. We've added more capabilities and features. We've deepened partnerships, and those are going to guide us to be even a more relevant retailer and partner for consumers and guests for years to come. So we are very focused right now over not just the next year, but the next 10 years to continue to drive even more traffic to our stores and visit store site, to make sure we are a company that's driving top line growth because we know that's the best way to reward our shareholders and we are absolutely going to be razor focused on taking market share as we go forward. And sitting here today, we know there's significant opportunities across virtually every aspect of our portfolio, whether it's the work that Jill's leading in apparel and home or the work Rick's doing from a food and beverage standpoint and a beauty and essential standpoint, whether it's physical stores or digital, we see a pathway for continued market share growth, and we'll look at that every single week and talk about it every quarter because we know that's critically important to our roadmap for growth.

A - Brian Cornell: So, I appreciate everyone who joined us in person today. Those of you who have joined us, through the video and the conference. Thanks so much. We look forward to seeing you and hearing from you during our first quarter earnings report. So, thank you so much.

Operator: Thank you for joining us.

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