Target 2016 Annual Report

2016 Annual Report

Explore the key stories of the past year and find out what’s in store for the year ahead.

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2016 marked a significant year of transition at Target. Two years ago, we laid out an ambitious, multi-year strategy to put our company back on the path to long term profitable growth and create lasting shareholder value.

We said this work would be a journey. And we knew it would take time to reimagine our operating model, reposition our asset base and build a new company that is prepared to compete and win in this new era of retail.

I am pleased to report that in 2016, we made significant progress on our goals:

  • • Signature categories, including Style and Kids, gained market share, growing approximately three percentage points faster than our total comparable sales.

  • • Our digital channel sales have consistently outpaced the industry averages, with annual growth of nearly 30 percent over the last two years.

  • • Our small formats, which bring our brand to new guests in urban neighborhoods and college campuses, are producing outstanding results, generating much stronger sales productivity, healthy profit margins and return on investment.

  • • We introduced two new blockbuster brands for kids—Cat & Jack and Pillowfort—that have consistently generated double digit comp sales increases since they launched.

  • • Our supply chain investments are beginning to bear fruit, driving efficiency for Target and elevating the shopping experience for our guests by offering greater choice, speed, ease and convenience.

  • • And we’ve done all this while taking more than $2 billion in expense and cost of goods out of our business during the past two years.

Taken together, these efforts have produced strong bottom-line results. Our 2016 GAAP earnings per share (EPS) from continuing operations reached $4.58, and our Adjusted EPS reached $5.01, representing a nine percent average annual growth rate in Adjusted EPS since we embarked on this strategy two years ago. And during that same period, we returned nearly $10 billion to our shareholders through dividends and share repurchase.

Yet, despite this progress, we haven’t seen the growth we expected on the top line. Significant changes in consumer behavior are creating real challenges across our industry. Combine this change with an acceleration in the channel shift into digital shopping, and instead of building momentum in our business, we’ve seen a slowdown. Many of our competitors are struggling to compete in this environment, closing stores and exiting business lines.

At Target, we are taking a fundamentally different approach. While others are exiting businesses and cutting investments, we are confidently investing in our future, creating a growth engine that we expect to drive consistent, sustainable, profitable growth, and market-share gains for many years to come.

And we are, by no means, starting from scratch. The progress we made in 2016 was a direct result of a very deliberate strategy to align our teams behind several key priorities. And looking ahead for 2017, those priorities will not change. What will change is our pace.

Beginning in 2017, we are embarking on capital investments of more than $7 billion during the next three years to advance and elevate our digital capabilities, open more than 100 new small format stores in priority markets, reimagine and reposition more than 600 existing stores, accelerate enterprise data and analytics capabilities, unveil more than a dozen new exclusive brands and continue to transform our supply chain into a smart network that leverages our inherent structural advantages in terms of proximity and scale. To support these changes and give our teams greater flexibility, we’re planning to invest about $1 billion of our operating profits this year, which will enable us to grow faster over time.

Given the headwinds facing our industry and the scale and depth of our investments, it will take time to realize share gains. We could make different choices – shut down stores, reduce payroll or service levels – in an effort to prop up our P&L in the short term, but that would be the wrong approach for Target.

We are playing the long game. Investing to grow and investing to win. We have a strong balance sheet. A talented team. And we are asking shareholders to make a meaningful investment in our future, so we can build a new company that will produce greater value for our guests and our shareholders for many years to come.

Brian Cornell's signature

Brian Cornell
Chairman and CEO

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