Target Corp (TGT) — Q4 2025 Earnings Call Transcript

Welcome, everyone. We're thrilled to be hosting our financial community meeting from our hometown of Minneapolis this year, and we're going to dive right in because we've got a lot to cover. It's a new chapter at Target. And today, Cara, Jim, and I will share our plans for what's next, starting with a clear definition of Target's place in retail, followed by the four priorities that will guide our path forward and the choices that underlie each. And finally, how those choices translate to growth. Our plans build on what's always been true about Target when we're at our best. But let me be clear, that doesn't mean dwelling on the past. Instead, we're moving forward with urgency and a firm focus on Target's unique place in American retail. That means delivering the style, design, experience, and value consumers crave and delivering the consistent performance we all expect. And we've already started. We've updated our organizational structure and leadership team in service of simplicity and speed. We've added new directors to our Board who bring deep expertise in style and design and who have experience with the type of transformational change we're driving. And as we shared in this morning's press release, sales trends have improved in recent months, showing early signs we're on the right path. All of this stems from important work we've done to clearly define the lane we occupy in retail, which I'll come back to in just a minute, and the choices that position us to grow and win. These choices translate to very intentional investments, investments in categories and capabilities where we know we have an edge and that matter most to our guests and our business. So if you take away one thing from today, it's this. Target's new chapter is all about fueling growth, and we'll do so by playing our own game and making big changes to delight our guests. Now these types of changes don't happen overnight. We have work to do, and there are no shortcuts, but we're excited to do the work. And it's already underway. Many changes guests will see and feel right away. In fact, if I were to step back and draw a heat map of the entire store, highlighting where we're making changes this year, you'd see more change to what we sell and how we sell it than you've seen in a decade. I won't steal Cara's thunder, but know that we're playing to our strengths from categories where we're consistently leading, like beauty to others like home where we know we can win and which we're reimagining to achieve greater relevance and differentiation. That means pairing products with experience in a way that only Target can. And all of it is rooted in our learnings of what's worked, what hasn't, and what will drive this new chapter of growth. So let's talk about what will be different moving forward. It starts with clarity about the retailer we are and the experience we create for our guests. It's about doing the work to build connection with new guests, deepen relationships with existing guests, and earn back trust with guests we've disappointed. That work starts with listening actively and attentively across all of our stakeholders and using their input to shape our path forward. We've been gathering feedback from consumers, from those who love us to those who don't in order to gain a deeper understanding of the role Target plays in their lives. We've been meeting with founders of small businesses who have grown their brands with Target and want other entrepreneurs to follow in their footsteps. We've also been meeting with national brands and design partners to reinforce our commitment to style, design, and value. We've been talking to our team about what they need in order to serve our guests well. And as a result, we're moving quickly to simplify work, speed up decisions, and empower our merchants and store teams. And we've been talking to all of you here today to understand what's top of mind for investors as we get Target back to growth. That collective input has crystallized what we do well, where we have work to do, and most importantly, the lane we're uniquely suited to own and win in retail. That lane begins with our purpose of helping all families discover the joy of everyday life and we'll bring that purpose to life by being the most delightful experience in retail. Now those aren't just words. Delight is a critical filter for decisions and informs our actions going forward. It encompasses what we consider foundational to a great shopping experience, convenience, speed, price, yet consumers consistently say they want and expect more, especially from Target. So delight is our standard. That means getting the basics right, sharp pricing, strong in-stocks, wicked fast same-day delivery. Yet our bar is higher. We want to spark an emotional connection. So shopping isn't a chore, it's a joy. And that spans everything we do from the products we sell to the experiences we create, from the design of our shopping carts to the way we greet our guests, from making our marketing campaigns to our community partnerships, all of it ladders up to a brand that's designed to inspire, invite, and delight. So clearing this bar requires making choices about how we will show up as a retailer because for Target, differentiation is how we win, and Target is built to be different. We're doubling down on our design ethos across our products and experience. We're leaning into curation with an acute focus on blending style with value. And we're creating an experience that feels elevated, seamless, and importantly, human. And we're getting crisper on the guests who power our growth. These guests are united by mindset. They value style and design, seek ease and simplicity, and they don't want to settle for anything that feels ordinary or joyless. They move fast. They're digitally fluent, and they gravitate toward brands that mix practicality with fun and personal expression. We refer to this group as busy families, and it's one where we see outsized strength in sales and loyalty. So we're leaning in here, knowing that when we serve busy families well, we create durable long-term value that has a positive ripple effect for all Target guests. That's the foundation, a clear purpose and ambition rooted in joy and delight, clear choices that differentiate us and play to our strengths and a deeper understanding of what busy families need and expect from us, which brings me to the four priorities that underpin our growth strategy. Four priorities we're advancing in parallel because of how they work together to drive growth: leading with merchandising authority, elevating the guest experience, accelerating technology, and strengthening team and communities. I'll spend most of my time today on the first two because that's where guests will feel change the most. Then I'll touch on how technology, team, and community power it all. So let's start with merchandising authority. Earlier this year, I spent some time with the team who manages our corporate archives. This collection is pretty unreal, spanning artifacts from our early department store roots to products from every design partnership we've ever had. Now I share this not as a point of nostalgia, but as a reminder of who Target is at our best when we're setting the bar on style, when we democratize great design, when we're pacesetters of what's cool and what's buying. That's what merchandising authority means, and it's what we aspire to deliver across categories and brands. At its core, merchandising authority is about curation and playing to our strengths. Target is not an everything store. That's not what guests want from us. They want a strong trend-forward assortment that they can trust to deliver quality and value. And that's exactly what we do at Target when we're at our best. So we're making choices. In assortment, we're doubling down where we are strongest and where guests tell us our right to win and grow is highest. An early template for this approach is Fun101. This is a multiyear transformation from Hardlines, which many retailers sell, to a more immersive trend-forward approach to sports, play, gadgets, and pop culture. This is an area where Target has a right to win, and our guest base loves to shop. Whether it's bringing style and sport together with a fan central destination or an affordable plush wall, so families can get fun toys at a great price, you're going to see us infuse our assortment with newness, value, and a fresh experience to match. And it's not just Fun101. We're taking this approach to categories like baby, home, food and beverage, and beauty, repositioning our assortment and our floor plans to bring newness to all 2,000 stores this year. In other words, we're giving guests more reasons to shop us more often. And as we always do, we're using their feedback to iterate, refine, and keep getting stronger over time. This will be a journey, and it starts with a lot of change in 2026, but it doesn't stop there. In fact, the team is already actively planning for 2027 and beyond. Now to priority two, elevating the guest experience. Delighting our guests always starts with product. But a huge part of what drives guest love for our brand is the experience we create around those products. And for many guests, their experience starts with discovery on social and in search. This is where our scale allows us to lean in and invest at the top of the purchasing funnel so that we reach consumers in all the ways they're shopping today, whether it's connecting with consumers on social by partnering with creators who share our commitment to style, design, and value or our investments in AI to make search more conversational, almost like having a personal shopper, or the way our media business, Roundel, seamlessly integrates into the shopping experience, so guests find products that feel just right for them. That's discovery at its best, and it's a critical entry point for building trust, which in turn builds loyalty. And loyalty is an important growth engine for us. The reach of our loyalty program, Target Circle, gives us critical information about how consumers shop, enabling us to deliver an experience that feels more relevant and tailored. And when guests feel like their experience is personal, they shop with us more. Members of our loyalty program, Target Circle, spend three times more on average. And those enrolled in Target Circle 360 with unlimited same-day delivery spend seven times more. These guests account for more trips, too. As with many of the updates I've shared today, work is already underway on what's next, and Cara will share more shortly. Digital discovery and loyalty are essential to an elevated guest experience. And especially for Target, I want to emphasize that our stores are every bit as essential. In many ways, they are truly the heartbeat of our experience. Guests tell us they love the feeling of walking into a Target that's clean, welcoming, and easy to shop. In fact, one of the greatest compliments we've ever received is when guests refer to their local store as 'my Target.' That possessive speaks volumes about the role our stores play in building lasting relationships with guests. I challenge you to think of any other retailer or company for that matter that sparks the same sense of ownership and care. Now you heard me talk earlier about delight as our standard. We need our experience to delight guests every time. And to be crystal clear, there's real work for us to do here. That's why we're strengthening reliability and service end-to-end as well as making meaningful investments in payroll and training that our teams need to consistently deliver for our guests. And while we're not yet at the bar I have for us, we're seeing progress. Our relentless cross-company efforts on reliability have produced ongoing year-over-year gains in on-shelf availability, and you'll see us continue to focus on improvements here. We're leveraging technology to support our company's digital growth and enhance the in-store experience. That balance has been skewed in recent years by explosive digital growth. But today, we're using technology to keep momentum building in our digital business and simplify work for our store teams so they can spend more time serving our guests. And we're making a more than $2 billion incremental investment across the business this year, including an additional $1 billion in CapEx to support new stores and remodels and another $1 billion to elevate the guest experience. Jim will provide more detail in a few minutes, but all of this is designed to elevate how guests experience Target every time they shop with us. The next two priorities, accelerating technology and strengthening team and communities are just as critical and they work hand-in-hand powering the first two. In fact, we've touched quite a bit on technology already today. It's woven into everything that we do. And that's because at Target, we don't chase technology for technology's sake. We believe in technology with a purpose. In our case, making shopping more joyful, and it should directly benefit our team and our guests. So whether it's making it easier for guests to find the perfect product when they browse our aisles or putting technology into the hands of our team so they can better serve our guests, our tech investments are all in service of our ambition to be the most delightful experience in retail. The same can be said for why we prioritize strengthening team and communities. This has always been core to who we are, and it will continue to be at the center of this new chapter for Target. For all the team members tuning in today, thank you. Everything I've outlined today, the resilience, the progress, the boldness is because of you, team Target. And our ambition to be the most delightful experience in retail begins and ends with you. I'm so proud to lead this team and excited about what we are building together. And what we are building extends far beyond the walls of our stores, our supply chain facilities, and our offices. Target believes in the power of community and turns that belief into tangible action, like for 1 million hours our team volunteered last year, which is the tenth time in our history we've hit that milestone. That includes our Bullseye Builds with Community Program, which pairs our commitment to volunteerism with our design expertise to meet the needs of local neighborhoods. We recently announced a planned investment of $1 million to bring this program to 13 community spaces this year. Action also includes the 5% of profits we give back to communities in products, cash, and through the Target Foundation. This is something we've done for 80 years and today translates to millions of dollars each week. These investments make our communities stronger and more vibrant. We'll also continue to invest in our team so that every team member can grow a meaningful career with us. This includes pay, benefits, and signature programs like Dream to Be, which provides tuition-free education assistance for our team. More than 12,000 team members have earned degrees and professional certificates through Dream to Be to date, a testament to the growth and opportunity that we value so much at Target because when our team thrives, so do our guests. And when our communities thrive, so does Target. So let's step back and turn to the bottom line and what all this means to Target's future. A thriving growing Target is the only goal and will be the focus of this team every single day. A growing Target is a great place for our team and our partners and is the only path to creating value for our shareholders. The questions I know are top of mind for many of you. One, what's Target's winning path? And two, what will it cost? The answer to number one is when we play our own game, we're confident the plans we've laid out today position Target for sustainable growth. Our path to growth and share gains is unique to Target and is fully within our power to drive. And that confidence is justified because the early wins we're seeing directly align to where we've committed to do more. And the answer to the second question, it does require investment. We have work to do, and Jim will get into the details shortly, but a clear strategy leads to sharper focus. And when you couple that sharp focus with the work the team is doing to find efficiency, we're able to make real investment against the work. You'll see us make the changes in investments in the areas that matter most to guests and ultimately win trips, build baskets, and drive growth. And that's the bottom line. Target's new chapter of growth begins this year because we're clear on Target's place in retail, we have four priorities that will guide our path forward, and we're making strategic choices and investments across the business to drive performance. I'll now turn it over to Cara and then to Jim to talk more about those choices and how they translate into long-term profitable growth.

Hello, everyone. Thanks, Michael. So I've spent my career at Target at the intersection of merchandising, experience, and growth. First as a merchant for about a decade across our frequency and discretionary businesses. Then over the past 5 years, leading our digital marketing and loyalty ecosystem as our Chief Guest Experience and now as Chief Merchant. And that connection matters because merchandising, it isn't separate from the guest experience. It's where the experience begins. It's the choices that we make. It's how we show up in our stores and online, and it's how we earn repeat visits. And I will be direct. Our performance over the last few years has not met expectations, and that is on us. We lost the clarity and the discipline that make Target a place loved by busy families. So the enterprise priorities that Michael shared, they represent clear choices about what we're doing to make Target the most delightful experience in retail. And my focus is to operationalize these priorities in clear and measurable ways. That means sharper assortment decisions, leading with style and design authority and exceptional value, simplifying where we need to simplify, and curating with greater clarity. It means delivering true differentiation, elevating innovation and emerging brands, strengthening own brands, and accelerating newness that keeps Target distinct. And in close partnership with Lisa, Adrienne, and our stores teams, helping support an elevated experience and execution across our stores so that what we sell and how we present it consistently reflect the Target brand, all reinforced by a digital and loyalty ecosystem that connects discovery to repeat engagement. In short, clearer choices, stronger authority, and better execution. So let's start with merchandising authority. As those of you joining us in Minneapolis saw this morning, this is where our style, our design, and our value proposition become tangible and where we're making deliberate choices to differentiate. We are rebuilding legacy strengths. We're accelerating momentum in areas where we're seeing progress. And we're disproportionately investing where consumers tell us we have a distinct right to win. And in everything that we do, we're going after opportunities to drive a stronger, clearly Target point of view. Over the next few minutes, I'd like to discuss the changes that we're making in merchandising to deliver on that commitment. Specifically, I'll share how we're reclaiming our style authority in home, how we're getting faster with style and culture in our apparel and accessories and Fun101 businesses, the important work this year to accelerate our path as a beauty destination, creating what's next in food with a style-led identity that's distinctly Target, leveraging the power of our multi-category assortment to lean into wellness and evolving our baby business into a category that's fun and inspiring and that builds lifelong relationships with new parents. So let's start with home. This category is foundational to the Target brand. Having led this business before, I understand both its potential and the discipline required to win here. Home is where our design ethos first became tangible, but it's also a space where we've lost our way. You see that in our recent results. And we have a lot of work in front of us. Transforming this category will be a multiyear journey. But we know that reclaiming our authority in home starts with clarity and conviction in pursuit of a simple ambition to offer the most stylish design-forward home products at accessible prices. So we are going category by category to reinvent key areas that have not been touched in years. As an example, by June, we'll have overhauled 75% of our decorative accessories assortment. Think trays, throws, candle holders, greenery, and full florals. And by the fall, we'll have touched more than three-quarters of our top-of-bed assortment and more than 80% of kids home. At the same time, we're also accelerating assortment on our third-party marketplace, Target Plus. This allows us to move with speed and deliver the style and assortment breadth consumers are looking for in categories like furniture, mattresses, and rugs while limiting our inventory liability. We're also streamlining our own brand portfolio and doubling down on our largest and most powerful home-owned brand, Threshold. This summer, we will relaunch Threshold, and we'll introduce dedicated shop-in-shop destinations starting in 200 stores. These elevated spaces are designed to feel like specialty environments, reinforcing quality and strengthening brand equity. We are not adding complexity. We're getting back to what differentiates Target: sharper curation, clearer storytelling, and a compelling presentation in stores. So own brands play a big role in how we deliver style and design. And so does the design collaboration strategy we invented more than 25 years ago. But culture moves faster today, and so are we. So in addition to a few big collaborations a year, we're introducing a new style series in apparel, which gives us a steady drumbeat of culturally relevant, socially driven brand drops. You'll see a consistent cadence of tightly curated launches designed to create urgency to shop, drive traffic, and keep Target at the center of culture. Our guests expect to find what's new and what's next on every trip to Target. This allows us to meet that expectation with greater speed and flexibility. And that commitment to speed extends beyond collaborations. You're also starting to see it in our everyday assortment. Some of you heard this a little earlier, and I'll share it again because it is so important, our fast apparel and accessories model. Cutting the amount of time it takes to get a product from design to our stores and our app from over a year to, in some cases, a matter of weeks gives our teams more flexibility to read the market and respond to emerging trends. You're seeing this right now in women's swim, where Target holds the #1 market share position. We maintain that position by leveraging our speed-to-market process, giving us the insight that we need to deliver the right product at the right time and at an incredible value. You'll start to see us use this model in other areas of our businesses this year. Style made us famous. Now we're pairing it with speed to drive greater relevance. So Target is at our best when we're part of culture, not chasing it, but anticipating it. A year ago, we shared with you our decision to reorganize our Hardlines business into Fun101, celebrating the power of a category that millions count on to create joyful moments for themselves and their loved ones. And based on the early momentum we've built, our Fun101 team is making additional space and assortment investments in fandom categories, the things that our guests tell us they absolutely love, including sports, pop culture, trading cards, and more. Through our new pop gateway destinations, we're creating dedicated in-store platforms to celebrate big cultural moments from seasonal fandom to viral trends. We're moving beyond end caps and temporary displays in the aisles to create a reliable permanent space designed to drive traffic by making Target a discovery destination for cultural moments throughout the year. Since setting these gateways in September, we've more than doubled traffic in fandom categories. We're also going after a significant opportunity in sports, which are a huge part of culture with a completely reimagined fan central. We're expanding shop-in-shops, elevating presentation, and strengthening our license assortment, all in service of creating a premium immersive experience for fans. This is another clear structural decision designed to position Target as the destination for culture and fandom. So beauty has delivered more than a decade of growth for us. And when I led this business from 2017 to 2019, we really started to see the role of beauty shift to something deeply personal for our guests. Today, it is one of our most powerful traffic and margin-driving categories. And we know the four things it takes to delight our guests so that we can win in beauty: the right product, including stronger prestige and emerging brands, an elevated in-store experience that inspires discovery, knowledgeable service that builds confidence, and loyalty that keeps guests engaged and coming back. In 2026, we are leaning into all four. We are expanding our prestige assortment, including new and emerging brands. We're piloting an enhanced service model in select stores right now with team members delivering an intuitive and genuine experience, helping guests discover newness, sharing the latest trends and answering questions about products. We're integrating beauty more directly into our loyalty strategy with category-specific rewards that increase frequency and deepen relationships. And this fall, I'm thrilled to share that we will introduce Target Beauty Studio in 600 stores, a new immersive destination, which will establish Target as a true beauty authority by pairing specialty-level presentation and service with the accessibility our guests expect from us. Target Beauty Studio represents a structural investment in the category, not just a new space, but a coordinated approach to product experience, service, and loyalty. Now food and beverage is one of our most important categories and a powerful trip driver for busy families. We've built this business for how families shop today. It's curated. It's digital-first and fast. We invested early in same-day services, and our digital grocery capabilities are deeply integrated in order pickup, Drive Up, and same-day delivery. Today, Target is the fifth biggest digital grocer in America. And we'll continue to innovate in the digital experience and grow Target Circle 360 to drive further separation in digital grocery. At the same time, we're focused on what's next, strengthening Target's unique identity when it comes to food. We are not trying to be an everything grocer or just another grocer down the street. Instead, we're building a truly distinctive grocery destination where emerging brands, wellness, and owned brands intersect. Put another way, we're bringing even more of our style and design authority to food for families looking for fun trend-forward options, whether it's for lunch box snacks or a Tuesday night dinner. That's why we're delivering newness at twice the industry's rate. Last year, newness drove $2 billion in food sales, and we're on track to double the number of unique items in our assortment over the next three years because 40% of our guests tell us they're looking for something new when they shop food at Target. And when we deliver trend-right newness, consumers respond, as we saw last year in nonalcoholic beverages with significant newness propelling the category to a 6.5% comp. And we're not stopping there. In May, we will become one of the first national retailers with no certified synthetic colors in any of the cereal that we sell, a decisive step that reflects where families are heading and where Target intends to lead. And we will continue to grow Good & Gather, which is on pace to become our first $4 billion owned brand, leaning into innovation and driving awareness for this powerful brand. We're also investing meaningfully in the in-store food experience because shopping for food at Target should feel distinctly Target, delightful, joyful, unlike what you'll find anywhere else. One example is how we're expanding sampling, particularly on weekends to create more opportunities for guests to discover something new, try emerging brands and engage with our assortment in a way that feels energetic and experiential. Food at Target is a large and growing business. We've grown food by $9 billion since 2019, but scale alone is not the strategy. The next chapter is about sharpening our distinctive identity through curated discovery, own brands, wellness leadership, and an in-store experience that makes food feel intentional, not transactional. Over nearly a decade, we've invested in supply chain, store expansion, remodels, and digital integration to build scale and capacity. Now we're accelerating our differentiation because food drives trips, trips build loyalty, and loyalty drives durable growth across our entire assortment. And when we think about driving more trips and deepening relationships, health and wellness is another space that's critically important. Already, 70% of our guests are shopping wellness categories at Target. So this year, we're expanding our assortment with thousands of new items and more exclusives than ever before. And what separates Target is that wellness is a multi-category effort, integrated across food, supplements, beauty, and active because wellness is personal. Our leadership in emerging brands, our style and design-led curation, and our commitment to value makes healthier choices feel achievable. Last year, our wellness businesses combined to deliver a 4.6% comp. And during January resolution season, wellness categories accounted for $2 billion in sales. And as we invest in these businesses, Target is uniquely positioned to serve busy families and to build trust and credibility in a more holistic way in this growing space. Finally, before I move into experience, I want to talk for a moment about the baby category. This is such an important life stage and one of the clearest ways that we build long-term relationships with busy families. When a family welcomes a new child, where they choose to shop matters. And they pick Target, not just for the products that we sell, but for our experience. An environment that's clean, bright, friendly, and safe, a perfect place for baby's first trip out of the house. This is a category that's gone untouched for years, and there is so much potential in front of us. So in 2026, we're elevating our baby experience with deliberate investment. That includes new dedicated in-store destinations anchored by gift beacons and curated discovery zones that simplify decision-making and create a shopping journey that inspires confidence. We're expanding Cloud Island, one of our most trusted owned brands. We're creating a premium boutique-style baby experience, featuring partnerships with brands like UPPAbaby, Bugaboo, Doona, and Stokke, strengthening our authority across a range of price points. And we're testing a new baby concierge service with specialists helping guests as they navigate this life stage. All in, this is about earning trust early and strengthening relationships that extend well beyond the baby aisle and beyond the baby life stage. So our merchandising authority is a huge part of what differentiates Target. Across the examples that I shared, I hope you saw that style and design, they don't live in a single category. They're critical to everything that we do. And that's driving shifts we're making in categories like food and beverage, wellness, and baby, to lead with a distinctive point of view. The way we're leveling up our beauty experience to make Target an even stronger destination in this growing space, and the way we're leaning into style and culture in home, apparel, and Fun101 to make Target shopping at Target irresistible. Now as we turn to our second priority, elevating the guest experience, I want to discuss the moves that we're making in the near term to help bring our assortment changes to life. And I'll start with our stores. Because for millions of people, even in a digitally led world, stores are the single most tangible expression of our brand. And for decades, they have set Target apart. But we've heard clearly from our guests and from many of you that our in-store experience has been inconsistent. Too often, we're cluttered, out of stock, or even transactional. So we're making improvements, first, upstream at headquarters and in our supply chain facilities to remove complexity for our stores. And we are resetting our stores' operating model this spring, organizing around three clear principles. First, we're easy to shop, zoned, organized, in stock, clean, and fast. Second, we're inspiring with disciplined visual presentation and strong category storytelling. And third, we're friendly, grounded in a consistent greet, help, thank framework. This isn't just a philosophy. We're backing up our commitment to stores with investment, as you heard from Michael, because we've seen where we've tested payroll investments, results improve: better guest experience metrics, sales lifts, particularly in apparel and home, gross margin expansion, and growth in store-originated sales. So we're scaling what works because when stores operate at a high level, that lifts everything up. And not only are we elevating our foundational experience, we're also continuing to innovate. In December, we unveiled a new concept store in New York SoHo neighborhood, showcasing the absolute best of Target style and design. Guests love it. And what we're seeing validates the power of merchandising authority, the sharper curation that is inspiring more cross-category shopping. This gives us further confidence in our path forward, leading with the right style and design-led assortment and inspirational experience and the differentiation that Target is known for to fuel discovery and drive growth. So a year ago, I stood on this stage and promised we would modernize Target's digital and loyalty ecosystem, making it more personalized and more intuitive. Since then, our team has transformed the app experience, strengthened our personalization capabilities, and continued scaling Roundel, Target Plus, and Target Circle 360. Together, these capabilities form our digital growth flywheel, and they are driving consistent growth and deeper engagement across our ecosystem. Today, our AI-driven personalization engine powered by Target Circle generates billions of dollars in incremental sales, delivering targeted offers and rewards that increase engagement and lifetime value. Target Circle 360 continues to perform strongly by leveraging our fulfillment capabilities and reinforcing the convenience that busy families rely on. Overall, same-day delivery was up more than 30% last year, and our Target Circle 360 membership doubled. We are pleased with our momentum here, and members continue to shop more frequently, spend meaningfully more, and engage across more categories than nonmembers. This is a strength that's fueling our food and beverage business. And this year, we're building on that strength. Loyalty is a constantly evolving space. We continue to move with our guests. For example, we've seen real traction with personalized games and rewards, allowing guests to earn dollars for their next visit and to encourage frequency to drive deeper engagement. So we're expanding our focus on personalized rewards this spring. We're also offering more member events like Target Circle Deal Days and introducing experiential benefits, including category-specific rewards in beauty and simple moments like Starbucks offers to enhance in-store visits and drive incremental trips. And what we are doing in 2026 will guide even more change in our future as we learn from our guests and work to make our loyalty experience simpler and even more differentiated. The foundation is strong. What we're doing today is all about refining and scaling the flywheel to unlock even greater impact because when product, stores, digital, and loyalty operate as one system, we create durable relationships with busy families. So 2026 is a year of focused change for Target, not change for the sake of change, but disciplined choices about where we will compete and how we will win. We know who we are. We're a style-led, design-led forward retailer that delivers value for busy families. And when we operate with clarity with sharp assortment decisions, higher standards in our stores, a distinctive food proposition, clear authority in style-led categories, and an integrated digital and loyalty experience, that's our distinct lane. So we're making clear choices and deliberate investments to win there and positioning Target for durable long-term growth.

Thanks, Cara. Now before I dive into the details, I want to get to the punchline right upfront. Behind the scenes, we've been working hard to clarify our strategy, and that work is guiding the choices and investments we're making in our business, including planned incremental investments of more than $2 billion back into our business this year. And while it's still early and there's much more change ahead of us, we're already seeing clear signs that our work is paying off. As a result, I'm very confident in our ability to get back to profitable growth this year and deliver strong returns to our shareholders in 2026 and beyond. With that context, I want to spend a few minutes recapping where we've been and how that's been a platform for growth this year. And while last year's financial results were far from what we expect to deliver over time, I'm proud of how the team performed in the face of multiple challenges. After we saw an unexpected top line slowdown in last year's first quarter, we provided updated guidance in our Q1 conference call, and our team delivered against that guidance for the remainder of the year while continuing to invest in our capabilities and preparing our business to deliver improved performance. Last year's gross margin rate was down about 30 basis points from the prior year, which is strong performance given the fact that we face significant pressure from incremental tariff costs. Throughout the year, our team did an outstanding job of managing the business through our rapidly changing tariff environment, working tirelessly to mitigate the net impact. This allowed us to offer outstanding value on our differentiated assortment while also protecting our P&L. And importantly, we're entering 2026 with healthy underlying margin rates and appropriate inventory levels across our assortment. As I mentioned in our Q1 call back in May, last year's financial results included nonrecurring tariff-related costs and inventory actions we took in the face of slower-than-expected sales. These actions put significant pressure on our adjusted earnings per share, which we don't expect to repeat this year. Notably, without these costs, our gross margin rate would have expanded last year. An important tailwind to last year's gross margin rate was lower inventory shrink, which delivered about 90 basis points of benefit and brought our shrink rate all the way back down to pre-pandemic levels. This improvement is a testament to the great work of our team, along with the industry and community efforts to combat retail theft across the country. Our team also demonstrated strong discipline in managing SG&A expenses last year as they found multiple opportunities to enhance productivity and efficiency. As such, even as we continue to invest in wages and benefits, our GAAP and adjusted SG&A dollars were lower in 2025 than the prior year. And more importantly, the productivity and efficiency we gained last year will benefit our financial performance in 2026 and beyond. In last year's fourth quarter, we continued to benefit from strong cost control and efficiency gains. In addition, our gross margin rate benefited from year-over-year favorability in supply chain and digital fulfillment costs, driven by strong productivity efforts. Bottom line, in Q4, the team was able to grow adjusted operating income dollars and adjusted EPS over the prior year even on a decline in sales. GAAP operating dollars and EPS were down a small amount as we recognized about $90 million of nonrecurring business transformation costs, primarily driven by lease termination on excess office space. In addition to encouraging profit performance, we also saw some encouraging early signs of top line progress in Q4. More specifically, following a soft start in November, sales trends accelerated meaningfully in December and January. And as we mentioned in this morning's press release, top line performance accelerated further in February, resulting in very healthy top line growth in the first month of this new fiscal year. Before I move on to our guidance, I want to provide some context based on the work we've been doing to refine our strategy and how that work has shaped the investments we're planning this year. In support of the strategic decisions that Michael and Cara outlined earlier and our goal to move our business back to sustainable growth, we're planning to reinvest $1 billion into our P&L this year. This includes hundreds of millions of dollars to support additional store labor and training, along with expenses related to a planned increase in new store openings, growth in remodel projects, and our most ambitious plan for in-store merchandising transitions in more than a decade. In addition, we're stepping up our spending on brand marketing and technology, including AI. I want to be clear, these investments are not one-time costs, but reflect an ongoing step-up in spending levels as we're investing to win and restore reliable profitable growth to our business. While $1 billion is a major investment for our business, we're funding it by leveraging a number of beneficial factors, most notably from the annualization of about $0.5 billion in one-time tariff and inventory adjustment costs in 2025. In addition, we realized about $200 million in savings from last year's head count reduction at headquarters and the field team changes we announced in February. Beyond those discrete savings, our team has adopted a continuous productivity mindset and identified a host of productivity opportunities that will deliver additional savings to the P&L. So with that context, I want to turn to our guidance for the year, starting with the top line. For the full year, we're planning to grow net sales in a range around 2% versus last year, including a small increase in our comparable sales. On top of comp sales, we'll benefit from the opening of new stores, robust growth and revenue from Roundel, and from third-party sellers on Target Plus. In total, those sources are expected to add more than one percentage point of growth this year. I'll add that we're planning for top line growth in every quarter of the year. On the operating income line, we're planning for a 2026 rate that's approximately 20 basis points higher than the 4.6% adjusted rate we earned in 2025 as the savings opportunities I outlined earlier are expected to fully fund our P&L investments. Altogether, based on our expectations for the top line and operating margin, we're expecting to generate GAAP and adjusted EPS in a range from $7.50 to $8.50 in 2026. The center of this range represents healthy growth of 5% to 6% when compared with last year's adjusted EPS. I want to pause and take note of the significant effort of the team, which has allowed us to enter this year laser-focused on delivering on our strategy and fully funding our growth-driving initiatives while also delivering modest margin expansion for the year. One other note, while we're not planning to provide ongoing quarterly guidance, I want to share some color on expected timing throughout the year as we're planning for stronger profit growth in the back half of the year based on three primary timing considerations. First, regarding shrink, we'll be lapping favorable inventory counts and the resulting accrual adjustments that occurred in the first half of 2025, which will then moderate in the back half of the year. For the full year, we expect this year's shrink rate will be in line with last year. Second, this year's step-up in CapEx will drive higher start-up costs for new stores in the first half of the year. We're also expecting to see some pressure on the D&A line resulting from accelerated depreciation on a larger number of remodels, most notably in the first quarter. And finally, the expected timing of some SG&A expenses will be more front-loaded compared with last year. Based on these factors, we expect that our first quarter GAAP and adjusted EPS will be flat to up slightly from last year's adjusted EPS of $1.30, followed by accelerating performance later in the year. This expectation is entirely driven by the timing considerations I mentioned above and isn't reflective of underlying performance differences by quarter. Turning to capital deployment. Our priorities remain the same as they've been for decades. We first look to invest fully in our business in projects that meet our strategic and financial criteria. Second, we look to support the dividend and build on our record of annual dividend increases, which we maintained every year since 1971. And finally, we look to deploy any excess cash beyond those first two uses to share repurchases within the limits of our middle-A credit ratings. Regarding our first priority, we continue to expect that full-year capital expenditures will be approximately $5 billion in 2026, up more than $1 billion from last year. While spending in support of our supply chain and technology will increase, the bulk of our CapEx will continue to be focused on our stores, which fulfill more than 97% of our sales. This year, we're excited about our plans to open more than 30 new stores, and nearly all of them will be full-sized. We're also ramping up our remodel program and expect to complete more than 130 full-store remodels in 2026. We're expecting a strong return on those new store and remodel investments, just as we've seen in recent years. I also want to note within this year's CapEx plan, more than $1 billion will be spent in support of our food and beverage business. That's more than double the amount we've invested in this business in recent years. Because we offer a unique and differentiated assortment of national brands, owned brands, and emerging brands, the food and beverage category has served as a reliable growth engine over time. Take last year, even in the face of a challenging top line backdrop for the company overall, our food and beverage sales continue to grow, led by mid- to high single-digit growth in both nonalcoholic beverages and candy. Looking back over a longer period, food and beverage sales have grown more than $9 billion since 2019, translating to an average annual growth rate of more than 8% per year, far outpacing the rest of our assortment and the industry. Given that success and the critical role food plays in guest trips, it has earned more space in our existing stores, in our new stores, and in our supply chain. Turning next to the dividend. We plan to recommend that our Board of Directors approve a small increase in our quarterly dividend later this year, resulting in another annual increase in 2026. And finally, once we fully supported our first two capital priorities, we plan to repurchase shares to the extent that's supported by our business results and forecasts and can be accomplished within the limits of our middle-A credit ratings. Now I want to spend a minute on our expectation for Target's longer-term financial performance. While we're planning for low single-digit top line growth in 2026, we expect that will further accelerate to the low to mid-single-digit range over time. With this level of top line expansion, we also expect to increase operating margin rates from the relatively low levels we've seen over the last few years. This rate opportunity starts with growth, which drives leverage on many expenses in contrast to recent years where we faced rate deleverage on lower sales. Beyond leverage, we're continuing to expect rapid growth in margin-rich revenue sources, including Roundel and Target Plus. And with robust capital investments in both our infrastructure and technology, we expect to further boost productivity and create additional fuel for our business. We expect that the aggregate tailwind from these profit rate opportunities will exceed any P&L investments we will choose to make, allowing operating margin rates to increase. As we said consistently over the years, our goal is to move to the appropriate operating margin rate that will sustainably maximize profit dollar growth. And we plan to continue on that journey in 2026. We often get the question of whether we believe operating margin rates can get back to pre-pandemic levels. The answer to that question is a definitive yes. We believe the optimal rate is well above where we performed last year. And until we reach that optimal rate, we have the opportunity to grow operating margin dollars more quickly than sales over the next few years. So now I want to hit on something that Cara talked about earlier, which is the importance of differentiation in our business. It's a point worth reiterating, but I also want to approach it from the standpoint of the assets we can deploy in pursuit of that strategy. As one of the largest retailers in the U.S., we benefit from scale, similar to our larger peers. But importantly, because of our differentiated strategy, our assets may look different than our competitors, but we have exactly what we need to compete and succeed. At the top of that list is our stores, which are well located, well maintained, and generate a lot of cash. Excluding a very small number of exceptions, nearly all of our stores generate strong positive cash flow with the vast majority delivering double-digit EBITDA margins. Put another way, we have a very healthy base of store assets that benefit from the strength of our brand and differentiated offering while powering our digital fulfillment model. We have a strong pipeline of new stores planned for 2026 and many years to follow, which will allow us to reach new guests in neighborhoods that we currently don't serve. Already today, our base of nearly 2,000 stores is located within 10 miles of 75% of the U.S. population, and we expect to further extend our reach over time. Beyond our stores, as someone who came from the packaged goods space, I have huge appreciation for Target's product design, development, and sourcing capabilities, which allow our merchant teams to innovate and deliver newness at scale across all six of our core merchandise categories. Because of these unique capabilities, our portfolio of owned brands generates $30 billion of sales, delivers superior gross margin rates versus national brands, and reinforces our differentiated position in the marketplace. And finally, on the digital fulfillment side, our strategy and assets make us both fast and efficient. All three of our same-day services, whether we're talking about Drive Up, in-store pickup, or rapid same-day delivery through Target Circle 360 are already wicked fast, and they're getting faster. And importantly, we know that our guests love these services because they receive some of the highest Net Promoter Scores of any service we provide. As a result, our same-day services generated more than $14 billion in sales last year, accounting for two-thirds of our total digital sales. I want to pause on that. Two-thirds of our digital sales are in services that fulfill same day, and we're investing to make those services even faster and more efficient. For the other one-third of our digital sales, which are in the form of brown boxes delivered to your homes, most of our volume is in markets where we've already enabled next-day fulfillment, and we plan to expand this capability into many more markets this year. I wanted to lean into this point. We are already fast. We are cost-competitive, and we're continuing to get more efficient, and we own all the core elements of our digital fulfillment. And as I mentioned in this meeting a year ago, when you look at all the elements of our digital ecosystem holistically, digital growth is healthy for our business and for our P&L overall. So when I take a step back from a strategic perspective, we have all the critical assets in place, and our plans are centered on investing in and better leveraging those assets in the years ahead. So let me close. As we've been working hard behind the scenes in the face of last year's challenging performance, I want to assure you of two things. One, we haven't stopped investing and have kept our balance sheet very healthy. And two, we've been doing a ton of work over the last several months to bring strategic clarity to our business while stepping up our productivity and efficiency efforts. As you heard from Michael and Cara, you're going to see a lot of intentional change and investment beginning this year. And I am confident that with those changes, we're well positioned to deliver profitable growth in the years ahead.

Thank you, Jim, and thanks to all of you for spending time with us today. I want to close where I started. This is a new chapter at Target, and it's all about growth. We're clear on the lane we're uniquely positioned to own in retail, one where style, design, and value shine through in everything that we do. You heard that clarity in what we shared today, a purpose that's brought to life by being the most delightful experience in retail, a sharper focus on the guests who power our growth, and strategic choices that play to our differentiated strengths. Those choices define the four priorities we're advancing together, leading with merchandising authority, elevating the guest experience, accelerating technology, and strengthening our team and communities. And you've seen and heard how those priorities translate into action. In 2026, guests will feel bold change from us. And it's not change for the sake of change. It's purposeful change in the categories and experiences where we have a real right to win and where our guests are asking us to raise the bar. You also heard the level of investment and the discipline behind it. We're making a more than $2 billion incremental investment this year, which includes an additional $1 billion in capital for new stores and remodels, and $1 billion reinvested in our P&L to elevate the guest experience. Now we know we have work to do, and the team and I are excited to get after it. A big thanks to team Target for all their hard work leading up to today and for the passion they bring to their work every day. It's our team that's at the center of everything we've shared this morning, and I'm so proud of what we're building together. We're playing our own game. We're confident we're on the right path. And our team is moving fast to build on the momentum we're already seeing. We're excited about this new chapter and look forward to having all of you on this journey with us. With that, I'll ask Cara and Jim to join me back on stage so that we can get to all of your questions.