Target Corporation Q3 FY2025 earnings call

Priorities - Solidify design-led merchandising authority with distinct target products. - Elevate guest shopping experience in stores and digital platforms. - Use technology to improve speed, guest experience, and efficiency. ### Initiatives - Merchandising: Enhanced AI-enabled consumer insights, target trend brain, synthetic audiences for testing. - Store experience: Remodels, reconfiguring store roles for fulfillment, pilot in Chicago market showing improved fulfillment. - Digital: Same-day delivery up over 35%, Drive-Up growth, partnership with AI platforms for conversational curation. - Investments: Increased CapEx plans for 2026 to $5 billion, focusing on store remodels, new stores, and technology.

In Q3, comp sales were down 2.7%, with digital comparable sales growing 2.4% fueled by over 35% growth in same-day delivery. Food & Beverage delivered comp growth, with beverages up nearly 7% in Q3. FUN 101 saw growth led by nearly 10% comp in toys and double-digit growth in music, video games, and sporting equipment. Apparel comps were down 5%, but denim and sleepwear had meaningful growth. Food & Beverage sales included new products at twice the industry volume. FUN 101 contributed to growth in discretionary categories, with sales around seasonal moments like back to school, back to college, and Halloween.

Full Year - Adjusted EPS range: $7 to $8. - GAAP EPS expected to be about $0.70 higher than adjusted EPS due to litigation settlement benefit, partially offset by business transformation costs. ### Q4 - Expect low single-digit decline in comparable sales. ### 2026 - CapEx to increase by ~25% or $1 billion vs 2025, leveraging productivity initiatives and savings from business transformation for strategic investments.

Risks - Macro-economic pressures and consumer confidence declines. - Volatility in weekly and monthly sales trends. - Inventory shrinkage, although expecting shrink improvements to contribute 80-90 basis points to gross margin rate favorability for the full year. - Continued uncertainty in the external environment affecting share repurchase program.

Q: Simeon Gutman asked about taking deeper investments and urgent gaps/capabilities.

A: Michael Fiddelke said they're committed to investments for merchandising and experience, with examples like Chicago fulfillment tests and leveraging store remodels. Urgent gaps include elevating merchandising authority and experience, with momentum seen in FUN 101 and store experience work.

Q: Corey Tarlowe asked about CapEx investment levels and cost cutting.

A: Michael Fiddelke said CapEx supports strategy with expected returns, focusing on new stores, store remodels, and technology. Change is urgent to drive growth, with progress seen in FUN 101 and store experience.

Q: Joseph Feldman asked about in-store changes for 2026.

A: Michael Fiddelke mentioned changes in FUN 101, home (revamping threshold brand), baby (more inviting space), with details to be shared at financial community meeting.

Q: Mike Baker asked about Q4 guidance and margins.

A: Michael Fiddelke and James Lee said Q4 has volatility, inventory is well-positioned, and guidance is prudent based on Q3 trends.

Q: Kate McShane asked about inventory and in-stocks.

A: Michael Fiddelke said laser-focused on improving in-stocks, with progress seen in top items and better year-over-year performance, but work continues.

Q: Michael Lasser asked why progress isn't showing in business performance and about dividend commitment.

A: Michael Fiddelke said work is urgent to get back to growth, with focus on making progress, and dividend is a second priority with a strong track record.