FY25 Adjusted EPS at High End of $7-$8 Guide; Q4 Trends Accelerated Through Dec/Jan; Feb Top-Line "Very Healthy"; FY26 Guide: Net Sales ~+2%, Op Margin +20bp, EPS $7.50-$8.50 (5-6% Growth); $5B CapEx + $1B P&L Investment; Fiddelke's 4-Priority Framework Formalized at Financial Community Meeting — Maintaining Hold

Coverage Update from Q3

We maintained Hold three months ago at ~$98 with a $90-$120 fair value range, citing multi-quarter validation needed for Fiddelke transformation. Q4 + Financial Community Meeting delivered:

• FY25 closed at high end of $7-$8 EPS guide (top-line trends accelerated through Dec/Jan)
• February showing "very healthy" top-line growth — early signal heading into FY26
• FY26 framework formalized: ~+2% net sales, +20bp op margin, EPS $7.50-$8.50 (5-6% growth)
• $5B CapEx + $1B P&L investment = $2B+ incremental investment
• 4-priority strategic framework anchored in serving "busy families"
• Most chain-wide floor pad change in a decade with specific category-level details

The framework is comprehensive and concrete. We maintain Hold (not upgrade to Outperform) because: (1) FY26 growth at ~+2% is modest after years of negative comp, (2) the $2B+ investment magnitude means rate of return uncertain, (3) Ulta transition occurs in FY26 H2 — creating known disruption, (4) need to see Q1 FY26 deliver on the early-year momentum before upgrading.

Results vs. Consensus — Q4 FY25

Q4 Scorecard

FY25 Full Year Summary

Quality-of-Print Callout

The Fiddelke Strategic Framework — Anchored on Busy Families

The Financial Community Meeting articulated a clear, concrete strategic framework for Target's path forward under Fiddelke's leadership.

The "Lane" Target Will Own

"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."
— Michael Fiddelke, Incoming CEO

Target is repositioning around "delight" as the differentiator — encompassing convenience, speed, price, but also emotional connection and joy. The strategy explicitly rejects "everything store" positioning in favor of curation, differentiation, and elevated experience.

Core Guest Segment — Busy Families

Fiddelke explicitly named "busy families" as Target's core guest segment:

• Value style and design
• Seek ease and simplicity
• Don't want to settle for ordinary
• Digitally fluent
• Gravitate to brands mixing practicality with personal expression

Cara Sylvester (new Chief Merchant) added that these focus areas represent ~50% of sales today and are expected to drive ~75% of growth going forward.

4 Priorities Framework

1. Leading with merchandising authority: Style, design, curation, value
2. Elevating the guest experience: In-stocks, presentation, service, digital
3. Accelerating technology: AI for both guests and team
4. Strengthening team and communities: Investing in stores team + community

These four priorities work together — and will be the analytical frame for evaluating progress over coming quarters.

FY26 Detailed Guidance Framework

FY26 EPS Build

Management framed FY26 EPS growth at 5-6% (midpoint) as supported by:

• Positive comp sales drive operating leverage on existing infrastructure
• Roundel + Target Plus revenue growth (high-margin)
• Productivity initiatives funding investments
• Savings from FY25 1,800 HQ reduction (~$200M annualized)
• Annualization of one-time tariff costs (~$500M absent FY26)
• Operating margin +20bp from these tailwinds

FY26 Investment Build ($1B P&L incremental)

• Hundreds of millions in additional store labor and training
• New store opening expenses
• Remodel project expenses
• Most ambitious in-store merchandising transitions in a decade
• Brand marketing spending step-up
• Technology investments including AI

These are ongoing investments — not one-time costs.

Detailed Category Transformation Plans for FY26

Home — Multi-Year Reinvention

• By June 2026: 75% of decorative accessories assortment overhauled
• By Fall 2026: 80%+ of kids home + 75% of top-of-bed assortment refreshed
• Threshold relaunch: Largest home-owned brand; 200 dedicated shop-in-shop destinations starting summer 2026
• Target Plus marketplace: Accelerating third-party assortment in furniture, mattresses, rugs (capital-light)
• Reinvention continues 2027+: Kitchen and storage categories

Beauty — Target Beauty Studio

• Fall 2026 launch: Target Beauty Studio in 600 stores
• Specialty-level presentation + service + Ulta replacement
• Expanded prestige + emerging brand assortment
• Enhanced service model with knowledgeable team members
• Beauty-specific loyalty integration

FUN 101 — Continued Expansion

• Continued investment in sports + fandom categories
• "Pop gateway destinations" in stores
• Trading cards continuing as anchor
• Reimagined "fan central" with shop-in-shop expansion + premium service

Baby & Kids — Long-Term Loyalty Bet

• Premium tier offerings: UPPAbaby, Bugaboo, Doona, Stokke
• Baby Concierge service test in select stores
• Cloud Island (owned brand) expansion
• Dedicated baby beacons + curated discovery zones

Food & Beverage — Distinctive Identity

• $1B+ FY26 CapEx investment in food (double recent annual levels)
• 3,000+ new items in Q1 alone
• Wellness leadership: synthetic-color-free cereal by May 2026
• Good & Gather on track to be Target's first $4B owned brand
• Expanded sampling + emerging brand discovery
• 2x industry newness rate

Apparel & Accessories — Faster Style

• Fast apparel model: design-to-stores in weeks vs year
• Style Series: regular cadence of curated cultural drops
• Women's swim #1 share — leveraging speed-to-market

Wellness — Integrated Across Categories

• 70% of guests already shop wellness at Target
• Thousands of new items + more exclusives
• Integrated across food, supplements, beauty, active
• FY25 wellness +4.6% comp; January resolution season $2B+ in wellness sales

Key Operational Topics

1. New Store Pipeline

30+ new stores planned for FY26 — most full-sized (125-150K sq ft). Outpacing initial sales expectations. Goal of 300 net new stores by 2035.

2. Remodel Program Ramping

130+ full store remodels planned for FY26 (up from prior years). Strong 2-4% Year 1 sales lift + ongoing benefit Year 2.

3. Same-Day Services

• ~$14B in same-day services sales (~2/3 of digital)
• ~30% growth in same-day delivery YoY FY25
• Target Circle 360 membership doubled FY25
• ~80% of US population covered by same-day delivery
• Next-day shipping coverage expanding to over half of US

4. Loyalty Program

• Target Circle: ~100M+ members (one of largest in US)
• Members spend 3x more on average
• Target Circle 360 members spend 7x more
• AI-driven personalization generating billions in incremental sales

5. Digital Growth Flywheel

Roundel + Target Plus + same-day services + Target Circle Card together drive consistent growth and deeper engagement. Roundel ad sales mid-teens growth. Target Plus GMV +50% YoY.

6. Store Operations Model

Stores as fulfillment hubs (97% of digital sales fulfilled from stores). Capital-light. Chicago pilot expanded — some stores ship-focused, some store-experience-focused. Driving improved guest experience + lower fulfillment costs.

Long-Term Framework

Beyond FY26:

• Revenue growth: Low-to-mid single digits
• Operating margin recovery: Toward pre-pandemic levels (high-single-digit historical)
• Roundel + Target Plus continued growth: Margin-rich revenue contribution
• Continued productivity initiatives
• Multi-year capital investment phase supporting growth

"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."
— Jim Lee, CFO

Capital Allocation Priorities (Reiterated)

1. Reinvest in business at high-return projects — $5B CapEx in FY26
2. Support and grow dividend — 50+ years of consecutive annual increases; will continue
3. Repurchase shares within middle-A credit rating limits — flexibility based on results + outlook

Analyst Q&A — Selected Exchanges

$1B store investment composition + remodel ramp

Q: "I'm just curious if you could frame the $1 billion of investment that you're making back into the stores. What are the biggest buckets there? How much in labor? How much incremental do you need to invest there? And then also on the remodel program, like, what are you guys thinking about for the out years?"
— Spencer Hanus, Wolfe Research

A: "As we look at that $1 billion of investment, I think it's just important to recognize that's a deliberate choice. It's actually where we started with the plan for this upcoming year to say, all right, if we've got a crystal clear strategy, what do we need to do to move the needle against that strategy? … You heard Jim talk about hundreds of millions of dollars in store payroll and that's critically important. … The other things that you saw on the slide that was up when Jim was talking, investment in brand marketing, investment in technology and AI that goes hand-in-hand with great experience. … We see 2% to 4% lifts in year 1. We see lifts in year 2 as well. And so getting back to a more aggressive pace of remodels brings some of the stores that, frankly, are due for a little bit of love back up to our current and greatest thinking."
— Michael Fiddelke, Incoming CEO

Sustainability of changes vs prior cycles

Q: "A lot of the elements of the plan are not that dissimilar from what we saw at Target around 10 years ago. So what is different and what structures are being put in place in order to ensure that the growth here will be sustainable over the next few years and not just lead to a temporary improvement only to lead to a bit of a drop-off after that?"
— Michael Lasser, UBS

A: "We're playing the long game. And to play the long game well in retail, you have to be focused on exactly who you are. … we're crystal clear on how Target wins. That's a North Star that we'll hold on to tightly. That's not just a this year thing for the changes that start this year or even the changes we have in 2026. We're going to come back to knowing who we are in the years to come. … The ingredients that have always fueled us at our best when we're design-led, when we're winning with differentiation, and when our experience is top notch."
— Michael Fiddelke, Incoming CEO

Maintaining merchandise authority over time

Q: "So if you look back at the financial performance of this business, it's been cyclical and somewhat variable. And I think a lot of that is due to merchandise authority that has waned at times. I know a lot of the focus is on recapturing it. And I think today's presentation makes a strong case for why you're going to recapture it. It's more on how do you keep it?"
— Simeon Gutman, Morgan Stanley

A: "Clarity of strategy that we hold on to is the most important thing, Simeon. Like, we need to stay centered on who we are. And I feel more aligned as a leadership team and as a company on what our unique path is to win than I probably ever felt in my 23 years. It's on us to make sure that we don't lose that. … you have my commitment that we won't ever forget who we are, and we'll lean into where we uniquely win, not just in 2026, but in the years to come."
— Michael Fiddelke, Incoming CEO

Pricing strategy + value architecture

Q: "What are the changes, if any, you're making to the overall pricing architecture across each of your key categories? And do you think your current product value equation needs to be refreshed for over the long term to return to structural growth?"
— Christopher Nardone, Bank of America

A: "We've got to be sharply priced and the infrastructure we have in place to make sure that happens. … But for us, the value equation is always multiple parts. It means being incredibly well priced every day, and it means making sure that, that price is connected with newness and differentiation … we want — when you're — if you've grabbed a Starbucks or walking through a Target store to see what's new on our floor pad, we want to draw you in with product like you saw for apparel that's coming, that's differentiated, that's high quality, of real value. And we want that smile to get bigger when you flip over the price tag and see the value that's there."
— Michael Fiddelke, Incoming CEO

Margin trajectory + over-earnings concern

Q: "If you look back in the history of retail, discretionary retailers that see a period of negative comps tend to overearn on gross margin. Clearance levels go down to low levels because they tighten the inventory markdown rates. As you think about coming back to positive trends in discretionary categories, often we've seen debt on the margin side come through."
— Christopher Horvers, JPMorgan

A: "I actually think about it differently, Chris. I think about the times when we've seen slowdowns in discretionary, they usually come with a rough P&L because the excess inventory and clearing it has hurt us. We like to have the business in chase mode. We'd love to see demand just a little ahead of what we've bought to. … When the high-margin categories, think apparel and home, are humming on the top line, they throw off a ton of profit for us. And so I get excited about kind of bringing back to life some top line performance in categories that haven't seen enough of it over the last few years."
— Michael Fiddelke, Incoming CEO

Same management team executing change

Q: "One criticism maybe is that it's the same management team. I think at some point, people would have — some investors wanted people from the outside. But clearly, there's a lot of change going on here."
— Michael Baker, D.A. Davidson

A: "Knowing who we are as a company, I think, is a real advantage. And so understanding how the levers of the business work and when Target at its best, what that's looked like, like, I'm proud to bring that to stepping into this role for sure. … it's on all of us as leaders across the company, to step in with candor and assess where are we at and what do we need to do about it. … having a healthy balance of folks like me that have grown up with over 2 decades of time at Target and folks that can bring in a fresh perspective like Jim has certainly done … If I look across my leadership team just for starters, I think over half the team is either new to role or new to Target in the last 18 months."
— Michael Fiddelke, Incoming CEO

Execution capacity for multi-category change

Q: "You guys went through a ton of new efforts. We walked through all the merchandising displays. But what gives you overall confidence to be able to execute on so much at the same time, whether it's a beauty reset, baby reset, some of the home efforts?"
— Rupesh Parikh, Oppenheimer

A: "It's actually a really important question because a lot of change comes with a lot of change to execute well. … We are betting on the change. We believe that even though there's a lot that we're working every day on across the team to make sure we can manage through the execution of, we think the upside of being aggressive and making the changes that we know and have the early proof points of success that tell us are going to drive growth, leaning into that change makes sense."
— Michael Fiddelke, Incoming CEO

What They're Not Saying

• Specific FY27 framework or guidance. Long-term "low-to-mid single digit" implied but not specific.
• Detailed pricing methodology shifts. Acknowledged "be sharply priced" but no specific price-down framework articulated.
• Specific operating margin target for recovery. "Well above last year" but no specific rate.
• Detailed Ulta departure impact on FY26 H2. Multi-quarter execution but quantification limited.
• Specific share buyback pace for FY26. Capacity exists but execution discretion maintained.
• Detailed cadence of category transformations. Some transitions timed differently across the year; specifics by store visit only.

Market Reaction

• Pre-meeting (March 2 close): ~$104. Stock had appreciated modestly into the financial community meeting on expectations of framework clarity.
• Day-of (March 3): Both Q4 print and Financial Community Meeting combined. Stock rallied through the day on framework clarity + Q4 finish + Feb momentum signals.
• Day-after (March 4): Stock closed ~$108 (+4%). Volume ~12M shares (~1.5x 30-day average).
• Peers (March 4): WMT +1%; COST +0.5%; KSS +3%; M +2%. Retail group up modestly.
• Sell-side flow: Several upgrades from Sell to Hold; PT range $100-$140. Bull case: framework clarity + ~$8 EPS midpoint + multi-year recovery thesis. Bear case: modest FY26 growth + execution risk + Ulta transition.

Interpretive read: The market processed the meeting as "comprehensive framework that clarifies the recovery path." Stock at ~$108 reflects modest optimism with significant execution still required. The next 6 months (Q1 + Q2 FY26 prints) are the key catalysts — early-year momentum referenced in the call needs to materialize in reported numbers.

Street Perspective

Debate 1: Can FY26 deliver +2% revenue growth on track?

Bull view: February "very healthy growth" + multiple growth contributors (new stores, Roundel, Target Plus all >1pp combined) + small comp increase = ~+2% net sales is achievable. The momentum from holiday + strategic positioning supports execution.

Bear view: Comp is the wildcard. Going from -2.5% FY25 to "small increase" FY26 requires significant change in consumer engagement. Multi-quarter execution risk. Ulta transition occurs in H2.

Our take: Central case is delivery within the guide range. Path to ~+2% growth depends on H1 execution given Ulta exit in H2 + holiday seasonal volatility. Q1 FY26 will be the key proof point.

Debate 2: Is the $5B CapEx + $1B P&L investment the right magnitude?

Bull view: Capital intensity is the appropriate response to multi-year recovery. $5B in investment with 2-4% sales lifts on remodels + strong new store returns + technology investment justifies the spend. The +$2B incremental investment is concrete commitment.

Bear view: Capital and P&L step-ups together compress FY26 FCF. If execution doesn't deliver returns, the investment looks like operating losses. Risk of "investing through the cycle" without clear measurable outcomes.

Our take: Investment magnitude is reasonable given strategic positioning. Returns will be evaluated quarter-by-quarter through FY26.

Debate 3: How big is the Ulta transition risk?

Bull view: Multi-quarter planning gives time to develop replacement Beauty Studio offering in 600 stores. Opportunity to elevate own brands + expanded prestige. Multi-year customer growth.

Bear view: Ulta has been generating meaningful traffic and revenue. H2 FY26 transition disruption + replacement execution risk + potential beauty category share loss.

Our take: Real H2 FY26 overhang. Magnitude depends on replacement execution. We watch carefully through Q2/Q3 prints.

Model Implications & Thesis Scorecard

Model Update

• FY25 actuals: Net sales ~$106B (-1.5%); EPS ~$8 (high end of $7-$8); op margin 4.6%
• FY26 estimates: Net sales ~$108B (+2%); EPS $8 (midpoint of $7.50-$8.50); op margin 4.8% (+20bp)
• FY27 estimates: Net sales growth +3-4%; EPS $8.50-$9.50; op margin expansion continuing
• Long-term framework: Operating margin recovery toward pre-pandemic levels (high-single-digit)

Thesis Scorecard

Rating & Action

Maintaining Hold. The Financial Community Meeting delivered comprehensive strategic clarity that meaningfully reduces the "what is the path forward" uncertainty. Q4 finished at the high end of guide. FY26 framework is concrete: ~+2% net sales, +20bp op margin, EPS $7.50-$8.50, $5B CapEx, $1B P&L investment, 4 priorities anchored on busy families. But we maintain Hold (rather than upgrade to Outperform) for three reasons:

1. FY26 growth is modest. +2% net sales after years of pressure is meaningful progress but limited rerate fuel.
2. Investment magnitude creates near-term margin uncertainty. $1B P&L + $5B CapEx is a substantial commitment that pressures FCF and requires multi-quarter execution validation.
3. Ulta transition in H2 FY26. Known operational disruption to manage; replacement execution unproven.

Fair value range: $95-$130 (modestly widened from $90-$120). Stock at ~$108 sits in middle of range. We re-evaluate up to Outperform on (a) Q1 FY26 print delivering on early-year momentum, (b) FY26 H1 comp positive and accelerating, (c) Ulta transition managed without disruption. We re-evaluate down on (a) Q1 FY26 missing framework, (b) consumer environment deteriorating materially, (c) execution missteps in category transformation rollout.

Key watch items into Q1 FY26 (May 2026):

• Q1 FY26 comp performance — first proof point of FY26 trajectory
• February + March + April momentum sustainability
• Category transformation early signals (home, beauty, baby)
• Capital deployment progress (remodels, new stores)
• Operating margin trajectory (+20bp target)
• Customer engagement metrics (in-stocks, NPS, traffic)
• Capital allocation execution (buyback, dividend)
• Tariff cost trajectory