Target by icm version 3.0

TGT--Bull-Case, a 30% IRR through 2024
Inflection Capital Management, LLC
Ver. 2.0: Dated 10.12.20

TGT--Bull-Case
1. Based upon sustained revenue growth following 2020 and an upward lift in Target's pretax margins, should results playout as this bull-case
illustrates, TGT would return a 30% IRR through 2024 based upon achieving these earnings forecasts and a 22X TTM P/E. Implicit in this
higher-than-historic 22X P/E is a continued low 10-year Treasury rate and Target producing a substantially higher ROIC. The 30% would be
composed of substantial dividends and the stock price reaching $477/share.
2. This improved business profile originates from COVID's irreparable damage to Target's competitors, the substantial boost to Target's positioning
with consumers because of COVID, and from CEO Brian Cornell's 2017 Re-investment Plan.
3. Cornell's 2017 Re-investment Plan ($1B op-ex and $7B cap-ex) was to:
 Rebuild customer affinity / loyalty,
 Amplify / sharpen its uniqueness by powering up its brands' quality / value and upgrading the stores' aesthetics / capabilities
 Make it easier / faster to access its brands (curbside, deliver via Shipt, and City Targets),
 Significantly elevate store staff service / engagement levels (category specialists, higher compensation, and more empowerment), and
 Make Target move faster and with greater agility and sharpen its operational and new initiatives execution.
4. 2018 was a better sales performance year and 2019 was a great performance year; however, the '17 Re-investments really compounded and
flexed themselves during COVID and they are allowing Target to emerge from COVID substantially larger, stronger, and more durable.
5. To conclude, the change in Target's business and financial model has taken a few years to fully crystalize and COVID was the final accelerant.
We believe that investors, Wall Street, and the retail marketplace have failed to fully realize the extent of the change. They understand that
Target has emerged as a winner; they have not realized that Target will gain share at an accelerated rate, grow faster, and produce a margin
rate that is double that of pre-COVID.
6. Our Bull-Case for Target's 2021 revenue / pre-tax margins are $93.9B / 10.8% vs. the FactSet consensus $87.3B / 5.6%.
7. For the reasons that we detail in this report, we believe that not only will Target comp the COVID-comp with a low single digit increase in 2021,
but we also show why comps should be in the +5-6% range in the following years. Additionally, there are additional sales drivers that we have
not detailed here such as: 1) a strong lifetime value and building contributions from the 10M new digital customers that Target acquired this year,
2) compounding contributions from the strong membership gains for Target Circle (75M in July '20 vs. 50M in January and only in its 1st year),
and 3) exiting the year with 1.6K curbside stores vs. 1K at the beginning of the year along with adding fresh, frozen, and beverages. That said,
we also do not quantify headwinds such as lapping the CaresAct, the absence of a CaresAct-2, a hard reversion in spending to services post-
COVID, sustained high unemployment, etc. Thus, there are both material +/- risks to our forecasts. There is no high-confidence way to weigh
these singularly or in aggregate, especially in the context of COVID's unpredictability. As such, we characterize this pitch as the Bull-Case.
2

Target's Restage: Store Remodels Making a Fresh Statement
Target began a major store remodeling investment in 2017 to contemporize
its stores and to allow for a better merchandising of grocery, home, apparel,
and baby. Over 900 stores are to be complete by year-end 2020. CEO Brian
Cornell foresaw that many of its traditional competitors (and Target) were out
of date and losing relevance with consumers. However, unlike Target, they
were unable to pivot given low levels of profitability and too much debt, and
that Target had a big opportunity to gain share if it could beautify its stores,
enhance the positioning, style, and quality of these categories, and invest in a
prouder and elevated merchandising.
Fresh has been a category that Target has struggled to commit meaningful
investment to because of Target's inferior position and the low category
margins, i.e. it would cost a lot to improve the positioning and it would erode
Target's financial ratios. However, given the strategic necessity to drive
frequency and win in digital fulfillment, fresh and grocery finally became a
priority for Target and they became a significant part of the store remodel.
3

Target's Apparel Business: Going After the Specialty Apparel Purchase
Target dropped some of its prior brands and brand-partnerships (ex.
Champion) and made a major push to establish a new set of brands that
offered better value (i.e. improvement in make / style) and that spoke more
authentically to consumers (i.e. inclusiveness and fun)--overall an upping of
the Tar-zhay and establishing twelve meaningful new billion-dollar brands.
Target also formed new partnerships with brands that if felt were
meaningfully more relevant such as Levi's, Disney, and vineyard and vine.
The brand a new day (below) reached $1B in sales in its first year.
4

Target's Home Business: Going After The Home Specialist
Target also expanded its style and price ranges in home categories and that
offered more variety and style at a price premium. These include Project 62
(urban living), OpalHouse (eclectic aesthetic for millennial), and Hearth &
Hand that are at higher levels of style, construction, and price. Target also
upgraded its old warhorse Threshold. At Target's 2018 Analyst Day, we were
told that these collective displays (such as below) could triple the square
footage sales productivity and sold at a significantly higher merchandise
margin rate.
5

Target's Sales Mix and Comp Growth Contributors
 Beauty & Household Essentials: This segment has shown healthy growth pre-COVID and has benefited during COVID from trip consolidation to
Target. Management views the category as a strategic imperative and one where they can differentiate with their owned brands, such as Up & Up.
Looking forward to 2021 and post-COVID, we expect durable +MSD growth for the segment based upon ongoing trip consolidation, Target's fulfillment
options, and loyalty to Target. Moreover, including the new shopper insights from digital and Target Circle, we see upside risk to our forecasts.
 Food & Beverage: This segment faces a high level of competitive intensity; however, it's also a segment that Target has under-invested in and that it is
now leaning into by expanding the offering within its newly remodeled stores so that it can leverage its new fulfillment options, trip consolidation, and
cross-shopping. The segment should also be empowered by the new shopper insights that we touched on above.
 Home Furnishings & Decor: This segment also benefits from that which we noted above. Separately, this was a segment that significantly benefited
during COVID from WFM, SAH, and nesting. As a consequence, a lot of that consumption will not repeat and we model a down 1H'21. However, there
are longer-term structural economic and competitive changes that are strong tailwinds for the segment. This includes significant competitive closures
(ex. Pier-1 and 20% of Bed Bath & Beyond) which we estimate is $12B in market share up for grabs. Assuming that Target gets 15% of that share over
the next two years, that would add 5% to the segment each year. Separately, the segment should also be a significant beneficiary of the current lift-off in
housing. (We expand upon housing in a subsequent slide.)
 Apparel & Accessories: This segment had a good '19 due to the growing appeal of its owned brands. Q2'20 benefited significantly from
"casualization", the temporary closure of non-essential retailers, and trip consolidation. Post-COVID, we forecast +HSD growth over the next 3 years for
the segment based upon ongoing trip consolidation, loyalty to Target, shopper insights, store remodels, and competitor closures.
 Hardlines: Toys, puzzles, consumer electronics, sporting goods, etc. have all enjoyed robust industry-wide growth due to SAH and COVID. This sets
up 2021 for a difficult comparison. Moreover, the category has the least number of Target-owned brands, competitors didn't close, and competition from
Walmart and Amazon is fierce. Thus, we expect the segment to be down materially in 2021.
6
Target Corp. 2018 2019 2020 2021 2022 2023 2024
Category Sales
Beauty & HH Essentials $19,296 $20,616 $24,344 $25,561 $26,839 $27,990 $29,025
YoY% Ch 4% 7% 18% 5% 5% 4% 4%
Food & Beverage $14,585 $15,039 $17,993 $18,555 $20,411 $22,081 $23,584
YoY% Ch 2% 3% 20% 3% 10% 8% 7%
Home Furnishings & Decor $14,298 $14,430 $17,216 $17,316 $18,355 $19,342 $20,280
YoY% Ch 5% 1% 19% 1% 6% 5% 5%
Apparel & Accessories $13,434 $14,304 $15,165 $18,604 $20,092 $21,432 $22,637
YoY% Ch 2% 6% 6% 23% 8% 7% 6%
Hardlines $12,709 $12,595 $16,216 $13,623 $14,713 $15,693 $16,576
YoY% Ch 5% -1% 29% -16% 8% 7% 6%
Other $111 $146 $105 $112 $112 $112 $112
Total $74,433 $77,130 $91,039 $93,771 $100,522 $106,649 $112,213
YoY% Ch 4% 4% 18% 3% 7% 6% 5%

US Retail Sales by Segment (NAICS Code) and COVID's Impact May-June-July
Employees-Sept #442 Target
NAICS Segment Sales-2019 Stores Sales/Store 2019 2020 Category Retailers Home Est. Yr-End 21
(millions) (thousands) (millions) (thousands) (thousands) % Ch % Ch % Ch % Ch
442 Furniture & Home Furnishing Stores $117,815 50.6 $2.3 464 407 -12% 6.9% -9.0% 34% -10% -$11,782
Stores Sales Percent Percent Donated Category Category
Significant Competitor Closures YE-19 YE-21 % Ch YE-19 (mil) Impacted Retained $-Volume Mix Donated
Pier 1 450 0 -100% $1,550 -100% 0% -$1,550 100% -$1,550
Bed Bath & Beyond 976 776 -20% $11,158 -15% 20% -$1,372 100% -$1,372
Tuesday Morning 700 0 -100% $1,007 -100% 0% -$1,007 100% -$1,007
Sur La Table 184 0 -100% $760 -100% 0% -$760 100% -$760
Macy's 840 640 -24% $24,560 -19% 20% -$3,742 16% -$599
JC Penney 846 350 -59% $10,700 -47% 20% -$4,015 11% -$442
Sears (est) 118 0 -100% $1,732 -100% 0% -$1,732 25% -$433
Kmart (est) 50 0 -100% $419 -100% 0% -$419 20% -$84
Total -$6,246
Sources:
Company reports, Census Bureau Monthly Retail Trade Survey, & BEA: Personal Consuption Expenditures, Table 2.4.5U.
Estimates per Inflection Capital Management, LLC
Top Line Drivers for Target: Fragile Competitors
A significant amount has been written about the significant damage to traditional retail resulting from COVID's lock-downs, restrictions, and increased
digitization. Some estimates are as high as 25K store closures this year (Coresight Research, June '20) and 20% of all retail real estate (Morgan Stanley
Research, October '20). In this page and the next, we look at sectors that matter to Target (vs. the generic 25K number) to understand what the relevant
market share disruption may be, inclusive of our estimates for specific retailers. Continued market share gains due to competitor closings should allow
Target to grow off 2020's gains. Below is the home furnishings segment.
1. An important nuance to the Furniture & Home Furnishing segment is that #442 in inclusive of a large number of operators 1A of small local and
regional operators 1B, including interior designers that sell furnishings with a space remodeling. We strongly suspect that many of these local and
regional operators have been severely impacted by COVID, and as such, employment for the segment is down 12% YoY 1C as of September--a
period post lockdowns. Also, of note, is that because of the consumers' nesting, home beatification, better home offices, etc. the category was up a
very robust +639% for the May-June-July period 1D. During that same period retailers in #442 were down 9% 1E; whereas, the Target home segment
was up 34% 1F; thus, demonstrating Target's significant market share capture.
2. Based upon the above dynamics, we forecast that the #442 segment will lose an additional 10% 2A of its share because of store closures, inferior
digital capabilities, and shopping trip / cart consolidation. Of that $12B 2B forecast, we can identify $6B 2C alone from large public competitors that
have and will close stores. The private market should be at least that size, if not 2X or 3X.
1A 1B 1D1C 1E 1F
2A 2B
2C
Percent Impacted is less than
closed stores because it is the
weaker stores that are closed.
Sources:
1) Coresight Research, June 2020.
2) Morgan Stanley Research, October 2020.
7

US Retail Sales by Segment (NAICS Code) and Covid's Impact May-June-July
Employees-Sept NAICS Target
NAICS Segment Sales-2019 Stores Sales/Store 2019 2020 Category Retailers Apparel Est. Yr-End 21
(millions) (thousands) (millions) (thousands) (thousands) % Ch % Ch % Ch % Ch
448 Clothing & Clothing access. Stores $266,903 143.5 $1.9 1246 935 -25% -16% -38% 12% -20% -$53,381
4521 Department Stores $135,026 13.7 $9.9 1044 1029 -1% -20% -10% -$13,503
Total -$66,883
Stores Sales Percent Percent Donated Category Category
Signficant Competitor Closures YE-19 YE-21 % Ch YE-19 (mil) Impacted Retained $-Volume Mix Donated
JC Penny 846 350 -59% $10,700 -47% 20% -$4,015 77% -$3,091
Ascena Retail Group 2829 1000 -65% $5,493 -52% 20% -$2,273 100% -$2,273
Macy's 840 640 -24% $24,560 -19% 20% -$3,742 35% -$1,310
Stage Stores 786 0 -100% $1,640 -100% 0% -$1,640 75% -$1,230
Stein Mart 279 0 -100% $1,300 -100% 0% -$1,300 75% -$975
Sears (est) 118 0 -100% $1,732 -100% 0% -$1,732 30% -$520
Gap North America 675 425 -37% $1,350 -28% 30% -$263 100% -$263
Forever-21 (est) 549 171 -69% $2,000 -55% 0% -$1,102 16% -$176
Kmart (est) 50 0 -100% $419 -100% 0% -$419 30% -$126
Total -$7,904
Sources:
Company reports, Census Bureau Monthly Retail Trade Survey, & BEA: Personal Consuption Expenditures, Table 2.4.5U.
Estimates per Inflection Capital Management, LLC
Fragile Competitors: Apparel
1. CEO Cornell has been strategizing since 2016 for the time period where JCP, M, GPS, etc. significantly retrenched and closed stores. As such, one
of Target's largest area of investment has been to strengthening its apparel offering by improving the style, fit, and quality, increasing the marketing,
and significantly improving the merchandising via store fixtures and the store remodels. Vis-a-vis this strategic priority, COVID has been a massive
gift for Cornell and he will lean harder into the strategy in order to take out fragile competitors and increase competitor store closings.
2. Sales were down materially for clothing (#448) and department stores (#4521) in the May-June-July period 1A and the category overall declined by
16%; however, Target's apparel business grew 1D because of its brands' positioning and value, Target being an essential retailer and out-of-the-mall,
Target's superior digital capabilities, and cart / trip consolidation. Additionally, one can see that many clothing stores in #448 are small 1D; we suspect
that these many were hammered by COVID given the 25% YoY decline in employees by September 1E and many are unlikely to make it.
3. Given these new challenges for clothing and department stores, on top of the preexisting ones, apparel is going to be a massive market share
opportunity for Target. We expect 20% of the industry's clothing stores and 10% of the department stores to close based upon the news and company
reports. If Target can capture just 10% of the noted $67B 2A that would add over 40% to Target's YE-20 apparel segment of $16B. We forecast
robust growth for Target's apparel business over the next three years.
1A
1B
1D
1C
InflectionCapitalManagement,LLC
2A
Percent Impacted is less than
closed stores because it is the
weaker stores that are closed.
1E
8

Top Line Drivers: Housing
1. Historically, Target's business has benefited from strong housing
given its strong offering of home and kitchen related product.
Strong demographic trends and the 2000's housing boom were
significant tailwinds for Target prior to 2008 and strong comps
were reported. Those inverted in the 2010's and Target's growth
significantly slowed resulting in a collapse in the company's
strategies, confidence, comp store sales, and margins.
2. Per our work on US housing (HERE), we expect strong gains in
owner-occupied housing for the next five years, especially in the
key Target consumer cohort 30-44-year olds 1A.
3. We would expect Target to be cognizant of this opportunity and to
increase its marketing and customer acquisition of these new
homeowners by enhancing the relevant messaging and
merchandising.
1A
9

Sales Driver: Cart / Trip Consolidation
Cart / Trip Consolidation
During COVID we have witnessed the consumer narrow the number of
shopping trips and the number of retailers that they visit. Those with
recognized strong safety measures, superior pick-up options, and a
strong and broad merchandise offering have won consumer choice,
loyalty, and market share. Consumers want to limit their exposure and
increasingly seem to not want to bother with multiple car stops; as such,
consumers are consolidating their shopping list into one stop at one
retailer. (Other less urgent or specialty items can be ordered online).
Retailers that are losing customers, shopping trips, and market share
are single-purpose retailers (apparel, home, and other); this includes
large retailers like Kohls and Bed Bath & Beyond. Yes, Bed Bath's
comps were up 6% during its most recent quarter (comps were goosed
by transferred sales and total sales were down 1%), but the category
was up 12% in its matched period per the BEA 2.4.5U report.
Target had notably strong execution and investment in safety during
COVID per press reports and surveys. Target's superior safety is
evidenced by its 11% store-comp for the July quarter, one of the few
retailers to have a positive store comp and superior to Walmart's +3%,
and despite Walmart benefiting from having a far larger rural footprint
(where COVID concerns were less) and a far larger grocery sales mix
(@ 50% vs. Target's <20%).
In our opinion, this divergence is the result of strong consumer wins in
all the mentioned-safety, pick-up, and merchandise. Based upon our
read of trends over the fall, Target's gains are extending, and we expect
those market share gains to prove durable into 2021 and beyond.
FQ1-April FQ2-July
TGT
Ticket 12.5% 18.8% More bundeling
Traffic -1.5% 4.6% More visits & with store traffic up
WMT-US
Ticket 16.5% 27.1% Much more bundeling
Traffic -5.6% -14.0% Less visits
Kroger Qtr-end 5/23/20 Qtr-end 8/15/20
Comps 19.0% 14.6%
Ticket (est) 24.0% 20.6%
Traffic (est) -5.0% -6.0%
Albertsons Qtr-end 6/20/20
Comps 26.5%
Ticket (est) 31.5%
Traffic (est) -5.0%
DG 21.7% 18.8%
Traffic (est) 6.0% -3.0% Similar to WMT
FDO 15.5% 11.6%
Traffic 1.4% -11.3% Similar to WMT
10

Sustainable Gross Margin Drivers
Cart / Trip Consolidation
Another outcome of consolidation is a decrease in
consumers' priority for price in favor of safety and
convenience. Consequently, retailer merchandise
margins (excluding disrupted categories like apparel)
are increasing. Part of this is due to fewer coupons,
promotions, etc. and part is due to higher prices that
are justified based upon supply chain pressures,
shipping costs, COVID costs, etc. We also feel that
margins are also higher because on the increased
prioritization of safety and convenience and as such
consumers are not "shopping around" for the lowest
price, or chasing hot-promotions. While the economic
strains on some consumers are real and building, that
is not most consumers and we suspect that the
industry (especially the apparel industry) is on a path
to inflation as they choose to compete in other ways
than price and work to expand operating margins to
improve their companies' durability.
Omni-channel Efficiencies
Most retailers, including Target, have faced gross profit margin erosion as
a result of digitally fulfilled orders as they added technology, pickers,
packers, and shipping to the cost structure. As shown below, these costs
added 38 pts 1A to an orders cost in 2018. However, during 2019 Target
became increasingly more efficient due to operational improvements and
other options like Shipt and curbside with only a 12 pt hit in '19 1B.
Category Mix
Based upon our sales forecasts, Target's category mix
should significantly lessen as a headwind in the post-
COVID period. Whether that flows through depends
upon management's decisions of share vs. rate.
Target manages to optimize for $ of margin and so if
they chose to drop rate to drive share, the net result
would be more gross profit $s. Thus, we are not hung
up on whether the rate shows through. We are
focused on watching for an acceleration in GP-$
growth.
Roundel
Roundel is Target's ad business (similar to Amazon's) that sells its customer
base audience to advertisers for video, social, email, desktop and mobile ads.
Roundel offers targeting including demographics, buyer behavior, etc.
2020 was Roundel's re-launch year after reorganizing the division and adding
experienced digital ad personnel and capabilities. The significant up-tick in
growth in the 1H'20 suggests that Roundel revenue will increase $200M YoY
for 2020; we project that level of volume of growth in the subsequent years.
Target Corp. 2018 May-19 Jul-19 Oct-19 Jan-20 2019
Retail Sales 74,432 17,401 18,183 18,414 23,133 77,131
% Change 5.3% 5.1% 3.6% 4.7% 7.3% 3.6%
Retail Gross Profit 21,133 5,153 5,558 5,479 6,077 22,267
% Change 2.0% 4.5% 4.6% 8.4% 5.4%
% of Retail Sales 28.4% 29.6% 30.6% 29.8% 26.4% 28.9%
YoY bps Ch -44 bps -17 bps 30 bps 102 bps 106 bps 48 bps
Digital Fullfillment & Supply Chain -70 bps -50 bps -30 bps -8 bps 0 bps -20 bps
Sales Mix -20 bps 20 bps 30 bps 20 bps
Merchandise Margin 50 bps 40 bps 80 bps 50 bps
Merchandise 33 bps 106 bps
Incremental Digital Sales $1,388 $247 $344 $326 $397 $1,313
Incremental COGS -$521 -$87 -$55 -$15 $0 -$156
Rate on Increment -38% -35% -16% -5% 0% -12%
Target Corp. 2019 2020 2021 2022 2023 2024
Other (Advertising) $302 $504 $744 $994 $1,244 $1,494
YoY Ch $202 $240 $250 $250 $250
11
1A 1B

Target Corp. 2019 May-20 Jul-20 Oct-20 Jan-21 2020 Jun-21 Jul-21 Oct-21 Jan-22 2021
Retail Sales 77,131 19,371 22,696 21,674 27,382 91,124 21,507 22,151 22,395 27,838 93,892
% Change 3.6% 11.3% 24.8% 17.7% 18.4% 18.1% 11.0% -2.4% 3.3% 1.7% 3.0%
COGS 54,864 14,510 15,673 15,150 20,039 65,372 14,510 15,673 15,579 20,222 310,672
Retail Gross Profit 22,267 4,861 7,023 6,524 7,343 25,751 6,366 6,799 6,797 7,535 27,497
% Change 5.4% -5.7% 26.4% 19.1% 20.8% 15.6% 31.0% -3.2% 4.2% 2.6% 6.8%
% of Retail Sales 28.9% 25.1% 30.9% 30.1% 26.8% 28.3% 29.6% 30.7% 30.4% 27.1% 29.3%
YoY bps Ch 48 bps -452 bps 38 bps 35 bps #REF! -61 bps 451 bps -25 bps 25 bps 25 bps 103 bps
Retail SG&A 16,233 4,060 4,435 4,478 4,854 17,827 3,906 4,030 4,415 4,740 17,090
YoYCh $397 $523 $325 $350 ($154) ($405) ($63) ($114) ($737)
BAU Costs YoY $95 $123 $125 $150 $336 -$80 $112 $61 $428
Growth Investments YoY
C19 Costs YoY $620 $400 $200 $200 $1,420 -$465 -$300 -$150 -$150 -$1,065
Discretionary Cuts YoY -$318 -$25 -$25 -$25 -$25 -$100
% Change 21.0% 21.0% 19.5% 20.7% 17.7% 19.6% 18.2% 18.2% 19.7% 17.0% 18.2%
% of sales 21.0% -9 bps -197 bps -189 bps #REF! 19.6% -280 bps -135 bps -95 bps -70 bps 18.2%
YoY bps Ch -8 bps -148 bps -136 bps
Retail Depreciation 2,357 577 542 542 542 2,203 542 542 542 542 2,168
Retail EBIT 3,678 224 2,046 1,504 1,947 5,721 1,918 2,227 1,840 2,253 8,239
% Change 15% -75% 89% 100% 109% 56% # 9% 22% 16% 44%
% of Retail Sales 4.8% 1.2% 9.0% 6.9% 7.1% 6.3% 8.9% 10.1% 8.2% 8.1% 8.8%
YoY bps Ch 49 bps 151 bps 250 bps
Modeling the Transition to Higher Margins
12
1. If Target can retain the sales volume from this year 1A and moderately grow in 2021 1B, Target's financial model will transition into a structurally
higher margin business simply due to leverage on fixed costs and COVID-inspired cost-outs (efficiencies and reductions in work streams, less T&E,
purging of underperformers with roles eliminated, WFH and satellite offices vs. more expensive downtown real estate, etc.) Gains from these during
2020 are obscured by the $1.4B in forecasted COVID costs 1C, itself 150bps of margin.
2. We forecast that Target will report a 6.3% retail EBIT for 2020 2A. Adding the COVID costs back lift that to 7.8%. 2020's 6.3% was also inclusive of
$875M in markdowns of apparel and seasonal goods taken in the May '20-quarter. Reversing that in 2020 adds 90 bps to margins, i.e. lifts it to 8.7%.
We also expect Target to find at least $100M 2B during 2021 in additional savings as they align workstreams and expenses to a more stabile post-
COVID environment. This $100M amount is just a "place holder" as we suspect that there is opportunity for 2X to 3X the number; however, a material
portion of that 2X to 3X will likely be re-invested in growth, merchandise, and delivery initiatives.
1A
1B
1C
2A
2B
2B

Target Corp. 2019 2020 2021 2022 2023 2024
Retail Sales 77,131 91,124 93,892 100,183 105,789 110,780
% Change 3.6% 18.1% 3.0% 6.7% 5.6% 4.7%
COGS 54,864 65,372 310,672 308,282 270,656 273,987
Retail Gross Profit 22,267 25,751 27,497 29,590 31,511 33,274
% Change 5.4% 15.6% 6.8% 7.6% 6.5% 5.6%
% of Retail Sales 28.9% 28.3% 29.3% 29.5% 29.8% 30.0%
YoY bps Ch 48 bps -61 bps 103 bps 25 bps 25 bps 25 bps
Retail SG&A 16,233 17,827 17,090 18,189 19,077 19,877
YoYCh ($737) $1,098 $888 $800
BAU Costs YoY $428 $973 $763 $675
Growth Investments YoY $125 $125 $125
C19 Costs YoY $1,420 -$1,065
Discretionary Cuts YoY -$100
% Change 21.0% 19.6% 18.2% 6.4% 4.9% 4.2%
% of sales 21.0% 19.6% 18.2% 18.2% 18.0% 17.9%
YoY bps Ch -8 bps -148 bps -136 bps -5 bps -12 bps -9 bps
SG&A Breakdown
Growth Investments $0 $0 $125 $250 $375
Marketing $1,647 $1,647 $1,729 $1,816 $1,907 $2,002
% of sales 2.1% 1.8% 1.8% 1.8% 1.8% 1.8%
Occupancy $287 $301 $316 $332 $349 $366
Headquarters & Other $4,838 $3,476 $3,919 $4,227 $4,146 $4,055
Store Wages & Benefits $9,461 $12,402 $11,126 $11,689 $12,425 $13,079
% of sales 12.3% 13.6% 11.8% 11.7% 11.7% 11.8%
Estimated Store Employees 338,668 345,442 335,974 333,501 340,352 343,938
# per Store 181 185 179 177 181 183
Stores 1,868 1,871 1,876 1,881 1,882 1,883
Est Hours / Employee 32 32 32 32 32 32
Total Hourly Benefit Cost $16.79 $19.11 $19.90 $21.06 $21.94 $22.85
% Change 11% 6% 4% 4%
Benefits $2.89 $3.11 $3.26 $3.42 $3.60 $3.78
Wage $13.90 $16.00 $16.64 $17.64 $18.34 $19.08
Retail Depreciation 2,357 2,203 2,168 2,276 2,390 2,510
Retail EBIT 3,678 5,721 8,239 9,125 10,043 10,888
% Change 15% 56% 44% 11% 10% 8%
% of Retail Sales 4.8% 6.3% 8.8% 9.1% 9.5% 9.8%
YoY bps Ch 49 bps 151 bps 250 bps 33 bps 39 bps 33 bps
Credit & Advertising Segment 981 1,111 1,424 1,674 1,924 2,174
Interest Expense, Net 468 499 480 480 480 480
Pretax Income 4,191 6,333 10,143 11,279 12,447 13,542
5.4% 10.8% 12.2%
Provision for Income Taxes 921 1,414 2,231 2,707 3,236 3,521
Income tax rate 22.0% 22.3% 22% 24% 26% 26%
Net Income 3,268 4,919 7,912 8,572 9,211 10,021
Adjusted Diluted EPS $6.34 $9.75 $16.04 $17.95 $19.27 $21.69
Medium-Term PnL
1. To the left, we have broken down Target's SG&A 1A into its
major elements of marketing, occupancy, HQ, and store
labor. The largest component of these is store labor which
was 12.3% in '19 1B; its lift to 13.6% in '20 reflects COVID
which drops off in '21 and '22.
2. Target has already implemented a $15/hr minimum wage for
all stores and we expect hourly costs to increase at a 6.4%
CAGR from 2019 to 2024 2A reflecting inflationary and
competitive pressures for retail, delivery, and DC workers
and the social pressure resulting from income inequity.
3. HQ & Other expenses 3A were materially down in 2020
due to lower advertising, T&E, WFH, etc. and we expect a
fare amount of that expense to return. However,
management has provided no insight to the amount and
so we are making a conservative assumption that most
does (we discussed this on the prior slide as well). Our
medium-term estimates include $125M/yr in additional
growth investments which build to $375M by 2024 3B.
4. As detailed earlier, we forecast Roundel and advertising to
grow by $250M per year. We are modeling no growth in
Target's share of profits from its credit business. We are
not "bearish" or "bullish" on the segment; we are simply
not taking a view. 4A
5. We do expect corporate tax rates to increase in the '24
and beyond period as governments work to reduce the
deficits resulting from COVID. 5A
1A
3B
2A
1B
4A
5A
3A
13

Target's Balance Sheet, Cash Flow, & Capital Allocation
We model no
leverage or
deleverage.
Given the no
leverage we
assume a
large buyback
We expect Target
to maintain a 40%
payout ratio
14
Target Corp. 2019 2020 2021 2022 2023 2024
Retail Sales 77,131 91,124 93,771 100,053 105,652 110,635
% Change 3.6% 18.1% 2.9% 6.7% 5.6% 4.7%
Retail EBIT 3,678 5,721 8,228 9,113 10,030 10,873
% Change 15% 56% 44% 11% 10% 8%
% of Retail Sales 4.8% 6.3% 8.8% 9.1% 9.5% 9.8%
Credit & Advertising Segment 981 1,111 1,424 1,674 1,924 2,174
Interest Expense, Net 468 499 480 480 480 480
Pretax Income 4,191 6,333 10,132 11,267 12,434 13,527
5.4% 10.8% 12.2%
Provision for Income Taxes 921 1,414 2,229 2,704 3,233 3,517
Income tax rate 22.0% 22.3% 22% 24% 26% 26%
Net Income 3,268 4,919 7,903 8,563 9,201 10,010
% Change #REF! 54% 64% 12% 7% 13%
Diluted Shares Outstanding 516 504 493 478 478 462
CFO $7,117 $12,374 $13,278 $14,163 $15,255
D&A $2,604 $2,468 $2,576 $2,690 $2,810
SBC $147 $147 $147 $147 $147
Adj NI + D&A + SBC $6,019 $10,518 $11,286 $12,038 $12,966
% of CFO 85% 85% 85% 85% 85%
Cap Ex $3,027 $2,750 $3,000 $3,000 $2,390 $2,510
Dividend $1,330 $3,161 $3,425 $3,680 $4,004
% of NI 41% 40% 40% 40% 40%
per share $6.41 $7.17 $7.70 $8.67
Excess Cash $2,760 $6,213 $6,853 $8,092 $8,741
% Buyback 57% 80% 80% 80% 80%
Buyback $1,565 $4,970 $5,482 $6,474 $6,993
Assumed Stock Price $225 $369 $413 $444
Shares 22 15 16 16
Invested Capital $25,762 $25,762 $26,294 $26,718 $26,418 $26,118

Stock Price Appreciation
Target Corp. 2019 2020 2021 2022 2023 2024
Retail Sales 77,131 91,124 93,892 100,183 105,789 110,780
% Change 3.6% 18.1% 3.0% 6.7% 5.6% 4.7%
Retail EBIT 3,678 5,721 8,239 9,125 10,043 10,888
% Change 15% 56% 44% 11% 10% 8%
% of Retail Sales 4.8% 6.3% 8.8% 9.1% 9.5% 9.8%
Net Income 3,268 4,919 7,912 8,572 9,211 10,021
Valuation
S&P 500 Mutliple-TTM 20.0 20.0 20.0 20.0
Premium 10% 10% 10% 10%
PO Multiple 22.0 22.0 22.0 22.0
Stock Price $353 $395 $424 $477
Aggregate Dividend Income $6 $14 $21 $30
Total Return $359 $408 $445 $507
# IRR from $160 on 10.12.20 91% 52% 37% 31%
15

Additional Considered Outcomes
1. Target may choose to invest the so described upside in margin into store wages and benefits. Target would have the leeway
to do so as 100bps of margin applied to wages would still leave the pre-tax margin far above historic levels and at a level
that still resulted in a material appreciation in the stock price. An additional strategic benefit of the 100 bps (say in 2022), or
$2.00/hr to $19.64, would be to impose a similar level of PnL pressure on its competitors as these would need to match the
Target increase. That pressure would compel weaker competitors to restrain investments and close stores that wouldn't have
profitability at the higher wage level. Additionally, given Target's ubiquity and 350K employees, this wage increase would
also have the effect (as the $15/hr did) of being the catalyst for higher wages for frontline workers across service industries.
This in turn would be followed by higher prices as companies raise prices to compensate for the higher wages. Higher prices
across retail and services and more nominal wage income for households would produce the additional benefit to Target of
higher comps.
2. Federal policy makers may observe the higher margins in the COVID winners and increase tax rates to redistribute income
far above the 28% range suggested by the Biden campaign as a way to compensate for COVID-policy inequities.
3. Target may invest some of the margin to expand into adjacencies. Do they return to healthcare? Or invest in in-store 3P food
halls to take advantage of COVID's destruction to the restaurant industry? And can that food hall leverage the investment in
Target's new fulfillment options? Can they do more in easy-meals, meal kits, and prepared food? Can that also leverage the
food hall investments and the food hall's entrepreneurs' knowledge / inspiration?
4. Should we be significantly wrong about 2021's growth and comps fall 5% then EPS would be around $12.50/sh and the
valuation multiple would compress to ~14.0X yielding a stock price of $175/sh for year-end 2021. (Note, the draw down in
the stock price during the accelerating negative comps would likely push the stock materially below $175.)
16

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