Title
10-K 1 tgt-20170128x10k.htm 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended January 28, 2017
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number 1-6049
TARGET CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota
(State or other jurisdiction of
incorporation or organization)
41-0215170
(I.R.S. Employer
Identification No.)
1000 Nicollet Mall, Minneapolis, Minnesota
(Address of principal executive offices)
55403
(Zip Code)
Registrant’s telephone number, including area code: 612/304-6073
Securities Registered Pursuant To Section 12(B) Of The Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, par value $0.0833 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Note Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from
their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No o
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
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company (as defined in Rule 12b-2 of the Act). See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 126-2 of the Exchange Act.
Large accelerated filer x Accelerated filer o Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The aggregate market value of the voting stock held by non-affiliates of the registrant as of July 30, 2016 was $43,242,921,133, based on the
closing price of $75.33 per share of Common Stock as reported on the New York Stock Exchange Composite Index.
Indicate the number of shares outstanding of each of registrant’s classes of Common Stock, as of the latest practicable date. Total shares of
Common Stock, par value $0.0833, outstanding at March 2, 2017 were 552,675,341.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Target’s Proxy Statement to be filed on or about May 1, 2017 are incorporated into Part III.
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TABLE OF CONTENTS
PART I
Item 1 Business 2
Item 1A Risk Factors 5
Item 1B Unresolved Staff Comments 10
Item 2 Properties 11
Item 3 Legal Proceedings 12
Item 4 Mine Safety Disclosures 12
Item 4A Executive Officers 13
PART II
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities 14
Item 6 Selected Financial Data 16
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
Item 7A Quantitative and Qualitative Disclosures About Market Risk 29
Item 8 Financial Statements and Supplementary Data 30
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 59
Item 9A Controls and Procedures 59
Item 9B Other Information 59
PART III
Item 10 Directors, Executive Officers and Corporate Governance 59
Item 11 Executive Compensation 60
Item 12 Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters 60
Item 13 Certain Relationships and Related Transactions, and Director Independence 60
Item 14 Principal Accountant Fees and Services 60
PART IV
Item 15 Exhibits, Financial Statement Schedules 61
Signatures 65
Exhibit Index 67
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PART I
Item 1. Business
General
Target Corporation (Target, the Corporation or the Company) was incorporated in Minnesota in 1902. We offer our
customers, referred to as “guests,” everyday essentials and fashionable, differentiated merchandise at discounted prices.
Our ability to deliver a preferred shopping experience to our guests is supported by our supply chain and technology, our
devotion to innovation, our loyalty offerings such as REDcard Rewards and Cartwheel, and our disciplined approach to
managing our business and investing in future growth. We operate as a single segment designed to enable guests to
purchase products seamlessly in stores or through our digital channels. Since 1946, we have given 5 percent of our profit
to communities.
We perform account servicing and primary marketing functions for, and earn a substantial portion of the profits generated
by, the Target Credit Card and Target MasterCard consumer receivables portfolio, which is underwritten, funded, and
owned by TD Bank Group (TD). Refer to Note 9 of the Consolidated Financial Statements included in Item 8, Financial
Statements and Supplementary Data (the Financial Statements) for more information on the credit card profit sharing.
Prior to January 15, 2015, we operated a Canadian Segment. On January 15, 2015, we announced our exit from the
Canadian market, and Target Canada Co. and certain other wholly owned subsidiaries of Target filed for protection (the
Filing) in Canada under the Companies’ Creditors Arrangement Act (CCAA) with the Ontario Superior Court of Justice in
Toronto (the Court). Following the Filing, we no longer consolidate our former Canadian retail operation. Canadian
financial results prior to the Filing are included in our financial statements and classified within discontinued operations.
See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and Note
7 of the Financial Statements for more information.
Prior to December 16, 2015, we operated 1,672 pharmacies and 79 clinics in our stores. On December 16, 2015, we
sold our pharmacy and clinic businesses (Pharmacy Transaction) to CVS Pharmacy, Inc. (CVS). CVS now operates the
pharmacy and clinic businesses in our stores under a perpetual operating agreement, subject to termination in limited
circumstances. See MD&A and Note 6 of the Financial Statements for more information.
Discontinued operations in this Annual Report on Form 10-K refers only to our discontinued Canadian operations.
Financial Highlights
For information on key financial highlights and segment financial information, see the items referenced in Item 6,
Selected Financial Data, MD&A, and Note 30 of the Financial Statements.
Seasonality
A larger share of annual revenues and earnings traditionally occurs in the fourth quarter because it includes the peak
holiday sales period of November and December.
Merchandise
We sell a wide assortment of general merchandise and food. The majority of our general merchandise stores offer an
edited food assortment, including perishables, dry grocery, dairy, and frozen items. Nearly all of our stores larger than
170,000 square feet offer a full line of food items comparable to traditional supermarkets. Our small, flexible format
stores, generally smaller than 50,000 square feet, offer curated general merchandise and food assortments. Our digital
channels include a wide assortment of general merchandise, including many items found in our stores, along with a
complementary assortment such as additional sizes and colors sold only online.
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A significant portion of our sales is from national brand merchandise. Approximately one-third of 2016 sales related to our
owned and exclusive brands, including but not limited to the following:
Owned Brands
Archer Farms Market Pantry Sutton & Dodge
Art Class Merona Threshold
Ava & Viv Pillowfort up & up
Boots & Barkley Room Essentials Wine Cube
Cat & Jack Simply Balanced Wondershop
Embark Smith & Hawken Xhilaration
Gilligan & O’Malley Sonia Kashuk
Knox Rose Spritz
Exclusive Brands
C9 by Champion Hand Made Modern Mossimo
DENIZEN from Levi’s Just One You made by carter’s Nate Berkus for Target
Fieldcrest Kid Made Modern Oh Joy! for Target
Genuine Kids from OshKosh Liz Lange for Target
We also sell merchandise through periodic exclusive design and creative partnerships and generate revenue from in-
store amenities such as Target Caf and Target Photo, and leased or licensed departments such as Target Optical,
Starbucks, and other food service offerings. The majority of our stores also have a CVS pharmacy from which we will
generate ongoing annual, inflation adjusted occupancy-related income (see MD&A and Note 6 of the Financial
Statements for more information).
Distribution
The vast majority of merchandise is distributed to our stores through our network of 40 distribution centers. Common
carriers ship general merchandise to and from our distribution centers. Vendors or third party distributors ship certain
food items and other merchandise directly to our stores. Merchandise sold through our digital channels is distributed to
our guests via common carriers from our distribution centers, from vendors or third party distributors, from our stores or
through guest pick-up at our stores. Using our stores as fulfillment points allows improved product availability and
delivery times and also reduces shipping costs.
Employees
At January 28, 2017, we employed approximately 323,000 full-time, part-time and seasonal employees, referred to as
“team members.” During the 2016 holiday sales period our employment levels peaked at approximately 373,000 team
members. We offer a broad range of company-paid benefits to our team members. Eligibility for and the level of benefits
vary depending on team members’ full-time or part-time status, compensation level, date of hire, and/or length of service.
Company-paid benefits include a 401(k) plan, medical and dental plans, disability insurance, paid vacation, tuition
reimbursement, various team member assistance programs, life insurance, a pension plan (closed to new participants,
with limited exceptions), and merchandise and other discounts. We believe our team member relations are good.
Working Capital
Our working capital needs are greater in the months leading up to the holiday sales period, which we typically finance
with cash flow provided by operations and short-term borrowings. Additional details are provided in the Liquidity and
Capital Resources section in MD&A.
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Effective inventory management is key to our ongoing success, and we use various techniques including demand
forecasting and planning and various forms of replenishment management. We achieve effective inventory management
by staying in-stock in core product offerings, maintaining positive vendor relationships, and carefully planning inventory
levels for seasonal and apparel items to minimize markdowns.
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Competition
We compete with traditional and internet retailers, including off-price general merchandise retailers, apparel retailers,
wholesale clubs, category specific retailers, drug stores, supermarkets, and other forms of retail commerce. Our ability to
positively differentiate ourselves from other retailers and provide a compelling value proposition largely determines our
competitive position within the retail industry.
Intellectual Property
Our brand image is a critical element of our business strategy. Our principal trademarks, including Target, SuperTarget
and our “Bullseye Design,” have been registered with the U.S. Patent and Trademark Office. We also seek to obtain and
preserve intellectual property protection for our owned brands.
Geographic Information
Virtually all of our revenues are generated within the United States. The vast majority of our long-lived assets are located
within the United States.
Available Information
Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge at
investors.target.com as soon as reasonably practicable after we file such material with, or furnish it to, the U.S. Securities
and Exchange Commission (SEC). Our Corporate Governance Guidelines, Business Conduct Guide, Corporate Social
Responsibility Report, and the charters for the committees of our Board of Directors are also available free of charge in
print upon request or at investors.target.com.
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Item 1A. Risk Factors
Our business is subject to many risks. Set forth below are the material risks we face. Risks are listed in the categories
where they primarily apply, but other categories may also apply.
Competitive and Reputational Risks
Our continued success is dependent on positive perceptions of Target which, if eroded, could adversely affect
our business and our relationships with our guests and team members.
We believe that one of the reasons our guests prefer to shop at Target, our team members choose Target as a place of
employment and our vendors choose to do business with us is the reputation we have built over many years for serving
our four primary constituencies: guests, team members, shareholders, and the communities in which we operate. To be
successful in the future, we must continue to preserve Target’s reputation. Reputational value is based in large part on
perceptions, and broad access to social media makes it easy for anyone to provide public feedback that can influence
perceptions of Target. It may be difficult to control negative publicity, regardless of whether it is accurate. While
reputations may take decades to build, any negative incidents can quickly erode trust and confidence, particularly if they
result in negative mainstream and social media publicity, governmental investigations, or litigation. Negative incidents
could lead to tangible adverse effects on our business, including consumer boycotts, lost sales, loss of new store and
technology development opportunities, or team member retention and recruiting difficulties. In addition, vendors and
others with whom we choose to do business may affect our reputation. For example, CVS operates clinics and
pharmacies within our stores, and our guests perceptions of and experiences with CVS may impact our reputation.
If we are unable to positively differentiate ourselves from other retailers, our results of operations could be
adversely affected.
In the past, we have been able to compete successfully by differentiating our guests shopping experience through a
careful combination of price, merchandise assortment, store environment, convenience, guest service, loyalty programs
and marketing efforts. Our ability to create a personalized guest experience through the collection and use of accurate
and relevant guest data is important to our ability to differentiate from other retailers. Guest perceptions regarding the
cleanliness and safety of our stores, the functionality, reliability, and speed of our digital channels and fulfillment options,
our in-stock levels, the effectiveness of our promotions, the attractiveness of our third party offerings, such as the clinics
and pharmacies owned and operated by CVS, and other factors also affect our ability to compete. No single competitive
factor is dominant, and actions by our competitors on any of these factors or the failure of our strategies could have an
adverse effect on our sales, gross margins, and expenses.
We sell many products under our owned and exclusive brands. These brands are an important part of our business
because they differentiate us from other retailers, generally carry higher margins than equivalent national brand products
and represent a significant portion of our overall sales. If we are unable to successfully develop and support our owned
and exclusive brands, if one or more of these brands experiences a loss of consumer acceptance or confidence, or if we
are unable to successfully protect our intellectual property rights in these brands, our sales and gross margins could be
adversely affected.
The continuing migration and evolution of retailing to digital channels has increased our challenges in differentiating
ourselves from other retailers. In particular, consumers are able to quickly and conveniently comparison shop and
determine real-time product availability using digital tools, which can lead to decisions based solely on price, the
functionality of the digital tools or a combination of those and other factors. We must compete by offering a consistent
and convenient shopping experience for our guests regardless of the ultimate sales channel. We must provide our
guests and team members digital tools that have the right features and are reliable and easy to use. Failures to
effectively execute in these efforts, actions by our competitors in response to these efforts, or failures of our vendors to
manage their own channels, content and technology systems could hurt our ability to differentiate ourselves from other
retailers and, as a result, have an adverse effect on sales, gross margins, and expenses.
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If we are unable to successfully provide a relevant and reliable experience for our guests, regardless of where
our guest demand is ultimately fulfilled, our sales, results of operations and reputation could be adversely
affected.
Our business has evolved from an in-store experience to interaction with guests across multiple channels (in-store,
online, mobile and social media, among others). Our guests are using computers, tablets, mobile phones and other
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devices to shop in our stores and online and provide feedback and public commentary about all aspects of our business.
We must anticipate and meet changing guest expectations and counteract new developments and technology
investments by our competitors. Our evolving retailing efforts include implementing new technology, software and
processes to be able to fulfill guest orders directly from our vendors and from any point within our system of stores and
distribution centers. Providing flexible fulfillment options is complex and may not meet guest expectations for accurate
order fulfillment, faster and guaranteed delivery times, and low-price or free shipping. If we are unable to attract and
retain team members or contract with third parties having the specialized skills needed to support these efforts,
implement improvements to our guestfacing technology in a timely manner, collect accurate, relevant, and usable guest
data to support our personalization efforts, allow real-time and accurate visibility to product availability when guests are
ready to purchase, quickly and efficiently fulfill our guests orders using the fulfillment and payment methods they
demand, or provide a convenient and consistent experience for our guests across all sales channels, our ability to
compete and our results of operations could be adversely affected. In addition, if Target.com and our other guestfacing
technology systems do not appeal to our guests, reliably function as designed, integrate across all sales channels, or
maintain the privacy of guest data we may experience a loss of guest confidence and lost sales, which could adversely
affect our reputation and results of operations.
If we fail to anticipate and respond quickly to changing consumer preferences, our sales, gross margins and
profitability could suffer.
A large part of our business is dependent on our ability to make trendright decisions and effectively manage our
inventory in a broad range of merchandise categories, including apparel, accessories, home dcor, electronics, toys,
seasonal offerings, food and other merchandise. For example, our apparel and home dcor assortment is continually
evolving and in other areas of our product assortment, including food, we are supporting guest wellness goals and
offering more items that appeal to local cultural and demographic tastes. Failure to obtain accurate and relevant data on
guest preferences, predict changing consumer tastes, preferences, spending patterns and other lifestyle decisions,
emphasize the correct categories, implement effective promotions, and personalize our offerings to our guests may result
in lost sales, spoilage, and increased inventory markdowns, which would lead to a deterioration in our results of
operations by hurting our sales, gross margins, and profitability.
Technology Investments and Infrastructure Risks
If our capital investments in technology, supply chain, new stores and remodeling existing stores do not
achieve appropriate returns, our competitive position, financial condition and results of operations may be
adversely affected.
Our business is becoming increasingly reliant on technology investments, and the returns on these investments can be
less predictable than building new stores and remodeling existing stores. We are currently making, and will continue to
make, significant technology investments to provide a consistent and improved guest experience across all sales
channels and improve our supply chain and inventory management systems. These technology initiatives might not
provide the anticipated benefits or desired return or may provide them on a delayed schedule or at a higher cost. Our
business also depends, in part, on our ability to build new stores and remodel existing stores in a manner that achieves
appropriate returns on our capital investment. We compete with other retailers and businesses for suitable locations for
our stores. Many of our expected new store sites are smaller and non-standard footprints located in fully developed
markets, which require changes to our supply chain practices and are generally more time-consuming, expensive and
uncertain undertakings than expansion into undeveloped suburban and ex-urban markets. Targeting the wrong
technology or store opportunities, failing to make the best investments, being unable to make new concepts scalable or
making an investment commitment significantly above or below our needs could result in the loss of our competitive
position and adversely impact our financial condition or results of operations.
A significant disruption in our computer systems and our inability to adequately maintain and update those
systems could adversely affect our operations and our ability to maintain guest confidence.
We rely extensively on our computer systems to manage and account for inventory, process guest transactions, manage
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and maintain the privacy of guest data, communicate with our vendors and other third parties, service REDcard
accounts, and summarize and analyze results. We also rely on continued and unimpeded access to the Internet to use
our computer systems. Our systems are subject to damage or interruption from power outages, telecommunications
failures, computer viruses, malicious attacks, security breaches, and catastrophic events. If our systems are damaged or
fail to function properly or reliably, we may incur substantial repair or replacement costs, experience data loss or theft
and impediments to our ability to manage inventories or process guest transactions, engage in additional
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promotional activities to retain our guests, and encounter lost guest confidence, which could adversely affect our results
of operations.
We continually make significant technology investments that are intended to help maintain and update our existing
computer systems. Implementing significant system changes increases the risk of computer system disruption. The
potential problems and interruptions associated with implementing technology initiatives could disrupt or reduce our
operational efficiency, and could negatively impact guest experience and guest confidence.
Data Security and Privacy Risks
If our efforts to protect the security of information about our guests, team members and vendors are
unsuccessful, we may face additional costly government enforcement actions and private litigation, and our
sales and reputation could suffer.
We regularly receive and store information about our guests, team members, and vendors. We have programs in place
to detect, contain and respond to data security incidents. However, because the techniques used to obtain unauthorized
access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long
periods of time, we may be unable to anticipate these techniques or implement adequate preventive measures. In
addition, hardware, software, or applications we develop or procure from third parties may contain defects in design or
manufacture or other problems that could unexpectedly compromise information security. Unauthorized parties may also
attempt to gain access to our systems or facilities, or those of third parties with whom we do business, through fraud,
trickery, or other forms of deceiving our team members, contractors, vendors, and temporary staff.
Until the data breach we experienced in the fourth quarter of 2013, all incidents we encountered were insignificant. The
data breach we experienced in 2013 was significant and went undetected for several weeks. Both we and our vendors
had data security incidents subsequent to the 2013 data breach; however, to date these other incidents have not been
material to our consolidated financial statements. Based on the prominence and notoriety of the 2013 data breach, even
minor additional data security incidents could draw greater scrutiny. If we, our vendors, or other third parties with whom
we do business experience additional significant data security breaches or fail to detect and appropriately respond to
significant data security breaches, we could be exposed to additional government enforcement actions and private
litigation. In addition, our guests could lose confidence in our ability to protect their information, which could cause them
to discontinue using our REDcards or loyalty programs, or stop shopping with us altogether.
Supply Chain and Third Party Risks
Changes in our relationships with our vendors, changes in tax policy or trade relations, interruptions in our
supply chain or increased commodity or supply chain costs could adversely affect our results of operations.
We are dependent on our vendors to supply merchandise to our distribution centers, stores and guests. As we continue
to add capabilities, our fulfillment network becomes increasingly complex and operating it becomes more challenging. If
our fulfillment network does not operate properly or if a vendor fails to deliver on its commitments, we could experience
merchandise out-of-stocks, delivery delays or increased delivery costs, which could lead to lost sales and decreased
guest confidence, and adversely affect our results of operations.
A large portion of our merchandise is sourced, directly or indirectly, from outside the United States, with China as our
single largest source. The results of the recent United States elections may signal a change in trade policy between the
United States and other countries. Because a large portion of our merchandise is sourced, directly or indirectly, from
outside the United States, major changes in tax policy or trade relations, such as the disallowance of tax deductions for
imported merchandise or the imposition of additional tariffs or duties on imported products, could adversely affect our
business, results of operations, effective income tax rate, liquidity and net income.
Political or financial instability, currency fluctuations, changes in trade policy, trade restrictions, tariffs or duties, the
outbreak of pandemics, labor unrest, transport capacity and costs, port security, weather conditions, natural disasters or
other events that could slow or disrupt port activities and affect foreign trade are beyond our control and could materially
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disrupt our supply of merchandise, increase our costs, and/or adversely affect our results of operations. There have been
periodic labor disputes impacting the United States ports that have caused us to make alternative arrangements to
continue the flow of inventory, and if these types of disputes recur, worsen, or occur in other countries through which we
source products, it may have a material impact on our costs or inventory supply. Changes in the costs of procuring
commodities used in our merchandise or the costs related to our supply chain, including vendor costs, labor, fuel, tariffs,
duties, currency exchange rates, and supply chain transparency initiatives, could have an
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adverse effect on gross margins, expenses, and results of operations. Changes in our relationships with our vendors also
have the potential to increase our expenses and adversely affect results of operations.
A disruption in relationships with third party service providers could adversely affect our operations.
We rely on third parties to support our business, including portions of our technology development and support, our
digital platforms and fulfillment operations, credit and debit card transaction processing, extensions of credit for our 5%
REDcard Rewards loyalty program, the clinics and pharmacies operated by CVS within our stores, the infrastructure
supporting our guest contact centers, and aspects of our food offerings. If we are unable to contract with third parties
having the specialized skills needed to support those strategies or integrate their products and services with our
business, if we fail to properly manage those third parties, if they fail to meet our performance standards and
expectations, including with respect to data security, then our reputation, sales, and results of operations could be
adversely affected. In addition, we could face increased costs associated with finding replacement providers or hiring and
retaining team members to provide these services in-house. An example of our reliance on third parties is our
relationship with CVS. If our guests do not react favorably to CVSs operations or if our relationship with CVS is
ineffective, our ability to discontinue the relationship is limited and our results of operations may be adversely affected. In
addition, if we wish to have clinics and pharmacies in any new stores, those clinics and pharmacies must be owned and
operated by CVS, which limits our flexibility in designing and operating new stores and new store concepts.
Legal, Regulatory, Global and Other External Risks
Our earnings are highly susceptible to the state of macroeconomic conditions and consumer confidence in the
United States.
Virtually all of our sales are in the United States, making our results highly dependent on United States consumer
confidence and the health of the United States economy. In addition, a significant portion of our total sales is derived
from stores located in five states: California, Texas, Florida, Minnesota and Illinois, resulting in further dependence on
local economic conditions in these states. Deterioration in macroeconomic conditio
