Letter To Our Shareholders

2008 was a difficult year for Target as unprecedented economic challenges, especially in the second half of the year, pressured sales and profits in our retail segment and led to a meaningful deterioration in our credit card segment risk metrics and performance. Overall, revenues for the year rose 2.5 percent to $64.9 billion; we generated net earnings of $2.2 billion and our diluted earnings per share were $2.86.

While these results fell short of our expectations, we continued to manage our business thoughtfully to fuel profitable market share growth, control expenses while maintaining a consistently positive guest experience, and invest capital to deliver appropriate shareholder returns and ensure sufficient liquidity in an uncertain market.

We achieved these objectives by balancing our commitment to the vision, values, strategic priorities and “Expect More. Pay Less.” brand promise that has been the foundation of our success for decades with an equal dedication to remain relevant in today’s environment by continuing to innovate, adapt and evolve. Specifically,

• To ensure our guests understand our unique ability to meet their desire for everyday essentials and affordable indulgences, we elevated the prominence of the “Pay Less” half of our brand promise in both our merchandising and marketing through in-store signing and presentation as well as new campaigns that emphasize our outstanding value.

At the same time, we continued to deliver differentiation and newness on the “Expect More” side of our brand promise with the introduction of Converse One Star in apparel and shoes, the launch of upscale beauty brands, an expanded owned brand presence and a continuous flow of designer collections at exceptional prices.

• We also intensified our efforts to enhance the one-stop shopping convenience we provide to our guests by continuing to expand our assortment of food, pharmacy and household commodities in our general merchandise stores.

• We maintained our sharp focus on managing inventories and in-stocks to balance markdown risk with guests’ expectations. Our newly launched store and merchandise segmentation strategy allowed us to customize our assortment, timing and presentation based on the sales volume of individual stores and local preferences.

• We intensified our enterprise-wide focus on reducing expense, taking a thoughtful and strategic approach to managing our business in an uncertain environment. Specific actions included the introduction of new training initiatives and technology tools in our stores, resulting in improved productivity and significant savings in stores payroll, alignment of our headquarters staffing with business needs and suspension of salary increases for management.

• We remained focused on investing capital to create substantial shareholder value over time. During 2008, we opened 114 total new stores, or 91 stores net of relocations and rebuilds, including our first stores in Alaska.

We also continued to invest in technology, distribution and other infrastructure to capture increased efficiencies, support key strategic initiatives, such as perishable food distribution and pharmacy, and protect and preserve our reputation.

• We were very deliberate in the management and application of our cash resources, repurchasing approximately 8 percent of outstanding shares during the year before suspending our repurchase activity.

• And, we completed a transaction to sell an undivided interest in our credit card receivables to JPMorgan Chase that provided significant liquidity to Target from a single source unrelated to debt capital markets and is expected to create substantial financial and strategic rewards over time.

We look to the future fully aware of the short-term economic pressures we face, yet optimistic that we will retain our position as a leading retailer over the long term. We continue to balance both offense and defense to address the challenges of a volatile economy and sustain our competitive advantage.

To grow sales and profitability in 2009 and beyond, we are capitalizing on opportunities across the company. For example:

• We continue to invest in our food offering to maximize its ability to drive greater frequency, strengthen guest loyalty and make Target a preferred shopping destination. In 2009, we plan to further enhance the food offering in our new and remodeled general merchandise stores by providing a deeper assortment of dry, dairy and frozen foods and adding an edited assortment of perishable items.

• We are consolidating our owned brand portfolio, concentrating on fewer, more powerful brands to make a more impactful statement about these exclusive, high-quality, affordable assortments. In 2009, we also plan to reinvent and re-launch Target Brand and Target Home.

• As part of the ongoing innovation to our product design, development and global sourcing infrastructure and process, we are working with our vendors to offset the rising cost of raw materials, reduce lead times and improve product quality, delivering even greater value for our guests.

• To maintain maximum financial and strategic flexibility, we continue to evaluate and underwrite proposed new store projects one at a time. In 2009, we expect to open approximately 75 new stores, or about 60 net of relocations and rebuilds, and we have dramatically slowed the pace of sites entering our new store pipeline beyond this year.

• And we remain intensely devoted to operational discipline throughout our organization — without compromising the guest experience, including a continued focus on strengthening expense accountability, improving productivity and carefully managing inventory.

In today’s environment we recognize, perhaps more than ever, the importance of providing a workplace that is preferred by our team members and the value of investing in our communities to improve the quality of life.

Our legacy of community giving — both in terms of financial support and team member volunteer hours — is a hallmark of our brand and a differentiating factor in our ability to attract and retain top talent.

We are also proud of our long heritage of strong corporate governance — another aspect of the Target brand that we take very seriously. Bob Ulrich, who retired as chief executive officer last May and as chairman of the board in January 2009, exemplified the qualities that we consider paramount to our current and future success, including a focus on team, a commitment to community and a devotion to disciplined, ethical stewardship of this corporation’s assets.

As we look to the future, we are confident that the contributions of exemplary leaders throughout our organization and the dedication of our talented and diverse team, combined with our clear vision, balanced strategy and thoughtful execution, will position Target to deliver value for our shareholders for a long time to come.

Sincerely,
Gregg Steinhafel
Chairman, President and Chief Executive Officer

Download Target Corporation Annual Report 2008

PDF format, 18MB, 84Pages.

Target Corporation
1000 Nicollet Mall Minneapolis, MN 55403
612.304.6073
Target.com

Target Corporation (the Corporation or Target) was incorporated in Minnesota in 1902. We operate as two reportable segments: Retail and Credit Card.

Our Retail Segment includes all of our merchandising operations, including our large-format general merchandise and food discount stores in the United States and our fully integrated online business. We offer both everyday essentials and fashionable, differentiated merchandise at exceptional prices.

Our ability to deliver a shopping experience that is preferred by our guests is supported by our strong supply chain and technology infrastructure, a devotion to innovation that is ingrained in our organization and culture, and our disciplined approach to managing our current business and investing in future growth.

As a component of the Retail Segment, our online business strategy is designed to enable guests to purchase products seamlessly either online or by locating them in one of our stores with the aid of on-line research and location tools. Our online shopping site offers similar merchandise categories to those found in our stores, excluding food items and household commodities.

Our Credit Card Segment offers credit to qualified guests through our branded proprietary credit cards, the Target Visa and the Target Card (collectively, REDcards). Our Credit Card Segment strengthens the bond with our guests, drives incremental sales and contributes to our results of operations.

Prior to 2008, we operated as a single business segment. Financial information about our segments is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 28 of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

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