Good morning, everyone. It's really nice to see you all out there today. Thank you very much for coming. We have a lot to cover today, so we're going to get started in just a minute, but we have a couple of important disclosures up front that I'm just going to read verbatim to you. Any forward-looking statements that we make this morning are subject to risks and uncertainties, the most important of which are described on our SEC filings. And the second one is our earnings press releases and SEC filings available on target.com/investors provide reconciliations of adjusted EPS to our GAAP results and a reconciliation of the non-GAAP components of ROIC. With that, we'll get on with the show.

Well, thank you, John. Welcome, and thanks for joining us this morning. Today, I'm going to provide an overview of our strategy. I'll talk about where we've been, and more importantly, what's next. John will share more details about what we're doing to get there. And then Cathy will walk through our financial model. At the end of that, we'll spend the balance of the program taking your questions. As you all know, we've been on a multiyear journey to redefine the future of our company, to compete and ultimately win in this new era of retail. For the past several years, we've been watching several key consumer trends emerge. People are placing greater value on experiences. Often, they'd rather live it than own it, especially young people. When they buy, they want to buy into a greater purpose, not just a product. Taken together, these changes can only be described as a profound shift in the consumer mindset. Then combine that with the different behaviors around how and where consumers are choosing to shop. Today, there's total transparency. Ease and speed are paramount. The shift in channel preference is real and only gaining momentum. Our industry is in a midst of a seismic shift. And of course, you read the headlines. In fact, many of you write the reports. We're operating in an incredibly challenging environment. All across the retail industry, many of our competitors are aggressively rationalizing our assets. They're closing stores, exiting markets. They're cutting costs just to keep their heads above water. We've not seen this number of distressed retailers since 2009 in the Great Recession. This contraction will create opportunities for Target to pick up market share over the long term, but aggressive promotional activity will create pressure on our business in the near term.…

Good morning, everyone. Well, you just heard from Brian. Our brands, our smart network, the incredible value we offer our guests, put together, give us a unique position as we move into this next generation of retail. And over the past few years, we've made significant investments to make our assets work even harder. While we're seeing progress, we're nowhere near done. Brian just talked about the record number of days this season when we saw all-time high digital sales. Make no mistake, we're proud of that performance, but what he didn't say and what's just as important is that behind the scenes, our platform functioned flawlessly. Record online sales, record traffic and more than enough capacity in the system to keep things humming right along. A year ago, as you well know, it was a different story. Back in 2015, we introduced a general incentive offer for Cyber Monday, 15% off everything on our site, and our guests went crazy, which was great right up until it wasn't. Demand was so high that, quite candidly, we had to throttle traffic to keep our site from crashing, frustrating guests and leaving millions of dollars on the table. Not good. But the message was clear. Put together a compelling offer, straightforward, easy to understand with really clear value, and our guest will respond. But we also needed to really -- significantly increase our capacity to support the demand. So this year, our Chief Information and Digital officer, Mike McNamara, and his team, accelerated their efforts to deliver a new adaptive platform that gave us much more capacity, flexibility and stability. And when we put up record numbers this season, our site didn't fall through once for our guests. In fact, the new platform allowed us to adjust the site experience in…

So I showed you how we're expanding our footprint with more than 100 small-format [indiscernible] good look and feel for our guests and where we are today. We know that to really compete in the local market, we need to make some big investments in those buildings, and so we are. Starting in 2017, we'll reimagine 100 of our existing locations. We'll pull elements from our new store prototype, which we designed based on how guests responded to a multitude of tests we've run over the past few years, like our LA25 pilot. For this prototype, we took a fresh look at everything, from the front of store to the back room layout, the entrance displays to the product presentation, food and beverage to apparel. As we build on what worked in LA25 and add even more enhancements with this new prototype, we expect to see a 2% to 4% sales lift per store. Not only will they feel like the brand-new stores, they'll do even more than they can do today. The design will be flexible so the store can be configured to reflect the needs of each community. We'll have more space dedicated to visual storytelling, inspiring guests by showing products together, like entire outfits or table settings. And we'll re-allocate space to support digital [indiscernible] and designing backrooms to grow our ship-from-store capabilities. In 2018, we'll touch more than 250 stores and do that once again the next year [Audio Gap] stores, and that's just the beginning. We'll continue to make these investments so our stores can deliver the very best to our guests no matter the channel. With these enhancements, we'll be able to expand ship-from-store capabilities beyond the 1,000-plus stores shipping today. Just as every store already serves as an order pickup location, by 2019,…

John's last point is spot on. Our current performance is not where we need it to be. So I want to start today with a progress report on the last couple of years that will provide important context for where we are today. We have made significant progress on many of our strategies signature categories have grown much faster than our overall sales, consistently gaining market share. Target's digital performance has outpaced the industry, averaging 29% over the last 2 years. We've seen outstanding results in our new small formats, which generate much stronger sales productivity, healthy profit margins and return on investment. We've started investing to transform our supply chain. 2 years ago, fewer than 150 stores were shipping directly to guests. Today, that's grown to more than 1,000 stores and counting. We've made changes to allow our team to focus on our core business in the United States with our decisions to exit Canada and sell our pharmacy business. And the team has done an outstanding job of controlling costs. We beat our goal to take out a combined $2 billion of SG&A and cost of goods these last 2 years. And when you look back at our bottom line results, it's been a pretty good couple of years. In 2014, we earned an adjusted EPS of $4.22. It grew to $5.01 in 2016. That amounts to an average annual growth of 9%. Over that same time period, we returned nearly $10 billion to our shareholders through dividends and share repurchase. That solid performance, better than many others have seen. Despite that progress, we haven't seen the growth we expected. On average, our comp sales have grown less than 1% over the last 2 years. More importantly, instead of building momentum, we've been seeing a slowdown. Specifically, our…

Well, thank you, Cathy. So I know we've covered a lot of ground this morning, but I'd like to build on what Cathy just said. Target's been a great American retailer for more than 50 years, but our roots stretch back even further than that. As many of you know, our company started out as Dayton's Dry Goods just around the turn of the last century. That business evolving into a prominent chain of department stores, which led to a string of retail firsts, including the first indoor shopping mall, the first discount mass retailer, and later, the acquisition of Mervyn's and Marshall Field. You know the story from there. Evolution is in our blood. And out of every period of disruption, our company has always forged ahead into the next era. So when you think about what's in front of us, the seismic shift in consumer behavior that's disrupting our industry, we're doing what we've always done. We're taking the long view, investing to compete, investing to grow. And we have the financial strength and the resources to build a new company, one that's poised to lead, positioned to win in this next generation of retail. So look ahead 3 years from now. We talked about what we'll deliver: New stores, new formats, more than a dozen new brands, a coast-to-coast smart network [indiscernible] digital capabilities. To our guests, the entire experience will look and feel like a completely new Target. While many of our competitors are cutting costs and just trying to survive, we're doubling down. We know there'll be meaningful opportunities to capture additional market share now and in the long term, so we're aggressively deploying capital to expand our reach, reimagine our physical stores and transform our supply chain. We're investing in margin to accelerate and unlock even greater digital growth. We're investing in price to ensure we're competitive across our assortment every day, both online and in-store. And we're investing in speed to move faster than we ever have before. This is the plan that will produce the Target of the future. This is the plan that puts Target back on the path to profitable growth. This is the plan that will create shareholder value and deliver guest love and loyalty for many, many years to come. So I want to close by thanking you for joining us this morning. And now I'm going to invite John and Cathy as well as Mark Tritton, our Chief Merchant; and Mike McNamara, our Chief Digital and Information Officer, to join me on stage so we can spend time taking your questions.

We've got lots of mics, we've got lots of time, so we'll try and work our way around the room. If you could introduce yourselves this morning, I'd appreciate that. And we're happy to take your questions. So why don't we start right up front?

Chris Horvers, JPMorgan. Trying to dig in a little bit into the gross margin pressure. Understand that first quarter, you're going to have some pressure from markdowns and clearance, but then over the balance of the year, some channel shift pressure as well as price investments. Can you talk about the latter? What are you expecting in terms of gross margin pressure from the digital and pricing pressures? Will pricing largely be a reset in '17 and then we sort of neutralize from there? And is it your expectation that, over time, supply chain improvements ultimately stabilize the gross margin? And is that an '18 event?

Yes. Chris, let me talk about the pricing investments we're making. And I think as most of you know, coming out of the data breach, we invested heavily in promotions. As we go forward, we're going back to our roots and reestablishing our everyday low price commitment. So that's going to take some time. It's starting today. We're going to make sure that we re-establish our value with the guest. So there's an investment we have to make. And we also recognize we have to continue to invest in digital to grow that channel, to continue to make sure we're accelerating market share. So you're going to see us invest in 2017. As John talked about, we expect greater efficiencies over time, one, as we continue to optimize our digital performance, but importantly, as we transform our supply chain. But in the short term, we have to compete, we have to invest to make sure we're delivering the value the guest is looking for. We want to make sure we're taking market share both in-store and online. And we think those are 2 very important investments in the near term that provide long-term benefits for the company.

It's Michael Lasser from UBS.

Thank you.

I think the key question is, we all appreciate that you don't want to provide long-term guidance, but how long are you anticipating it's going to take for you to see you to see a return on all the investments that you're making? Is it reasonable to expect that you're going to return to earnings growth in 2018, 2019? When should we expect that?

I'll go back to what Cathy talked about just a few minutes ago. We certainly view 2017 as a year of investment. In '18, we'll continue to transition as these different initiatives begin to mature. As we get into '19 and beyond, we certainly expect stability and return to growth. So that's the model we're looking at. We can't lay it out for you quarter-by-quarter. We want to make sure we're properly investing and accelerating these initiatives. And if there's a message I want everyone to walk away with today, these aren't new initiatives. We've been working on these for several years. Now is the time for us to grow faster. And this is about accelerating at the right pace for our business. But whether it's our digital channel, the work John talked about in supply chain, the acceleration of remodeling our existing stores and reimagining that experience, we're opening up these new smaller formats. We've got to step on the accelerator. And as they mature, we're going to return to growth, we're going to capture market share, and we're certainly going to see the benefits that our shareholders are looking for.

Craig Johnson at Customer Growth Partners. Brian, I understand the importance and necessity of the reset you've talked about doing here today. And I want to look forward to how do you get back to growth. And one pillar of growth, of course, is traffic growth. Hallmark of all great retailers is consistent traffic growth. You showed 2 of them earlier Costco and TJMaxx. It applies to Wegmans and Home Depot. Question is, could you get more granular on how you're going to actually rebuild share of trip missions as a way of getting share of traffic?

Craig it's a great question, and it's embedded in everything we've talked about today. So the reinvestment in our stores, reimagining over the next few years hundreds and hundreds of stores. We've certainly learned in our tests in both Los Angeles and as we've remodeled stores in Texas, that as we bring in new experience, that drives traffic to our stores. As Mark and his team continue to roll out these new proprietary brands that are unique to Target that drives traffic to both our stores and our site. And we've seen that with Cat & Jack. [indiscernible] and our site. As we move into these new urban neighborhoods, it's driving foot traffic every single day. So as we think about how this smart network comes together, brands play an important role, that in-store experience is critically important, being in the right neighborhoods. But then we also know from a digital standpoint, more and more, our guests are ordering online and conveniently coming to our stores to pick up that order. That allows us to really make sure that once they're in our store, they continue to shop. So all of these elements are all about driving traffic to our stores and more visits to our site. And as they mature, that's certainly going to be one of the key metrics that we'll all be tracking.

Robbie Ohmes at Bank of America Merrill Lynch. As a follow-up to that question, can we get you guys to talk a little bit more about the category outlooks? So how you're thinking about price investment in terms of Food and Consumables versus Apparel and Electronics, et cetera? And also, for the new brands, maybe some more insight, what categories you're thinking about launching, some of these 12 new brands? And then just a quick for Cathy, I guess I might have missed it, I didn't understand. Are you -- you've been disciplined about store closings, but is there a change in your pace of store closings?

So let me start with price, let Mark talk about brands, and then Cathy can talk about our real estate portfolio. And I think you answered the question for us. As we think about the investments we're making in price, [Audio Gap] referred to, we've got to make sure that we move from a promotional cadence back to our traditional, everyday low price and great value every time they guest shops in those core, personal care, household essential and food categories. We'll certainly make sure we're revisiting price across the box, but it certainly starts with making sure we're price-right on those trip-driving items that our guests depend on Target for every day. Mark, why don't you talk about some of the brand work?

Yes. As we roll out the new brand work, we've been -- we're looking at Guest Insights about what brands and what spaces we should play in. But more importantly, what is the sweet spot on pricing for regular everyday pricing? So as we reset these brands, we're going to be defining great value every day for our guest as we introduce in every niche in the business.

Robbie, I'll quickly address store portfolio. As we said, we've had a very disciplined process forever. The team has done a great job. And so our pace doesn't change. We've been closing about 10 to 15 stores a year. That's been consistent year in and year out. We'll continue to do that. But that's just normal course for us. We look at every store every year and say, "Does it make sense to keep open?" And today, the answer is, yes, universally generating positive cash.

Yes. Cathy, on the store front, just to close that out. And I know we talked about it during our prepared remarks, but our store portfolio is mall-based. We're in some of the centers where most of the retailers are trying to migrate to. So we're very fortunate that over time, we built 1,800 stores that are effectively located. They're in the right neighborhoods. They're not off remotely on interstates. They're not tied to dying malls. So we have an obligation to revitalize some of those stores and reimage those stores. But one of the things that we're most confident about is we have an exceptional store portfolio. So as we invest, as we bring those stores up to the expectation that our guest has for Target, we expect those to drive traffic and continue to flourish in the years to come.

Matt McClintock from Barclays. So clearly, the story today is about investment, right, you need make substantial investments. And as I look back at the past 2 years, you've fallen shy of your capital plan by a significant amount, right? So as I look forward, one, can you help me understand where the shortfall to the capital plan was this past year? Two, would you attribute some of the weakness today that you're seeing to some of the lack of investment or shortfall to your prior capital plans? And then three, is the $2 billion enough for 2017, given that it falls to the low end of your prior long-term guidance of $2 billion to $2.5 billion?

Matt, I'd start out by talking about the last couple of years as being a time of very disciplined capital allocation. We've taken a very surgical approach to some of these initiatives. We remodeled 25 stores in Los Angeles. We've been testing and learning and iterating improving the expectation that the guest has, making sure we deliver against that. Now that we've gotten the feedback, we're ready to accelerate. John talked about we've opened up 32 small formats, not 300. We study each one of those very carefully to make sure we understood how to customize them for the local neighborhoods. Now that we understand the expectation, we're ready to accelerate. From a capital standpoint, we've actually benefited from the fact that Mike's taken a very disciplined approach to setting priorities within technology. And we've seen phenomenal improvement in our platforms, our capabilities at a lower cost. So our approach to capital has been very disciplined. We've been testing and validating and learning. Now that the learning is complete, we're ready to accelerate those investments. But we have been very disciplined. John talked about supply chain. We know the changes that we need to make, but we've been very surgical, very disciplined in putting together that playbook. Now that it's in place, we'll begin to accelerate. So from a capital standpoint, we'll continue to make sure we're very thorough, we test and validate. But once we've completed the learning, we'll be ready to accelerate. And that's what you're seeing as we think about the next 3 years.

Peter Benedict of Robert Baird. I was hoping you could maybe speak a little bit more detail about your view of Grocery, that side of store, what -- how's that going to look in the reimagined store? And then, Cathy, maybe a little view as to how much it costs to do the remodels and how long it takes.

Yes. Why don't I start, and I'll let Mark talk about some of the progress we've seen on Grocery. And while we didn't spend a lot of time on it today, I want to make sure it's very clear. We're very focused on improving our Grocery performance. But we haven't just been standing still. We made significant progress in procurement, in supply chain, in making sure we've improved our assortment, in making sure, in those tests stores in Los Angeles and Dallas, we understand the changes that need to be made in the in-store experience. We're going to follow that up immediately with the right investment in pricing to make sure we're competitively priced every day in those key categories. So we've got more work to do. We're certainly not satisfied with where we are, but we have been making some progress. And there are some bright spots, Mark that I think you can talk to.

Yes. Just looking at the format, fresh produce is a really good example where we've changed our supply chain or assortment and have focused on quality and value. So investing there has really made a difference for the guest, they've really perceived and responded, too, with great growth in key categories. So here, we've invested in fresh. And we've gone from an organization that used to deliver multi times a week to every single day, increasing that freshness and quality, and guests are responding. Some of the tests that Brian talked about in L.A. and Dallas have really paid dividends for us. And one great example of that is our adult beverage business, where we've seen great growth in 2016. And we're going to amplify that growth and accelerate in '17. This is a business that for us, was our #1 growth category throughout all Target. And we see an upside of $1 billion business here that we're fast-tracking on in 2017.

Joe Feldman, Telsey Advisory Group. Way in the back, sorry. Wanted to follow up on that. Can you talk a little bit on the merchandising side, areas of the store that may be expanding or contracting? And then a little bit more specifically about those dozen brands that you're going to be adding in, what categories would those be in? What are the -- any preview you can give us? And how to think about that?

Mark?

Yes. So the key focus of the brand growth is really in what we talked about with John, and our key strength areas of apparel, accessories, footwear and home. So these are high-margin and high-strength areas for us. And we believe that Target has the right DNA on exclusivity and differentiation. Our guests love our brands and have loved them. But we've been a little slow here in terms of the changing face of the guest. And our Guest Insight show that we could sharpen that and bring new ideas. Great proof of concept in 2016 with the launch of Who What Wear, Pillowfort and, of course, Cat & Jack that showed us, where we replaced our strengths with a new focus, we could create double-digit comps and guests' love and trips for our store. So we've taken key areas across men's, women's, home and kids and are going to amplify our offers there and redefine. In terms of overall space, we're just utilizing our existing space and really refreshing that. So one of the things we're excited about in '17 is this combination of new brands, capital investment in the space for those brands but also the addition of extra resources like visual merchandising. They're really going to create a new experience for the guest at store and create real excitement.

Mark Miller with Crystal Rock Capital. You talked earlier about making price investments across essentials. I wanted to ask, what do you think is the risk that you've taken too much margin on exclusive items? UPT has come down, but average ticket has gone up with price per item. So I thought also it might be helpful if you could share market research on the customers' perception of value on exclusives now versus several years ago?

Yes, why don't I start? And I think the proof is in the results we've delivered. Outstanding results, as we've talked about, with the launch of Pillowfort. The same thing's been very true with Cat & Jack. So I think this is an example where we've gotten the value equation right. Great quality, on-trend, at a great value, and the guest response has been terrific. So that's the same approach Mark's going to take with each one of those new brands, making sure we combine great quality, items that are on-trend for the consumer with the right value that drives trips but also make sure the guest recognizes they're getting great value from Target. So coming back to our brand promise: Expect More and Pay Less, those elements have to work hand-in-hand with our new brands going forward.

Kate McShane from Citi Investment Research. I have 2 unrelated questions today, one, a short-term question; one, a longer-term question. With regards to your guidance for the year, I'm wondering how much in terms of your competitor door closure are in your assumptions for guidance. And second, on the longer-term question for supply chain, just curious, it was a year ago that you walked us through some of the changes in your supply chain. I'm just wondering how much the game has changed since the last time we have heard about that strategy and how you're approaching the last mile.

John, do you want to start with supply chain, and we'll finish up with guidance?

Sure. I think the past year, we spent doing really 2 things in supply chain. One was just optimizing what we do today to improve out-of-stocks in-store, which have been a chronic problem for us. They have improved dramatically. They're not where they need to be, but they have improved. The second thing we focused on is right to the heart of your question, which is how do we optimize the entirety of our supply chain, go back and relook at everything to: One, take work out of the store; and two, be much more efficient in how we deliver and especially on the last mile. We spent the last couple of years expanding our ship-from-some capability. We have believed for have a long time that is the single best disadvantage we have in supply chain, is our store network. It puts us right next to the guest. And what we're working on today working is how we move inventory more efficiently and more quickly in [indiscernible] because that is what is required to direct-to-guest, out to the stores, and then from the store directly to the guest, and do that quickly. You'll see us this year, as I said, start to make those changes in the northeast. Several pilots are already underway that have significantly improved our speed to guest. And as I said, we'll -- as Cathy said, we'll continue to come back and report on how we're doing. But that is the heart of what we're doing. That becomes the basis for improving. Everything Mike can do is giving him flexibility to put services on top and to deliver at whatever speed the guest wants. In a store like TriBeCa, that could be today, hey, I came in, picked up my 5 things. I'm going to go run some errands with the kids. Deliver this to my house in 3 hours. It could also mean, hey, bring this to my house in 10 days, this patio set, bring it to the back of my house, set it up and de-trash it and take the garbage away. So it's really about flexibility and speed and allowing the guest to choose how they want to interact with us. And that's what we're building the platform of our supply chain around.

Cathy, why don't I start by talking about the competitive landscape and let Cathy talk about guidance. But to your point, we certainly see, over the next few years, significant market share opportunities as we see the contraction in our competitive store base. And that's going to be particularly true in the Apparel and Home spaces, where we're strongest. But we also recognize, as you do, as many retailers are closing stores if not exiting the business, the short-term implication is massive promotional discounts, which takes consumers out of the marketplace for a period of time. So over the long haul, this is a growth story we're putting together. We think we're going to see significant market share opportunities across a number of categories. To capture that, we need to make sure we've got the right in-store experience and a very strong and easy digital experience for that guest. But in the near term, you're going to some deep discounting. You're going to see liquidation sales, which takes prices down and take consumer trips out of the marketplace. But over time, we see significant market share opportunities.

Yes. The only thing I'll add on to that because it's where I was going to is, we are absolutely investing to be able to play offense. We see this is as a huge opportunity for Target when you think about the playing field that's going to be available. And so we are investing to play offense. But I don't anticipate and we don't anticipate that to be demonstrably changing this year. This year is an investment year for us, as we set ourselves up for that great success to take that share over the next multiple years, there's going ton of disruption in this space.

Dan Binder with Jefferies. Had a few questions. First, there's been a few questions on Food today. I'm curious, as you think about the role of food at your competitors, it's been using as a traffic driver, today, we're not really hearing that from you. We're hearing more about remodels and brands outside of Food. Can you just talk a little bit about why you think Food shouldn't be the traffic driver for you? Why you shouldn't be reallocating space away from dying categories to expand the Food assortment? And my second question is, can you make money online longer term? And why doesn't the marketplace make sense for you as -- particularly as a source of fee income to offset maybe some of the pressure in your own business?

So why don't I start about talking by Food, let Mark add some additional color, and then give Mike a chance to talk about our digital approach going forward. And one of the things that we've talked about over the last year as it pertains to Target's Food and beverage offering is the recognition that we don't have a full-service grocery experience. We don't have meat and seafood counters. We don't have deli counters. We don't provide a full assortment of experiences and services that many of our full-line competitors do. But we can offer a great self-service, convenient experience. And that starts with the right quality, the right assortment, the right in-store experience, great value. We've got to make sure we're supplying those products to our guests every single day to make sure the freshness is there. So we're embracing who we are. And we want to make sure that the guest knows, while they're shopping at Target, there's no compromise. We've got to build trust. We've got to make sure that while they're there shopping for their baby, picking up a toy for a Saturday night birthday party, picking up something new to wear for dinner that night, they have confidence in the selection and breadth of food products we offer. So we're being true to who we are and we're not a full-service grocer, we don't have rotisserie ovens in our stores, but we do have the right allocation of space and selection to compete and be that convenient alternative in Food. And we're going to build on that going forward. We're very pleased with the response we've seen in Los Angeles, in Dallas, where we enhance that experience, where we improve the assortment. The reaction, as Mark talked about, to categories like craft beer and wine that fit in very well with the Target guest. So we've got to strengthen that offering, make sure we've got great quality, the right assortment, that we've got the right experience in-store and that we provide the right value the guest is looking for. So we'll continue to build off of that going forward and make sure that while our guest are shopping Target, they're also shopping our food and beverage offering.

Yes, I think our space is set. We're not talking about flipping or divesting or investing in more spice. It's how we utilize the space more definitively. And I think that what we've learned in these test markets is the role of fresh and convenience in creating trips and create guest loyalty has been very powerful. So reformatting the space and really curating the assortment is more of what we're focused on rather than wholesale changes to macro space.

Mike, why don't you talk where we are with digital? We spent very little time talking about our performance in 2016. We felt great about how we exited the year. Comp's up 34%, making really good progress. Mike, we've doubled the business in the last couple of years. So why don't you talk about where we are and where we're going?

Well look, I think, particularly in the last year, the focus has been on guest experience and making a flawless and great guest experience. And while some of those investments may not be obvious, they have paid dividends. We grew the business at almost twice the rate of the market last year. John talked about -- earlier how we expanded our ship-from-store capability, which has been really, really important to us. We shipped about 1 million parcels to our guests in the 2 days following Cyber Monday. And that's really important because that is our cheapest route to the guest at home, is shipping from our stores and as we can expand that model, we can be closer to our guests physically and in time. And we have the lead time during the holiday period to guests as well. And so all of those investments have improved the guest experience. We've almost doubled our guest satisfaction rating over the course of the year whilst we grew the business at twice the rate of the market. And we see that again going into this year. So there will be a relentless focus on the guest experience going forward. All of the work that John and his team are doing to reconfigure our supply chain will give us a lead time advantage and a cost advantage as we deliver more and more parcels to our guest store -- to our guests' doors. The work that Mark is doing on assortment and creating exclusive product, exclusive brand for Target that isn't available anywhere else will be vital to our online merchandising going forward. We will always look at other ways, maybe of how we would expand our assortment online, but right now, we've got our sights fairly firmly focused on how we can get to guests quicker, how we can execute flawlessly and how we can bring exclusive branded product to our guest.

This is Brian Cameron [ph] Daughtry and Cox [ph]. With all the seismic shifts that are going on in retail, as you outlined, I'm guessing you considered other strategic alternatives to the one you outlined this morning. What were some of those alternatives? And why is the one you outlined, you think, the best for the company going forward?

Brian, we spent a lot of time as the leadership team looking at different alternatives. There was only one path forward, and that's the path we've chosen. We've got to invest to grow. We've got to reimagine our stores. We've got to enter new neighborhoods as we're doing with these small formats. We've got to transform our supply chain. We have to build out the digital capabilities required in this environment. We have to continue to elevate our proprietary brands. And I think most importantly, we just have to embrace the realities of this new era of retailing and make sure that we also embrace the way consumers are shopping today. So we certainly debated where there other options. Every time we came to the table, there was only one conclusion, and it's the path we've chosen to follow. We think this is the right path for our company, the right path for our shareholders, and ultimately, it's a path back to growth and an expansion of market share. So we've done our homework. We've looked at this from every different angle. This was the past we kept coming back to. It's the right path for the company today. It'll be the right path for the company 10 years from now.

It's Greg Melich with Evercore ISI. I had 3 questions. I'll make them quick, into one. Cathy, does the guidance for this year assume that comps turn positive by the fourth quarter? Second is on CapEx. When we look at that $7 billion budget over the next 3 years, if you could break that down into existing stores, new stores, supply chain and give us some sense of where the money is actually going. And then lastly, and maybe I don't know who this is for, but for everyone. I guess, Brian, what will you be watching to know that this is working? So that basically, we want to double down or not or go the other way towards the end of the year? And specifically, there was an interesting comment, can't remember who made it, that our cheapest way to fulfill is through the store. I'd love to just hear -- that sort of shocks me, given what we're seeing Amazon do, and others. So just why is that true for Target and maybe not true for some of the others?

Yes. Greg, why don't I start with the metrics, the things that we're going to be watching closest? And it's going to come back to we're going to watch the guest. How does the guest respond when we reimagine a store? How do they respond when we move into new neighborhoods? How do they respond to our new digital offerings? How do they respond as we roll out new brands? So ultimately, that guest satisfaction and that guest vote is the most important one. And when they're in our stores more frequently and visiting our site more frequently and shopping with Target versus other retailers, we know we're winning. But we're going to clearly monitor the guest reaction as we remodel these next 100 stores in 2017 and we continue to accelerate with another 30 small formats. And as Mark introduces new brands throughout 2017 and Mike enhances our digital offering, it's going to come back to the guest reaction. And we're fighting for footsteps, we're fighting for clicks online and we're fighting for a share of mind. So for this to be a growth story, it is all about gaining market share, and that starts with building greater trust, greater loyalty with our guest. So we'll be watching that each and every day across these initiatives we've played out today.

Yes. So Brian, maybe I can address the other 2 questions, Greg. This is a multi-phase, multiyear journey. And so -- and we try to make sure we set that expectation. We are recognizing that the environment's going to be disruptive and we've got a ton of work still to do, although we're not starting from scratch. We're going to accelerate that pace and that investment. And so we're not, and we guided that in our guidance, planning for anything but low single-digit negative declines this year. For the -- and as we said, it's an investment year as we move into transition and then we'll get into stability, where we can sustainably, consistently drive profitable growth and market share gains. And so I want to make sure we do set that expectation appropriately. On your question with regards to how the capital allocation is being spent, over the $7 billion investment over the next 3 years, it's really in the 3 areas that Brian just talked about, the 3 big areas. The biggest ones being, obviously, as we reimagine our stores because they will still be central to our story. Their roles will evolve, but there'll be significant investments there as well as the new stores. Supply chain and digital, and that's exactly where you'd expect us to be spending that money.

Mike, why don't come back to the shipping question?

Yes. I mean, the reality is that in a digital business, one of your biggest costs, biggest marginal cost, is transportation. And it is cheaper for us to drive or to deliver from our stores, which are, as we said, about 10 miles from 75% of the population. So that last leg, being very shorter, makes it our cheapest option. The marginal cost of us getting product to the stores on the back of our existing network that already -- to the distribution centers already out there is very, very low for us, indeed. So the additional cost on that last mile is very low. We also have, of course, order pickup, which is probably our most economic fulfillment channel.

Why don't we come up from -- Oliver, you've been very patient waving your arm. Why don't we see if we can get him a microphone.

Oliver Chen, Cowen and Company. Had a question related to that topic of fill-in versus stock-up tactically in terms of what you're thinking about the future of fill-in and the opportunity there? And longer term, as you do your consumer insights on millennials and Generation Z, what do you think the 5-year story is for reimagining the store as you think about what the newest customers really want to see with disruption and transformation? And finally, on the topic of big data and data sciences, how does that interplay with how we should think about the model over the longer term? And what does that mean for what consumers want versus where you can deliver data science, whether it be supply chain, omni-channel or predictive analytics giving people something they don't even know they want?

So Oliver, let's try to unpack those questions. Let me start with the last one as we think about the role of data science and analytics. And I made the comment that 3 years ago, this was nascent capability for us. It's now quickly become one of the strengths of the company. And we're applying that across all of our various functions. it's helping Mark and his merchant team make better choices. It's certainly enabling some of the work that John's leading from a supply chain standpoint. It's influencing how we lead and manage our stores. And Mike can talk about the important role it plays as we think about digital and the personalization of our communication. So data science is going to play an important role across all of our functions going forward to make the company focused on the right decisions, smarter decisions, more personalized decisions. And Mike, why don't you talk about the role that it's played just recently as we think about digital and how we're interfacing with the guest?

Yes. Well I think, as Brian says, it's an important -- it's a very important growing area for us. And out in our data sciences team out in Sunnyvale, we have over 40 Ph.D.s who are nothing but thinking up of clever ways to how we tune our supply chain and how we personalize the offer to our guest, particularly online. One recent improvement they have made is on some of the bottom recommendations that we give on our home page. And we've seen and eightfold improvement on conversion rate on that. So we do know that as you make that experience more relevant to the guest, that we will improve our sales online, will make it -- will improve our conversion rates. And that's just one example. And I've seen a lot of examples in John's area around how we are improving sales forecasting and our ordering algorithms, which has helped the flow of stock all the way through our supply chain.

Let me try to come back to your question around the consumer trends, the role of millennial, how that takes shape over the next 3 to 5 years. And I think as we look at it today, I'll start with the investment we're making in our stores. And as we've looked at the outlook, as you've done the Math, while we expect this continued accelerated shift to digital, stores are still going to be very important. And pick the number 3 years from now, the stores represent 85% or 80% or 75% of the business, I don't know. But even if they're 75% of the business 3 to 5 years from now, they're still the dominant portion. And what we know every time we talk to the consumer, every time we talk to the guest, they create experience. If they're going to shop at a physical store, they want it to be a great experience. So we've seen the reaction to the changes we've made with visual merchandising. Some of the things that Mark and his team are bringing to life every day in our stores, in our Apparel and Home categories, we've got to make sure it's a great experience. If they're using our stores as a smart pickup point, we need to make sure when they come to our stores, they're greeted by phenomenal team members who can quickly find their order and invite them to shop more often. So we've got to make sure that experience is critically important in our stores. We know going forward, that millennial consumer that we serve, they're going to be digitally connected and their shopping experience is likely always going to start with that digital device. Then they'll choose whether they want it delivered to their front door, they want to…

Brandon Fletcher with Bernstein. we see your competitive advantage as assortment and service. So when we talk about new brands, we love it. When you talk about service online and integrated ordering, matching online, awesome. Doing the picking from DCs for eaches [ph] is genius. And I think only you and the Home Depot are close there. The only place we get nervous is when you say things about price and convenience. I've sat across -- away from many CEOs who were desperately trying to drive traffic with price investments when they were not the low-cost operator, and it just doesn't usually work. And if you're seeing death in department stores and retailers and subscale grocers, where you guys are already way better on price, are you really sure you need to invest that heavily? And then secondly is, with the rollouts to new project touches in stores, will folks with disconfirming evidence have as much access to leadership as those with confirming evidence? As you guys have been extremely disciplined in the way you did LA25. But it's hard to get right. So those are 2 questions.

So let's go back to pricing, and let me make sure that we're really clear about what we're doing and why. And we spent a lot of time looking at the changes that we had made following the breach. And we were very promotional, and that promotional intensity has actually continued. As we go into 2017, you're going to see us get back to our roots, get back to establishing everyday low pricing in those essential categories. There'll be a transition period, but it's really going back to what's always worked for us in the past and moving away from that promotional intensity, the reliance on big promotions, to making sure we give our guests the confidence and trust that every day they shop in our stores for those core essential items, they're getting a great value. So it's a transition, there's an investment involved in that, but it's really getting back to what's made us great going -- in the past and really making sure that's part of what we bring going forward. So we'll continue to be very disciplined. As we talked about the question about capital allocation, we're still going to be a company that will continue to innovate. Innovation is very important, and innovation is alive and well at Target. But we're going to make sure we test, we learn, we validate. And the innovation has to benefit our core enterprise. It has to translate to driving more traffic to our stores, more trips to our site, greater guest loyalty and engagement. So innovation will be an important part of our future. We'll do it, as we've done in the past, in a very disciplined way. When things don't work, we'll shut them down. When we need to iterate, we'll continue to iterate and learn. And when we've validated the model, we'll step on the accelerator, as we are right now, and we'll move forward quickly. I guess we've got time for one, only, last question. Why don't we go over here? Scott?

Scott Mushkin from Wolfe Research. So I just wanted to ask a couple of questions. One is just a clarification. The cost of the remodels I don't think we actually got that number. And I was wondering if we could get it. I was hoping for an update on store execution, specifically in-stock. I know that was a big focus. And then the final question would be around price investments. You have 2 large competitors driving down price, most notably Walmart, but also Amazon is doing a lot of work with their Subscribe & Save, and those prices are very low. So what gives you the confidence that it's won and done here, as one of your largest competitor's on a multiyear price-lowering campaign?

John, do you want to start with stores? Then I'll come back and talk about pricing.

Yes. Just to check off really quick. Cost of a remodel for a prototype, what we call a P-Store. $5 million, $5.5 million. A little less for lower-volume stores, a little more for higher-volume stores. SuperTarget, what do you think, Cathy? About double?

Yes -- no. A little less than double. Yes.

A little less than double. Store execution, I'd say 2 things about, one, on out-of-stocks, made a lot of progress. When we talked about it last year, they had improved by about 40%. Last year, almost another 15% improvement. We've seen significant improvement in doing what we do today. The next leap in improvements in out-of-stocks in our stores will come from fundamentally changing the supply chain, which is what we talked about today. And so that's on course. We'll keep working on it, and we'll update you as we go forward, I guess.

And Scott, I'll finish my talking less about price and a lot more about value. We know we have to be competitively priced every day on those core essentials, but we win when we deliver compelling value, which means a great in-store experience; which means new, exciting brands; which means surrounding the guest with great team members; which means a great online experience that's easy and friction-free. So it can't be just about price, it has to be about value. And value is the combination of all the things we do and historically have done so well. So we've got to make sure we surround the guest with a great in-store experience. The reaction we've seen as we brought visual merchandising to life in our stores has been fantastic. We've got to continue to build compelling brands that deliver great value for the guest. We've got to surround them with a great experience, whether they're picking up an item or checking out our stores. And that's got to translate to how we interface with the guest online. So value is critically important. And we think we're positioned in way that's unique in the industry with our assortment, our in-store experience, our multi-category portfolio, the capabilities we've now built on line and the changes we're making in-store, that's what gives us so much confidence that we're on the path back to growth, that it will take time, but there's going to be significant market share opportunities in front of us. And 3 years from now, when we've reimagined stores and we're in new neighborhoods and we've rolled out new brands and we got a great new supply chain capability to complement what we've done from a digital standpoint, we'll be sitting here talking about the new Target, a growth company that's captured market share in this new era of retailing. So I appreciate your time and your patience today. Thanks for joining us, and we look forward to look talking to you in the future. So thank you.