Corporate Finance (2 easy questions) Case Study
bixgyn.zhou
f-1563.pdf
UVA-F-1563 Rev. Mar. 22, 2016
This case was prepared by David Ding (MBA ’08) and Saul Yeaton (MBA ’08) under the supervision of Kenneth Eades, Professor of Business Administration. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation.
Copyright 2008 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation.
Target Corporation
On November 14, 2006, Doug Scovanner, CFO of Target Corporation, was preparing for the November meeting of the Capital Expenditure Committee (CEC). Scovanner was one of five executive officers who were members of the CEC (Exhibit 1). On tap for the 8:00 a.m. meeting the next morning were 10 projects representing nearly $300 million in capital-expenditure requests. With the fiscal year’s end approaching in January, there was a need to determine which projects best fit Target’s future store growth and capital- expenditure plans, with the knowledge that those plans would be shared early in 2007, with both the board and investment community. In reviewing the 10 projects coming before the committee, it was clear to Scovanner that five of the projects, representing about $200 million in requested capital, would demand the greater part of the committee’s attention and discussion time during the meeting.
The CEC was keenly aware that Target had been a strong performing company in part because of its successful investment decisions and continued growth. Moreover, Target management was committed to continuing the company’s growth strategy of opening approximately 100 new stores a year. Each investment decision would have long-term implications for Target: an underperforming store would be a drag on earnings and difficult to turn around without significant investments of time and money, whereas a top- performing store would add value both financially and strategically for years to come.
Retail Industry
The retail industry included a myriad of different companies offering similar product lines (Exhibit 2). For example, Sears and JCPenney had extensive networks of stores that offered a broad line of products, many of which were similar to Target’s product lines. Because each retailer had a different strategy and a different customer base, truly comparable stores were difficult to identify. Many investment analysts, however, focused on Wal-Mart and Costco as important competitors for Target, although for different reasons. Wal-Mart operated store formats similar to Target, and most Target stores operated in trade areas where one or more Wal-Mart stores were located. Wal-Mart and Target also carried merchandising assortments, which overlapped on many of the same items in such areas as food, commodities, electronics, toys, and sporting goods.
Costco, on the other hand, attracted a customer base that overlapped closely with Target’s core customers, but there was less often overlap between Costco and Target with respect to trade area and merchandising assortment. Costco also differed from Target in that it used a membership-fee format.1 Most of the sales of these companies were in the broad categories of general merchandise and food. General
1 Sam’s Club, which was owned by Wal-Mart, also employed a membership-fee format and represented 13% of Wal-Mart revenues.
DardenBusinessPublishing:233867 P
le as
e do
n ot
c op
y or
r ed
is tr
ib ut
e. C
on ta
ct p
er m
is si
on s@
da rd
en bu
si ne
ss pu
bl is
hi ng
.c om
f or
q ue
st io
ns o
r ad
di tio
na l p
er m
is si
on s.
T hi
s do
cu m
en t i
s au
th or
iz ed
f or
u se
o nl
y by
Q im
ei Y
an g
at T
em pl
e U
ni ve
rs ity
- Fo
x Sc
ho ol
o f
B us
in es
s.
Page 1 of 19
Page 2 UVA-F-1563
merchandise included electronics, entertainment, sporting goods, toys, apparel, accessories, home furnishing, and décor, and food items included consumables ranging from apples to zucchini.
Wal-Mart had become the dominant player in the industry with operations located in the United States, Argentina, Brazil, Canada, Puerto Rico, the United Kingdom, Central America, Japan, and Mexico. Much of Wal-Mart’s success was attributed to its “everyday low price” pricing strategy that was greeted with delight by consumers but created severe challenges for local independent retailers who needed to remain competitive. Wal-Mart sales had reached $309 billion for 2005 for 6,141 stores and a market capitalization of $200 billion, compared with sales of $178 billion and 4,189 stores in 2000. In addition to growing its top line, Wal-Mart had been successful in creating efficiency within the company and branching into product lines that offered higher margins than many of its commodity type of products.
Costco provided discount pricing for its members in exchange for membership fees. For fiscal 2005, these fees comprised 2.0% of total revenue and 72.8% of operating income. Membership fees were such an important factor to Costco that an equity analyst had coined a new price-to-membership-fee-income ratio metric for valuing the company.2 By 2005, Costco’s sales had grown to $52.9 billion across its 433 warehouses, and its market capitalization had reached $21.8 billion. Over the previous five years, sales excluding membership fees had experienced compound growth of 10.4%, while membership fees had grown 14.6% making the fees a significant growth source and highly significant to operating income in a low-profit- margin business.
In order to attract shoppers, retailers tailored their product offerings, pricing, and branding to specific customer segments. Segmentation of the customer population had led to a variety of different strategies, ranging from price competition in Wal-Mart stores to Target’s strategy of appealing to style-conscious consumers by offering unique assortments of home and apparel items, while also pricing competitively with Wal-Mart on items common to both stores. The intensity of competition among retailers had resulted in razor-thin margins making every line item on the income statement an important consideration for all retailers.
The effects of tight margins were felt throughout the supply chain as retailers constantly pressured their suppliers to accept lower prices. In addition, retailers used off-shore sources as low-cost substitutes for their products and implemented methods such as just-in-time inventory management, low-cost distribution networks, and high sales per square foot to achieve operational efficiency. Retailers had found that profit margins could also be enhanced by selling their own brands, or products with exclusive labels that could be marketed to attract the more affluent customers in search of a unique shopping experience.
Sales growth for retail companies stemmed from two main sources: creation of new stores and organic growth through existing stores. New stores were expensive to build, but were needed to access new markets and tap into a new pool of consumers that could potentially represent high profit potential depending upon the competitive landscape. Increasing the sales of existing stores was also an important source of growth and value. If an existing store was operating profitably, it could be considered for renovation or upgrading in order to increase sales volume. Or, if a store was not profitable, management would consider it a candidate for closure.
Target Corporation
The Dayton Company opened the doors of the first Target store in 1962, in Roseville, Minnesota. The Target name had intentionally been chosen to differentiate the new discount retailer from the Dayton
2 “Costco Wholesale Corp. Initiation Report,” Wachovia Capital Markets, September 18, 2006.
DardenBusinessPublishing:233867 P
le as
e do
n ot
c op
y or
r ed
is tr
ib ut
e. C
on ta
ct p
er m
is si
on s@
da rd
en bu
si ne
ss pu
bl is
hi ng
.c om
f or
q ue
st io
ns o
r ad
di tio
na l p
er m
is si
on s.
T hi
s do
cu m
en t i
s au
th or
iz ed
f or
u se
o nl
y by
Q im
ei Y
an g
at T
em pl
e U
ni ve
rs ity
- Fo
x Sc
ho ol
o f
B us
in es
s.
Page 2 of 19
Page 3 UVA-F-1563
Company’s more upscale stores. The Target concept flourished. In 1995, the first SuperTarget store opened in Omaha, Nebraska, and in 1999, the Target.com website was launched. By 2000, the parent company, Dayton Hudson, officially changed its name to Target Corporation.3
By 2005, Target had become a major retailing powerhouse with $52.6 billion in revenues from 1,397 stores in 47 states (Exhibit 3 and Exhibit 4). With sales of $30 billion in 2000, the company had realized a 12.1% sales growth over the past five years and had announced plans to continue its growth by opening approximately 100 stores per year in the United States in the foreseeable future. While Target Corporation had never committed to expanding internationally, analysts had been speculating that domestic growth alone would not be enough to sustain its historic success. If Target continued its domestic growth strategy, most analysts expected capital expenditures would continue at a level of 6% to 7% of revenues, which equated to about $3.5 billion for fiscal year 2006.
In contrast with Wal-Mart’s focus on low prices, Target’s strategy was to consider the customer’s shopping experience as a whole. Target referred to its customers as guests and consistently strived to support the slogan, “Expect more. Pay less.” Target focused on creating a shopping experience that appealed to the profile of its “core guest”: a college-educated woman with children at home who was more affluent than the typical Wal-Mart customer. This shopping experience was created by emphasizing a store décor that gave just the right shopping ambience. The company had been highly successful at promoting its brand awareness with large advertising campaigns; its advertising expenses for fiscal 2005 were $1.0 billion or about 2.0% of sales and 26.6% of operating profit. In comparison, Wal-Mart’s advertising dollars amounted to 0.5% of sales and 9.2% of operating income. Consistent advertising spending resulted in the Target bull’s-eye logo’s (Exhibit 5) being ranked among the most recognized corporate logos in the United States, ahead of the Nike “swoosh.”
As an additional enhancement to the customer shopping experience, Target offered credit to qualified customers through its REDcards: Target Visa Credit Card and Target Credit Card. The credit-card business accounted for 14.9% of Target’s operating earnings and was designed to be integrated with the company’s overall strategy by focusing only on customers who visited Target stores.
Capital-Expenditure Approval Process
The Capital Expenditure Committee was composed of a team of top executives that met monthly to review all capital project requests (CPRs) in excess of $100,000. CPRs were either approved by the CEC, or in the case of projects larger than $50 million, required approval from the board of directors. Project proposals varied widely and included remodeling, relocating, rebuilding, and closing an existing store to building a new store.4 A typical CEC meeting involved the review of 10 to 15 CPRs. All of the proposals were considered economically attractive, as any CPRs with questionable economics were normally rejected at the lower levels of review. In the rare instance when a project with a negative net present value (NPV) reached the CEC, the committee was asked to consider the project in light of its strategic importance to the company.
CEC meetings lasted several hours as each of the projects received careful scrutiny by the committee members. The process purposefully was designed to be rigorous because the CEC recognized that capital investment could have significant impact on the short-term and long-term profitability of the company. In addition to the large amount of capital at stake, approvals and denials also had the potential to set precedents that would affect future decisions. For example, the committee might choose to reject a remodeling proposal
3 The Dayton Company merged with J. L. Hudson Company in 1969. After changing its name to Target, the company renamed the Dayton-
Hudson stores as Marshall Field’s. In 2004, Marshall Field’s was sold to May Department Stores, which was acquired by Federated Department Stores in 2006; all May stores were given the Macy’s name that same year.
4 Target expected to allocate 65% of capital expenditures to new stores, 12% to remodels and expansions, and 23% to information technology, distribution, etc.
DardenBusinessPublishing:233867 P
le as
e do
n ot
c op
y or
r ed
is tr
ib ut
e. C
on ta
ct p
er m
is si
on s@
da rd
en bu
si ne
ss pu
bl is
hi ng
.c om
f or
q ue
st io
ns o
r ad
di tio
na l p
er m
is si
on s.
T hi
s do
cu m
en t i
s au
th or
iz ed
f or
u se
o nl
y by
Q im
ei Y
an g
at T
em pl
e U
ni ve
rs ity
- Fo
x Sc
ho ol
o f
B us
in es
s.
Page 3 of 19
Page 4 UVA-F-1563
for a store with a positive NPV, if the investment amount requested was much higher than normal and therefore might create a troublesome precedent for all subsequent remodel requests for similar stores. Despite how much the projects differed, the committee was normally able to reach a consensus decision for the vast majority of them. Occasionally however, a project led to such a high degree of disagreement within the committee that the CEO made the final call.
Projects typically required 12 to 24 months of development prior to being forwarded to the CEC for consideration. In the case of new store proposals, which represented the majority of the CPRs, a real-estate manager assigned to that geographic region was responsible for the proposal from inception to completion and also for reviewing and presenting the proposal details. The pre-CPR work required a certain amount of expenditures that were not recoverable if the project were ultimately rejected by CEC. More important than these expenditures, however, were the “emotional sunk costs” for the real-estate managers who believed strongly in the merits of their proposals and felt significant disappointment if any project was not approved.
The committee considered several factors in determining whether to accept or reject a project. An overarching objective was to meet the corporate goal of adding about 100 stores a year while maintaining a positive brand image. Projects also needed to meet a variety of financial objectives, starting with providing a suitable financial return as measured by discounted cash-flow metrics: NPV and IRR (internal rate of return). Other financial considerations included projected profit and earnings per share impacts, total investment size, impact on sales of other nearby Target stores, and sensitivity of NPV and IRR to sales variations. Projected sales were determined based on economic trends and demographic shifts but also considered the risks involved with the entrance of new competitors and competition from online retailers. And lastly, the committee attempted to keep the project approvals within the capital budget for the year. If projects were approved in excess of the budgeted amount, Target would likely need to borrow money to fund the shortfall. Adding debt unexpectedly to the balance sheet could raise questions from equity analysts as to the increased risk to the shareholders as well as to the ability of management to accurately project the company’s funding needs.
Other considerations included tax and real-estate incentives provided by local communities as well as area demographics. Target typically purchased the properties where it built stores, although leasing was considered on occasion. Population growth and affluent communities were attractive to Target, but these factors also invited competition from other retailers. In some cases, new Target stores were strategically located to block other retailers despite marginal short-term returns.
When deciding whether to open a new store, the CEC was often asked to consider alternative store formats. For example, the most widely used format was the 2004 version of a Target store prototype called P04, which occupied 125,000 square feet, whereas a SuperTarget format occupied an additional 50,000 square feet to accommodate a full grocery assortment. The desirability of one format over another often centered on whether a store was expected to eventually be upgraded. Smaller stores often offered a higher NPV; but the NPV estimate did not consider the effect of future upgrades or expansions that would be required if the surrounding communities grew, nor the advantage of opening a larger store in an area where it could serve the purpose of blocking competitors from opening stores nearby.
The committee members were provided with a capital-project request “dashboard” for each project that summarized the critical inputs and assumptions used for the NPV and IRR calculations. The template represented the summary sheet for an elaborate discounted cash flow model. For example, the analysis of a new store included incremental cash flow projections for 60 years over which time the model included a remodeling of the store every 10 years. Exhibit 6 provides an example of a dashboard with a detailed explanation of the “Store Sensitivities” section. The example dashboard shows that incremental sales estimates, which were computed as the total sales expected for the new store less the sales cannibalized from Target stores already located in the general vicinity. Sales estimates were made by the Research and Planning
DardenBusinessPublishing:233867 P
le as
e do
n ot
c op
y or
r ed
is tr
ib ut
e. C
on ta
ct p
er m
is si
on s@
da rd
en bu
si ne
ss pu
bl is
hi ng
.c om
f or
q ue
st io
ns o
r ad
di tio
na l p
er m
is si
on s.
T hi
s do
cu m
en t i
s au
th or
iz ed
f or
u se
o nl
y by
Q im
ei Y
an g
at T
em pl
e U
ni ve
rs ity
- Fo
x Sc
ho ol
o f
B us
in es
s.
Page 4 of 19
Page 5 UVA-F-1563
group. The R&P group used demographic and other data to make site-specific forecasts. Incremental sales were computed as total sales less those cannibalized from other Target stores. The resulting NPV and IRR metrics were divided between value created by store sales and credit-card activity. NPV calculations used a 9.0% discount rate for cash flows related to the store cash flows and a 4.0% discount rate for credit-card cash flows. The different discount rates were chosen to represent the different costs of capital for funding store operations versus funding credit-card receivables.
The dashboards also presented a variety of demographic information, investment-cost details and sensitivity analyses. An important sensitivity feature was the comparison of the project’s NPV and IRR to the prototype. For example, the P04 store had an NPV of about $10 million and an IRR of 13%.5 The sensitivity calculations answered the question of how much a certain cost or revenue item needed to change in order for the project to achieve the same NPV or IRR that would be experienced for the typical P04 or SuperTarget store.
The November Meeting
Of the 10 projects under consideration for the November CEC meeting, Doug Scovanner recognized that five would be easily accepted, but that the remaining five CPRs were likely to be difficult choices for the committee. These projects included four new store openings (Gopher Place, Whalen Court, The Barn, and Goldie’s Square) and one remodeling of an existing store into a SuperTarget format (Stadium Remodel). Exhibit 7 contains a summary of the five projects, and Exhibit 8 contains the CPR dashboards for the individual projects.
As was normally the case, all five of the CPRs had positive NPVs, but Scovanner wondered if the projected NPVs were high enough to justify the required investment. Further, with stiff competition from other large retailers looking to get footholds in major growth areas, how much consideration should be given to short-term versus long-term sales opportunities? For example, Whalen Court represented a massive investment with relatively uncertain sales returns. Should Scovanner take the stance that the CEC should worry less about Whalen Court’s uncertain sales and focus more on the project as a means to increase Target’s brand awareness in an area with dense foot traffic and high-fashion appeal? Goldie’s Square represented a more typical investment level of $24 million for a SuperTarget. The NPV, however, was small at $317,000, well below the expected NPV of a SuperTarget prototype, and would be negative without the value contribution of credit-card sales.
As CFO, Scovanner was also aware that Target shareholders had experienced a lackluster year in 2006, given that Target’s stock price had remained essentially flat (Exhibit 9). Stock analysts were generally pleased with Target’s stated growth policy and were looking for decisions from management regarding investments that were consistent with the company maintaining its growth trajectory. In that regard, Scovanner recognized that each of the projects represented a growth opportunity for Target. The question, however, was whether capital was better spent on one project or another to create the most value and the most growth for Target shareholders. Thus Scovanner believed that he needed to rank the five projects in order to be able to recommend which ones to keep and which ones to reject during the CEC meeting the next day.
5 These NPV and IRR figures exclude the impact of the credit card.
DardenBusinessPublishing:233867 P
le as
e do
n ot
c op
y or
r ed
is tr
ib ut
e. C
on ta
ct p
er m
is si
on s@
da rd
en bu
si ne
ss pu
bl is
hi ng
.c om
f or
q ue
st io
ns o
r ad
di tio
na l p
er m
is si
on s.
T hi
s do
cu m
en t i
s au
th or
iz ed
f or
u se
o nl
y by
Q im
ei Y
an g
at T
em pl
e U
ni ve
rs ity
- Fo
x Sc
ho ol
o f
B us
in es
s.
Page 5 of 19
Page 6 UVA-F-1563
Exhibit 1
Target Corporation
Executive Officers and Capital Expenditure Committee Members
Timothy R. Baer Executive Vice President, General Counsel, and Corporate Secretary
Michael R. Francis Executive Vice President, Marketing
John D. Griffith Executive Vice President, Property Development CEC
Jodeen A. Kozlak Executive Vice President, Human Resources
Troy H. Risch Executive Vice President, Stores CEC
Janet M. Schalk Executive Vice President, Technology Services and Chief Information Officer
Douglas A. Scovanner Executive Vice President and Chief Financial Officer CEC
Terrence J. Scully President, Target Financial Services
Gregg W. Steinhafel President CEC
Robert J. Ulrich Chairman and Chief Executive Officer CEC
Chairman and CEO Bob Ulrich, 62. Ulrich began his career at Dayton-Hudson as a merchandising trainee in 1967. He advanced to the position of CEO of Target Stores in 1987 and to the position of Dayton-Hudson’s CEO in 1994.
EVP and CFO Doug Scovanner, 49. Scovanner was named Target CFO in February 2000 after previously serving as CFO of Dayton-Hudson.
President of Target Stores Gregg Steinhafel, 50. Steinhafel began his career at Target as a merchandising trainee in 1979. He was named president in 1999.
EVP of Stores Troy Risch, 37. Risch was promoted to EVP in September 2006.
EVP of Property Development John Griffith, 44. Griffith was promoted to EVP in February 2005 from the position of senior vice president of Property Development he had held since February 2000.
Source: Target Corporation, used with permission.
DardenBusinessPublishing:233867 P
le as
e do
n ot
c op
y or
r ed
is tr
ib ut
e. C
on ta
ct p
er m
is si
on s@
da rd
en bu
si ne
ss pu
bl is
hi ng
.c om
f or
q ue
st io
ns o
r ad
di tio
na l p
er m
is si
on s.
T hi
s do
cu m
en t i
s au
th or
iz ed
f or
u se
o nl
y by
Q im
ei Y
an g
at T
em pl
e U
ni ve
rs ity
- Fo
x Sc
ho ol
o f
B us
in es
s.
Page 6 of 19
Page 7 UVA-F-1563
Exhibit 2
Target Corporation
Retail Company Financial Information
Revenue Basic Debt Debt Rating Fiscal Year
Market Capitalization as of Oct. 31, 2006
($ billions) EPS ($ billions) (S&P) Beta Ended ($ billions)
Bed Bath & Beyond Inc. $5.8 $1.95 $0.0 BBB 1.05 Feb-06 $11.4 Best Buy Co., Inc. $30.8 $2.33 $0.6 BBB 1.25 Feb-06 $26.2 Costco Wholesale Corp. $52.9 $2.24 $0.8 A 0.85 Aug-05 $24.1 Dick’s Sporting Goods, Inc. $2.6 $1.47 $0.2 Not Rated 1.15 Jan-06 $1.3 JCPenney Company, Inc. $18.8 $4.30 $3.5 BB+ 1.05 Jan-06 $16.6 Kohl’s Corporation $13.4 $2.45 $1.2 BBB 0.90 Jan-06 $23.1 Sears Holdings Corporation $49.1 $5.63 $4.0 BB+ NMF Jan-06 $26.9 Wal-Mart Stores, Inc. $315.7 $2.68 $38.8 AA 0.80 Jan-06 $199.9 Target Corporation $52.6 $2.73 $9.9 A+ 1.05 Jan-06 $50.1
Data Source: Yahoo! Finance and Value Line Investment Survey.
DardenBusinessPublishing:233867
P le
as e
do n
ot c
op y
or r
ed is
tr ib
ut e.
C on
ta ct
p er
m is
si on
s@ da
rd en
bu si
ne ss
pu bl
is hi
ng .c
om f
or q
ue st
io ns
o r
ad di
tio na
l p er
m is
si on
s. T
hi s
do cu
m en
t i s
au th
or iz
ed f
or u
se o
nl y
by Q
im ei
Y an
g at
T em
pl e
U ni
ve rs
ity -
Fo x
Sc ho
ol o
f B
us in
es s.
Page 7 of 19
Page 8 UVA-F-1563
Exhibit 3
Target Corporation
Target Income Statements ($ millions)
Fiscal Year Ending 28 Jan 2006 29 Jan 2005
Net revenues 52,620 46,839
Cost of goods sold 34,927 31,445
Depreciation, depletion, and amortization 1,409 1,259
Gross income 16,284 14,135
Selling, general, and admin expenses 11,961 10,534
Earnings before interest and taxes (EBIT) 4,323 3,601
Net interest expense 463 570
Pretax income 3,860 3,031
Income taxes 1,452 1,146
Net income before extra items 2,408 1,885
Gain (loss) sale of assets 1,313
Net income after extra items 2,408 3,198
Capital expenditures (net of disposals) 3,330 3,012
Capital expenditures/sales 6.3% 6.4%
Data source: Target Corporation annual reports.
DardenBusinessPublishing:233867 P
le as
e do
n ot
c op
y or
r ed
is tr
ib ut
e. C
on ta
ct p
er m
is si
on s@
da rd
en bu
si ne
ss pu
bl is
hi ng
.c om
f or
q ue
st io
ns o
r ad
di tio
na l p
er m
is si
on s.
T hi
s do
cu m
en t i
s au
th or
iz ed
f or
u se
o nl
y by
Q im
ei Y
an g
at T
em pl
e U
ni ve
rs ity
- Fo
x Sc
ho ol
o f
B us
in es
s.
Page 8 of 19
Page 9 UVA-F-1563
Exhibit 4
Target Corporation
Balance Sheet Statements ($ millions)
Fiscal Year Ending 28 Jan 2006 29 Jan 2005 31 Jan 2004
Assets Cash and cash equivalents 1,648 2,245 708 Accounts receivable (net) 5,666 5,069 4,621 Inventory 5,838 5,384 4,531 Other current assets 1,253 1,224 3,092
Total current assets 14,405 13,922 12,952 Property, plant, and equipment, net 19,038 16,860 15,153 Other assets 1,552 1,511 3,311
Total assets 34,995 32,293 31,416 Liabilities Accounts payable 6,268 5,779 4,956 Current portion of LT debt and notes payable 753 504 863 Income taxes payable 374 304 382 Other current liabilities 2,193 1,633 2,113
Total current liabilities 9,588 8,220 8,314 Long-term debt 9,119 9,034 10,155 Other liabilities 2,083 2,010 1,815
Total liabilities 20,790 19,264 20,284 Shareholders’ equity Common equity 2,192 1,881 1,609 Retained earnings 12,013 11,148 9,523
Total liabilities and shareholders’ equity 34,995 32,293 31,416
Data source: Target Corporation annual reports.
Exhibit 5
Target Corporation
Target Logo
Source: Target Corporation, used with permission.
DardenBusinessPublishing:233867 P
le as
e do
n ot
c op
y or
r ed
is tr
ib ut
e. C
on ta
ct p
er m
is si
on s@
da rd
en bu
si ne
ss pu
bl is
hi ng
.c om
f or
q ue
st io
ns o
r ad
di tio
na l p
er m
is si
on s.
T hi
s do
cu m
en t i
s au
th or
iz ed
f or
u se
o nl
y by
Q im
ei Y
an g
at T
em pl
e U
ni ve
rs ity
- Fo
x Sc
ho ol
o f
B us
in es
s.
Page 9 of 19
Page 10 UVA-F-1563
Exhibit 6
Target Corporation
Example of a Capital Project Request Dashboard
Project: Sensitivities Key - Dashboard Example Market: St. Louis Open: October, 2008
Prototype: P04 Size: 126,842
Developer: NA Own/Lease: Own
Address: NA
Capital Expenditure Committee: October 2007 Anchors: NA
FINANCIAL SUMMARY INVESTMENT DETAIL
TOTAL R&P SALES Project B/(P) Proto Land Project B/(P) Proto
1st year 2006 Equivalent $27,000 $2,588 Acres: 11.00 RE Tax $222 ($8)
5th year 2006 Equivalent $34,155 $3,279 PSF: $7.93 CAM $71 $0
Sales maturity 1.27 0.00 Closing: 10/2007 Sitework N/A
Options None
INCREMENTAL R&P SALES Project B/(P) Proto BUILDING COST VS. PROTOTYPE 1st year 2006 Equivalent $23,000 ($1,412) Subgeographic $0
5th year 2006 Equivalent $34,155 $3,279 Proto Update 0
Sales maturity 1.49 0.22 Market Conditions 0
Government Fees 0
INVESTMENT Project B/(P) Proto Architectural 0
Land $3,802 ($202) Technical 0
Sitework 3,804 (812) Procurement 0
Subtotal $7,606 ($1,014) A/E Fees 0
Building 12,786 (2,736) Signs 0
Other 1,295 (53) Contingency 0
Total Net Investment $21,687 ($3,804) Total Variance $0
INCENTIVE SUMMARY
VALUE IRR NPV B/(P) Proto None Available Vendor Fee $0
Store 12.8% $12,860 $1,860 Legal Fee $0
Credit 10.2% $3,767 $322 DEMOGRAPHICS
TOTAL 12.6% $16,626 $2,182 Characteristics MSA Trade Area 3-Mile Radius
STORE SENSITIVITIES 2005 Population (000's) 0 0 0
HURDLE ADJUSTMENT NPV IRR 2000-2005 Growth 0.0% 0.0% 0.0%
Sales (3.0%) 1.0% Median HH Income $0 $0 $0
Gross Margin (0.55) 0.19 # HH +$50,000 (000's) 0 0 0
Construction (Building & Sitework) $2,398 ($498) % Adults 4+ Yrs. College, 2005 0% 0% 0%
Full Transfer Impact 4.0% 7.5% COMMENTS
RISK/OPPORTUNITY
10% sales decline ($6,259) (1.8)
1 pp GM decline ($3,388) (1.0)
10% Const. cost increase ($1,287) (0.6)
Market margin, wage rate, etc. ($603) (0.2)
10% sales increase $6,269 1.8
VARIANCE TO PROTOTYPE
Land ($219) (0.1)
Non-Land Investment ($2,660) (1.5)
Sales $4,818 1.4
Real Estate Tax ($79) (0.0)
P&L SUMMARY
EBIT IMPACT Project B/(P) Proto
Thru Open Yr ($1,060) ($117)
5th Yr $4,066 $455
Capital Project Request
2009
33%
45%
22%
TARGET
Wal-Mart
WMSC
2007
33%
67%
TARGET
Wal-Mart
NPV & Investment
0.0
5.0
10.0
15.0
20.0
25.0
Project Prototype
Investment NPV -10% Sales +10% Sales
SALES
15.0
20.0
25.0
30.0
35.0
40.0
1 2 3 4 5
Total Incremental Prototype
COMPETITION
2.2
SF/Cap
3.3
SF/Cap
WMSC = Wal-Mart Super Center
“B/(P) Proto” => Better or Poorer relative to the prototype
DardenBusinessPublishing:233867
P le
as e
do n
ot c
op y
or r
ed is
tr ib
ut e.
C on
ta ct
p er
m is
si on
s@ da
rd en
bu si
ne ss
pu bl
is hi
ng .c
om f
or q
ue st
io ns
o r
ad di
tio na
l p er
m is
si on
s. T
hi s
do cu
m en
t i s
au th
or iz
ed f
or u
se o
nl y
by Q
im ei
Y an
g at
T em
pl e
U ni
ve rs
ity -
Fo x
Sc ho
ol o
f B
us in
es s.
Page 10 of 19
Page 11 UVA-F-1563
Exhibit 6 (continued)
Source: Target Corporation, used with permission.
Dashboard Sensitivities Key (use with "Sensitivities Key - Dashboard Example") Dashboard Example: P04; Store NPV: $12,860; Store IRR: 12.8%
HURDLE ADJUSTMENT (CPR Dashboard)
Sales
NPV (3.0%) Sales could decrease (3.0%) and still achieve Prototype Store NPV
IRR 1.0% Sales would have to increase 1.0% to achieve Prototype Store IRR
Gross Margin
NPV (0.55) Gross Margin could decrease (0.55) pp and still achieve Prototype Store NPV
IRR 0.19 Gross Margin would have to increase 0.19 pp to achieve Prototype Store IRR
Construction (Building & Sitework)
NPV $2,398 Construction costs could increase $2,398 and still achieve Prototype Store NPV
IRR ($498) Construction costs would have to decrease ($498) to achieve Prototype Store IRR
Full Transfer Impact Prototype Assumption: A nearby store transferring sales to a new store, fully recovers these sales by the 5th yr.
Sensitivity Assumption: If transfer sales are NOT fully recovered by the transferring store in year 5:
NPV 4.0% Sales would have to increase 4.0% to achieve Prototype Store NPV
IRR 7.5% Sales would have to increase 7.5% to achieve Prototype Store IRR
RISK/OPPORTUNITY
10% Sales Decline
NPV ($6,259) If sales decline by 10%, Store NPV would decline by ($6,259)
IRR (1.8) If sales decline by 10%, Store IRR would decline by (1.8) pp
1 pp GM Decline Cost NPV %
NPV ($3,388) If margin decreased by 1 pp, Store NPV would decline by ($3,388) Land: $100K ($110K) 110%
IRR (1.0) If margin decreased by 1 pp, Store IRR would decline by (1.0) pp Sitework: $100K ($70K) 70%
10% Construction Cost Increase Building: $100K ($85K) 85%
NPV ($1,287) If construction costs increased by 10%, Store NPV would decline by ($1,287) On-going Exp: $100K ($1M) x10
IRR (0.6) If construction costs increased by 10%, Store IRR would decline by (0.6) pp On-going Expense: eg. Real Estate Taxes, Operating Exp
Market Margin, Wage Rate, etc.
NPV ($603) If we applied market specific assumptions, Store NPV would decrease by ($603)
IRR (0.2) If we applied market specific assumptions, Store IRR would decrease by (0.2) pp
10% Sales Increase
NPV $6,269 If sales increased by 10%, Store NPV would increase by $6,269
IRR 1.8 If sales increased by 10%, Store IRR would increase by 1.8 pp
VARIANCE TO PROTOTYPE
The example dashboard with a Store NPV of $12,860 is $1,860K above Prototypical Store NPV. The following items contributed to the variance:
Land
NPV ($219) Land cost contributed a negative ($219) to the variance from Prototype
IRR (0.1) Land cost contributed a negative (0.1) pp to the variance from Prototype
Non-Land Investment
NPV ($2,660) Building/Sitework costs contributed a negative ($2,660) to the variance from Prototype
IRR (1.5) Building/Sitework costs contributed a negative (1.5) pp to the variance from Prototype
Sales
NPV $4,818 Sales contributed a positive $4,818 to the variance from Prototype
IRR 1.4 Sales contributed a positive 1.4 pp to the variance from Prototype
Real Estate Taxes
NPV ($79) Real Estate Taxes contributed a negative ($79) to the variance from Prototype
IRR (0.0) Real Estate Taxes contributed a negative (0.0) pp to the variance from Prototype
APPROX $ IMPACT ON STORE NPV
Assumes Store Opening occurs 1 year after closing.
DardenBusinessPublishing:233867
P le
as e
do n
ot c
op y
or r
ed is
tr ib
ut e.
C on
ta ct
p er
m is
si on
s@ da
rd en
bu si
ne ss
pu bl
is hi
ng .c
om f
or q
ue st
io ns
o r
ad di
tio na
l p er
m is
si on
s. T
hi s
do cu
m en
t i s
au th
or iz
ed f
or u
se o
nl y
by Q
im ei
Y an
g at
T em
pl e
U ni
ve rs
ity -
Fo x
Sc ho
ol o
f B
us in
es s.
Page 11 of 19
Page 12 UVA-F-1563
Exhibit 7
Target Corporation
Economic Analysis Summary of Project Proposals
Net Present Value* Trade Area**
Investment
($000) Base Case
NPV ($000)
10% Sales Decline ($000) IRR Population
Population Increase 2000-2005
Median Income
% Adults 4+ yrs. college
Gopher Place $23,000 $16,800 ($4,722) 12.3% 70,000 27% $56,400 12%
Whalen Court $119,300 $25,900 ($16,611) 9.8% 632,000 3% $48,500 45%
The Barn $13,000 $20,500 ($4,066) 16.4% 151,000 3% $38,200 17%
Goldie’s Square $23,900 $300 ($4,073) 8.1% 222,000 16% $56,000 24%
Stadium Remodel $17,000 $15,700 ($7,854) 10.8% N/A N/A $65,931 42%
* NPV is computed using 9.0% as discount rate for store cash flows and 4.0% for credit-card cash flows. ** Trade area is the geographical area from which 70% of store sales will be realized.
Gopher Place was a request for $23.0 million to build a P04 store scheduled to open in October 2007. The prototype NPV would be achieved with sales of 5.3% below the R&P forecast level. This market was considered an important one, with five existing stores already in the area. Wal-Mart was expected to add two new supercenters in response to favorable population growth in the trade area, which was considered to have a very favorable median household income and growth rate. Because of the high density of Target stores, nearly 19% of sales included in the forecasts were expected to come from existing Target stores.
Whalen Court was a request for $119.3 million to build a unique single-level store scheduled to open in October 2008. The prototype NPV could be achieved with sales of 1.9% above the R&P forecast level. Although Target currently operated 45 stores in this market, the Whalen Court market represented a rare opportunity for Target to enter the urban center of a major metropolitan area. Unlike other areas, this opportunity provided Target with major brand visibility and essentially free advertising for all passersby. Considering Target’s larger advertising budget, the request for more than $100 million of capital investment could be balanced against the brand awareness benefits it would bring. Further, this opportunity was only available for a limited time. Unlike the majority of Target stores, this store would have to be leased. Thus if it was not approved at the November meeting, the property would surely be leased by another retailer.
DardenBusinessPublishing:233867
P le
as e
do n
ot c
op y
or r
ed is
tr ib
ut e.
C on
ta ct
p er
m is
si on
s@ da
rd en
bu si
ne ss
pu bl
is hi
ng .c
om f
or q
ue st
io ns
o r
ad di
tio na
l p er
m is
si on
s. T
hi s
do cu
m en
t i s
au th
or iz
ed f
or u
se o
nl y
by Q
im ei
Y an
g at
T em
pl e
U ni
ve rs
ity -
Fo x
Sc ho
ol o
f B
us in
es s.
Page 12 of 19
Page 13 UVA-F-1563
Exhibit 7 (continued)
The Barn was a request for $13.0 million to build a P04 store scheduled to open in March 2007. The prototype NPV was achievable with sales of 18.1% below the R&P forecast level. This project was being resubmitted after initial development efforts failed because of a disagreement with the developer. This small rural area was an extreme contrast to Whalen Court. The small initial investment allowed for a large return on investment even if sales growth turned out to be less than expected. This investment represented a new market for Target as the two nearest Target stores were 80 and 90 miles away.
Goldie’s Square was a request for $23.9 million to build a SuperTarget store scheduled to open in October 2007. The prototype NPV required sales 45.1% above the R&P forecast level. This area was considered a key strategic anchor for many retailers. The Goldie’s Square center included Bed Bath & Beyond, JCPenney, Circuit City, and Borders. Target currently operated 12 stores in the area and was expected to have 24 eventually. Despite the relatively weak NPV figures, this was a hotly contested area with an affluent and fast-growing population, which could afford good brand awareness should the growth materialize.
Stadium Remodel was a request for $17.0 million to remodel a SuperTarget store opening March 2007. As a remodel, there was no prototype NPV for comparison. The recent sales decline and deteriorating facilities at this location could lead to tarnishing the brand image. This trade area had supported Target stores since 1972 and had already been remodeled twice previously. The $17 million investment would certainly give a lift to the lagging sales.
Source: Target Corporation, used with permission.
DardenBusinessPublishing:233867
P le
as e
do n
ot c
op y
or r
ed is
tr ib
ut e.
C on
ta ct
p er
m is
si on
s@ da
rd en
bu si
ne ss
pu bl
is hi
ng .c
om f
or q
ue st
io ns
o r
ad di
tio na
l p er
m is
si on
s. T
hi s
do cu
m en
t i s
au th
or iz
ed f
or u
se o
nl y
by Q
im ei
Y an
g at
T em
pl e
U ni
ve rs
ity -
Fo x
Sc ho
ol o
f B
us in
es s.
Page 13 of 19
Page 14 UVA-F-1563
Exhibit 8
Target Corporation
Individual Capital Project Request “Dashboards”
Project: “Gopher Place” Market: Gopherville Open: October, 2007
Prototype: P04.383-MSP Size: 127,000
Developer: Henderson Associates Own/Lease: Own
Capital Expenditure Committee: November 2006 Address: SWC of Hudson and Elk
Anchors: Freestanding
FINANCIAL SUMMARY INVESTMENT DETAIL
TOTAL R&P SALES Project B/(P) Proto Land Acres: 9.78 Sitework Pro Rata, Maximum
1st year 2005 Equivalent $26,000 $2,745 PSF: $7.52 RE Tax-Per Corp Tax $136
5th year 2005 Equivalent $35,100 $5,688 Closing: 11/2006 B/(P) Proto $62
Sales maturity 1.35 0.09 Options Garden Center, Seismic
BUILDING COST VS. PROTOTYPE
INCREMENTAL R&P SALES Project B/(P) Proto Subgeographic ($1,238)
1st year 2005 Equivalent $22,800 ($455) Proto Update (117)
5th year 2005 Equivalent $35,100 $5,688 Market Conditions (1,158)
Sales maturity 1.54 0.27 Government Fees (1,049)
Architectural (485)
INVESTMENT Project B/(P) Proto Technical (615)
Land $3,205 $264 Procurement (239)
Sitework 3,164 (580) A/E Fees (81)
Subtotal $6,369 ($315) Signs 6
Building 15,420 (5,052) Contingency (75)
Other 1,227 (96) Total Variance ($5,052)
Total Net Investment $23,016 ($5,463) INCENTIVE SUMMARY
None Available Vendor Fee $0
VALUE IRR NPV B/(P) Proto Legal Fee $0
Store 12.7% $13,201 $2,493
Credit 8.1% $3,554 $544 DEMOGRAPHICS
TOTAL 12.3% $16,755 $3,038 Characteristics MSA Trade Area 3-Mile Radius
STORE SENSITIVITIES 2005 Population (000's) 650 70 16
HURDLE ADJUSTMENT NPV IRR 2000-2005 Growth 15.0% 27.0% 20.0%
Sales (5.3%) 2.2% Median HH Income $46,700 $56,400 $59,400
Gross Margin (0.72) 0.29 # HH +$50,000 (000's) 97 11 3
Construction (Building & Sitework) $3,102 ($751) % Adults 4+ Yrs. College, 2005 15% 12% 11%
Full Transfer Impact 2.3% 9.3% COMMENTS
- Target currently operates 5 stores in the market.
RISK/OPPORTUNITY - Transfer Sales: T-1526: 8% (7 miles E) derives 19% of sales from the proposed
10% sales decline ($4,722) (1.3) trade area.
1 pp GM decline ($3,481) (0.9) - R&P Sales assume Wal-Mart relocates a store to a Supercenter in 2007;
10% Const. cost increase ($1,494) (0.6) Wal-Mart adds an additional Supercenter in Badgerville in 2008.
Market margin, wage rate, etc. ($5,434) (1.5)
10% sales increase $4,621 1.2
VARIANCE TO PROTOTYPE
Land $287 0.1
Non-Land Investment ($4,741) (2.6)
Sales $6,331 1.9
Real Estate Tax $615 0.2
P&L SUMMARY
EBIT IMPACT Project B/(P) Proto
Thru Open Yr ($567) ($97)
5th Yr $4,452 $886
CAPITAL PROJECT REQUEST
0.0
5.0
10.0
15.0
20.0
25.0
Project Prototype
NPV & Investment
Investment NPV -10% Sales +10% Sales
15
20
25
30
35
40
1 2 3 4 5
SALES
Total
Incremental
Prototype
0.0
SF/Cap
6.5
SF/Cap
24%
76%
2008
TARGET
WMSC
2006 COMPETITION
DardenBusinessPublishing:233867
P le
as e
do n
ot c
op y
or r
ed is
tr ib
ut e.
C on
ta ct
p er
m is
si on
s@ da
rd en
bu si
ne ss
pu bl
is hi
ng .c
om f
or q
ue st
io ns
o r
ad di
tio na
l p er
m is
si on
s. T
hi s
do cu
m en
t i s
au th
or iz
ed f
or u
se o
nl y
by Q
im ei
Y an
g at
T em
pl e
U ni
ve rs
ity -
Fo x
Sc ho
ol o
f B
us in
es s.
Page 14 of 19
Page 15 UVA-F-1563
Exhibit 8 (continued)
Project: “Whalen Court” Market: Buildback Open: October, 2008
Prototype: Unique Single Level Size: 173,585
Developer: Sawicky and Co. Own/Lease: Lease
Capital Expenditure Committee: November 2006 Address: NWQ of Gopher and High Investment Blvd.
Anchors: Home Depot, Best Buy
FINANCIAL SUMMARY INVESTMENT DETAIL
TOTAL R&P SALES Project B/(P) Proto Lease Type: Building Lease Sitework N/A
1st year 2005 Equivalent $86,000 $52,185 Rent: Prepay+$3.3K RE Tax (net of abatement) $358
5th year 2005 Equivalent $111,800 $69,031 Closing: 10/2006 B/(P) Proto ($60)
Sales maturity 1.30 0.04 Options L4: Unique Risk Security, District Office, 13k sf Exp. Stock, 2nd Lvl Stock
BUILDING COST VS. PROTOTYPE
INCREMENTAL R&P SALES Project B/(P) Proto Subgeographic ($1,200)
1st year 2005 Equivalent $79,600 $45,785 Proto Update (124)
5th year 2005 Equivalent $111,800 $69,031 Market Conditions 0
Sales maturity 1.40 0.14 Government Fees 0
Architectural 0
INVESTMENT Project B/(P) Proto Technical (7,927)
Lease $87,309 ($78,855) Procurement (2,429)
Sitework 0 3,796 A/E Fees (428)
Subtotal $87,309 ($75,059) Signs (18)
Building 29,434 (15,128) Contingency (3,000)
Other 2,520 93 Total Variance ($15,128)
Total Net Investment $119,263 ($90,094) INCENTIVE SUMMARY
Vendor Fee $92
VALUE IRR NPV B/(P) Proto Legal Fee $0
Store 9.9% $14,225 ($3,174)
Credit 8.2% $11,650 $7,164 DEMOGRAPHICS
TOTAL 9.8% $25,875 $3,989 Characteristics MSA Trade Area 3-Mile Radius
STORE SENSITIVITIES 2005 Population (000's) 18,768 632 1,248
HURDLE ADJUSTMENT NPV IRR 2000-2005 Growth 2.0% 3.0% 2.0%
Sales 1.9% 31.1% Median HH Income $57,200 $48,500 $43,800
Gross Margin 0.28 4.58 # HH +$50,000 (000's) 3,750 143 238
Construction (Building & Sitework) ($4,289) ($41,070) % Adults 4+ Yrs. College, 2005 30% 45% 37%
Full Transfer Impact 7.7% 36.3% COMMENTS
See attached for additional information.
RISK/OPPORTUNITY
10% sales decline ($16,611) (1.0)
1 pp GM decline ($11,494) (0.7)
10% Const. cost increase ($2,178) (0.1)
Market margin, wage rate, etc. ($16,877) (1.1)
10% sales increase $16,647 1.0
VARIANCE TO PROTOTYPE
Lease ($78,912) (15.1)
Non-Land Investment ($10,168) (7.9)
Sales $99,963 22.9
Real Estate Tax ($637) (0.2)
P&L SUMMARY
EBIT IMPACT Project B/(P) Proto
Thru Open Yr ($1,599) ($1,136)
5th Yr $14,034 $8,509
CAPITAL PROJECT REQUEST
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
Project Prototype
NPV & Investment
Investment NPV -10% Sales +10% Sales
15
35
55
75
95
115
135
1 2 3 4 5
SALES
Total
Incremental
Prototype
0.0
SF/Cap
0.5
SF/Cap
100 %
2009
TARGET
2006 COMPETITION
DardenBusinessPublishing:233867
P le
as e
do n
ot c
op y
or r
ed is
tr ib
ut e.
C on
ta ct
p er
m is
si on
s@ da
rd en
bu si
ne ss
pu bl
is hi
ng .c
om f
or q
ue st
io ns
o r
ad di
tio na
l p er
m is
si on
s. T
hi s
do cu
m en
t i s
au th
or iz
ed f
or u
se o
nl y
by Q
im ei
Y an
g at
T em
pl e
U ni
ve rs
ity -
Fo x
Sc ho
ol o
f B
us in
es s.
Page 15 of 19
Page 16 UVA-F-1563
Exhibit 8 (continued)
Project: “The Barn” Market: Moose Land Open: March, 2007
Prototype: P04.383-MSP Size: 126,842
Developer: Hulbert Ventures Own/Lease: Own
Capital Expenditure Committee: November 2006 Address: NWQ of Badger and Wolverine
Anchors: Lowe's
FINANCIAL SUMMARY INVESTMENT DETAIL
TOTAL R&P SALES Project B/(P) Proto Land Acres: 11.48 Sitework Fixed Cost
1st year 2005 Equivalent $24,000 $2,043 PSF: $0.02 RE Tax-Per Corp Tax $136
5th year 2005 Equivalent $30,500 $2,729 Closing: 4/2006 B/(P) Proto $62
Sales maturity 1.27 0.01 Options L3: Enhanced Risk Security
BUILDING COST VS. PROTOTYPE
Subgeographic $523
Proto Update (22)
Market Conditions (410)
Government Fees 0
Architectural (95)
INVESTMENT Project B/(P) Proto Technical (122)
Land $10 $3,390 Procurement (91)
Sitework 2,303 290 A/E Fees (76)
Subtotal $2,313 $3,680 Signs (9)
Building 9,705 (378) Contingency (75)
Other 998 121 Total Variance ($378)
Total Net Investment $13,017 $3,423 INCENTIVE SUMMARY
None Available Vendor Fee $0
VALUE IRR NPV B/(P) Proto Legal Fee $0
Store 17.5% $17,406 $7,326
Credit 8.2% $3,121 $279 DEMOGRAPHICS
TOTAL 16.4% $20,527 $7,605 Characteristics MSA Trade Area 3-Mile Radius
STORE SENSITIVITIES 2005 Population (000's) 135 151 19
HURDLE ADJUSTMENT NPV IRR 2000-2005 Growth 3.0% 3.0% 7.0%
Sales (18.1%) (23.2%) Median HH Income $36,600 $38,200 $47,300
Gross Margin (2.35) (3.04) # HH +$50,000 (000's) 20 22 4
Construction (Building & Sitework) $8,908 $6,973 % Adults 4+ Yrs. College, 2005 16% 17% 34%
COMMENTS
- Target is entering a new small market. The nearest Target stores are 80 miles
RISK/OPPORTUNITY NE, 80 miles S, 90 miles NW.
10% sales decline ($4,066) (1.9) - R&P Sales assume Target is part of a major retail development of 600K sf.
1 pp GM decline ($3,111) (1.5) - See attached Resubmission Summary.
10% Const. cost increase ($988) (1.0)
Market margin, wage rate, etc. ($2,999) (1.4)
10% sales increase $4,096 1.9
VARIANCE TO PROTOTYPE
Land $3,675 3.2
Non-Land Investment ($570) (0.3)
Sales $3,603 1.4
Real Estate Tax $617 0.2
CAPITAL PROJECT REQUEST
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Project Prototype
NPV & Investment
Investment NPV -10% Sales +10% Sales
15
17
19
21
23
25
27
29
31
33
1 2 3 4 5
SALES
Total
Incremental
Prototype
5.7
SF/Cap
6.4
SF/Cap
13%
58%
9%
20%
2008
TARGET
WMSC
Sam's Club
Kmart
67%
10%
23%
2006
WMSC
Sam's Club
Kmart
COMPETITION
DardenBusinessPublishing:233867
P le
as e
do n
ot c
op y
or r
ed is
tr ib
ut e.
C on
ta ct
p er
m is
si on
s@ da
rd en
bu si
ne ss
pu bl
is hi
ng .c
om f
or q
ue st
io ns
o r
ad di
tio na
l p er
m is
si on
s. T
hi s
do cu
m en
t i s
au th
or iz
ed f
or u
se o
nl y
by Q
im ei
Y an
g at
T em
pl e
U ni
ve rs
ity -
Fo x
Sc ho
ol o
f B
us in
es s.
Page 16 of 19
Page 17 UVA-F-1563
Exhibit 8 (continued)
Project: “Goldie's Square” Market: Goldie Country Open: October, 2007
Prototype: SUP04M Size: 173,770
Developer: Barsky Enterprises Own/Lease: Own
Capital Expenditure Committee: November 2006 Address: SWQ of Ocean and Beach
Anchors: JC Penney, Circuit City, Borders, Bed Bath & Beyond, Ross
FINANCIAL SUMMARY INVESTMENT DETAIL
TOTAL R&P SALES Project B/(P) Proto Land Acres: 11.69 Sitework Fixed Cost
1st year 2005 Equivalent $34,000 ($10,304) PSF: $7.10 RE Tax-Per Corp Tax $539
5th year 2005 Equivalent $42,000 ($14,036) Closing: 8/2006 B/(P) Proto ($269)
Sales maturity 1.24 (0.03) Options None
BUILDING COST VS. PROTOTYPE
INCREMENTAL R&P SALES Project B/(P) Proto Subgeographic $829
1st year 2005 Equivalent $25,900 ($18,404) Proto Update (153)
5th year 2005 Equivalent $42,000 ($14,036) Market Conditions 545
Sales maturity 1.62 0.36 Government Fees 0
Architectural (469)
INVESTMENT Project B/(P) Proto Technical (799)
Land $3,615 $1,385 Procurement (170)
Sitework 3,695 (425) A/E Fees (71)
Subtotal $7,310 $960 Signs 50
Building 14,969 (313) Contingency (75)
Other 1,660 48 Total Variance ($313)
Total Net Investment $23,939 $694 INCENTIVE SUMMARY
None Available Vendor Fee $0
VALUE IRR NPV B/(P) Proto Legal Fee $0
Store 8.1% ($3,319) ($18,222)
Credit 8.1% $3,635 ($1,294) DEMOGRAPHICS
TOTAL 8.1% $317 ($19,516) Characteristics MSA Trade Area 3-Mile Radius
STORE SENSITIVITIES 2005 Population (000's) 1,415 222 67
HURDLE ADJUSTMENT NPV IRR 2000-2005 Growth 13.0% 16.0% 4.0%
Sales 45.1% 47.2% Median HH Income $56,100 $56,000 $50,000
Gross Margin 4.64 4.91 # HH +$50,000 (000's) 291 41 12
Construction (Building & Sitework) ($22,167) ($14,576) % Adults 4+ Yrs. College, 2005 36% 24% 26%
Full Transfer Impact 62.5% 63.1% COMMENTS
- Target currently operates 12 stores in the market. Total Target buildout for this
RISK/OPPORTUNITY market is currently estimated at 24 of which 7 are active/near term opportunities.
10% sales decline ($4,073) (1.1) Build out will include 12 SuperTarget units, 50% of the total.
1 pp GM decline ($3,929) (1.1) - Transfer Sales: 25% from a store located 2.1 miles NE; 4% from a store located
10% Const. cost increase ($1,470) (0.3) 7 miles N; 25% of sales from a store 4 miles away.
Market margin, wage rate, etc. $6,059 1.6 - General Merchandise/Hardlines C Mix: 82/18.
10% sales increase $4,008 1.1 - Alternatives to this buildback scenario:
>Relo: T-683 closes when Goldie's Square opens: Total NPV: $6M; Total IRR: 9.3%.
VARIANCE TO PROTOTYPE >T-683 closes 1 yr after Goldie's Square opens: Total NPV: $3.9M; Total IRR: 8.9%.
Land $1,501 0.3 >T-683 closes 2 yrs after Goldie's Square opens: Total NPV: $3.6M; Total IRR: 8.9%.
Non-Land Investment ($581) (0.1)
Sales ($16,455) (4.4)
Real Estate Tax ($2,682) (0.7)
P&L SUMMARY
EBIT IMPACT Project B/(P) Proto
Thru Open Yr ($1,921) ($654)
5th Yr $2,951 ($2,343)
CAPITAL PROJECT REQUEST
(10.0)
(5.0)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Project Prototype
NPV & Investment
Investment NPV -10% Sales +10% Sales
15
20
25
30
35
40
45
50
55
60
1 2 3 4 5
SALES
Total
Incremental
Prototype
2.5
SF/Cap
3.0
SF/Cap
17%
83%
2008
TARGET
WMSC
20%
14%
66%
2006
TARGET
Wal-Mart
WMSC
COMPETITION
DardenBusinessPublishing:233867
P le
as e
do n
ot c
op y
or r
ed is
tr ib
ut e.
C on
ta ct
p er
m is
si on
s@ da
rd en
bu si
ne ss
pu bl
is hi
ng .c
om f
or q
ue st
io ns
o r
ad di
tio na
l p er
m is
si on
s. T
hi s
do cu
m en
t i s
au th
or iz
ed f
or u
se o
nl y
by Q
im ei
Y an
g at
T em
pl e
U ni
ve rs
ity -
Fo x
Sc ho
ol o
f B
us in
es s.
Page 17 of 19
Page 18 UVA-F-1563
Exhibit 8 (continued)
Source: Target Corporation, used with permission.
Project: “Stadium Remodel” Market: Boardwalk Remodel Cycle: Cycle 3 2007
Scope: Interior Remodel Last Remodel: NA
Prototype Before & After: SUP1.1 / S04 Own/Lease: Own
Capital Expenditure Committee: November 2006 Expansion Availability: Not Site Constrained Sides Before & After: 484 / 455
Offsite Whse/Dist Office: N/A POG Length: 24'/28'
FINANCIAL SUMMARY PROJECT DETAIL
TOTAL R&P SALES Project B/(P) Proto Write Off $1061 ($657 Bldg, $43 Roof, $361 Other)
1st year 2005 Equivalent $64,000 $19,677 RE Tax-Per Corp Tax $332
5th year 2005 Equivalent $64,000 $7,940 B/(P) Proto ($62)
Sales maturity 1.00 (0.26)
SQUARE FOOTAGE
INCREMENTAL R&P SALES Project B/(P) Proto
1st year 2005 Equivalent $9,300 ($35,023)
5th year 2005 Equivalent $9,300 ($46,760)
Sales maturity 1.00 (0.26) Original Sq Ft 203,300 153,019 35,245 15,036
Additional Sq Ft - (10,544) 12,870 (2,326)
INVESTMENT Project B/(P) Proto Total Sq Ft After Remodel 203,300 142,475 48,115 12,710
Land $0 $5,000
Sitework 1,173 2,097 SUP04 Prototype 177,376 136,616 27,500 13,260
Subtotal $1,173 $7,097 B/(P) Prototype 25,924 5,859 20,615 (550)
Building 12,411 2,245 B/(P) Guide 1st FY 20,615
Other 3,271 (1,618)
Total Net Investment $16,855 $7,724 DEMOGRAPHICS
Characteristics MSA Trade Area 3-Mile Radius
VALUE IRR NPV 2005 Population (000's) 806 113 84
Store 12.5% $14,911 2000-2005 Growth 5.0% 16.0% 15.0%
Credit 4.6% $828 Median HH Income $50,774 $65,931 $64,597
TOTAL 10.8% $15,739 # HH +$50,000 (000's) 158 29 21
STORE SENSITIVITIES % Adults 4+ Yrs. College, 2005 28% 42% 44%
HURDLE ADJUSTMENT NPV IRR COMMENTS
Sales - Entered market in 1972. Currently operate 8 stores in this market.
Gross Margin - A successful store at a strong long-term location serving an affluent family-oriented trade
Construction (Building & Sitework) area.
- 2006 YTD Sales Trend: -0.9%.
- Post-remodel sales assume a 17% sales lift over R&P base case sales. Base case
RISK/OPPORTUNITY sales assume a (10)% impact from buildback (3.3 miles, October 2007);
10% sales decline ($7,854) (1.8) the store is also in the process of being impacted by Park Place South.
1 pp GM decline ($6,457) (1.5) - Current Value of T-0530: $18.8M; R&P base case sales; Prototypical Interior Remodel in
10% Const. cost increase ($910) (0.3) 2007; Tax benefit of depreciable property write-off: $0.4M; Rank: 783 of 1395.
Market margin, wage rate, etc. ($11,317) (2.7) - General Merchandise/Hardlines C Mix: 68/32; based on T-0530 historical trend.
10% sales increase $6,216 1.5 - Options: New Entrance System, Relocate Pharmacy, Relocate Electrical Room.
- Scope: Refrigeration Replacement, 4 Phases of Grocery Staging, Flooring Replacement,
Roof Replacement, Temp Pharmacy, New Food Avenue, New Starbucks, New Optical,
New Portrait Studio, New Signage.
P&L SUMMARY
EBIT IMPACT Project B/(P) Proto
Thru Open Yr ($6,103) ($4,812)
5th Yr $1,272 ($4,025)
Total Sales Stock Support
CAPITAL PROJECT REQUEST
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Status Quo Proposed New
Total New Store
Prototype
NPV & Investment
Investment NPV -10% Sales +10% Sales
15
25
35
45
55
65
75
1 2 3 4 5
SALES
Total
Incremental
Prototype
Remodel
DardenBusinessPublishing:233867
P le
as e
do n
ot c
op y
or r
ed is
tr ib
ut e.
C on
ta ct
p er
m is
si on
s@ da
rd en
bu si
ne ss
pu bl
is hi
ng .c
om f
or q
ue st
io ns
o r
ad di
tio na
l p er
m is
si on
s. T
hi s
do cu
m en
t i s
au th
or iz
ed f
or u
se o
nl y
by Q
im ei
Y an
g at
T em
pl e
U ni
ve rs
ity -
Fo x
Sc ho
ol o
f B
us in
es s.
Page 18 of 19
Page 19 UVA-F-1563
Exhibit 9
Target Corporation
Stock Price Performance 2002–06
Data source: Yahoo! Finance.
DardenBusinessPublishing:233867 P
le as
e do
n ot
c op
y or
r ed
is tr
ib ut
e. C
on ta
ct p
er m
is si
on s@
da rd
en bu
si ne
ss pu
bl is
hi ng
.c om
f or
q ue
st io
ns o
r ad
di tio
na l p
er m
is si
on s.
T hi
s do
cu m
en t i
s au
th or
iz ed
f or
u se
o nl
y by
Q im
ei Y
an g
at T
em pl
e U
ni ve
rs ity
- Fo
x Sc
ho ol
o f
B us
in es
s.
Page 19 of 19
