Gregg Assistance – Chairman, President ND CEO Good morning, and welcome to our 2013 fourth quarter earnings conference call. On the line with me today are Kathy Testis, Executive Vice President of Merchandising; and John Mulligan, Executive Vice President and Chief Financial Officer. This morning, I will provide a high level summary of our fourth quarter results and strategic priorities for the year ahead, and Kathy will discuss category results, guest insights, and the holiday season. And finally, John will provide more detail on our financial performance, along with our financial outlook for 2014.
Following John’s remarks, we’ll pen the phone lines for a question-and-answer session. As a reminder, we are joined on this conference call by investors and others who are listening to our comments via webmaster. Following this conference call, John Hilbert and John Mulligan will be available throughout the day to answer any follow-up questions you may have. Also as a reminder, any forward-looking statements that we make this morning are subject to risks and uncertainties, the most important of which are described in the 8-K we filed this morning.
Finally, in these remarks, we refer to adjusted earnings per share, which is a non-GAP financial measure. A reconciliation to our GAP results is included in this morning’s press release posted on our Investor Relations website. Target’s fourth quarter financial results reflect better than expected U. S segments performance in the first three weeks of the holiday season, followed by meaningfully softer results, following our December 19th announcement that criminals had gained access to guest payment card data In our u. s stores. In total, fourth quarter comparable sales decreased 2. 5% consistent with our updated guidance in January.
Throughout the quarter our team managed the business extremely well, adjusting both inventory and expenses to match the rapidly changing pace of sales. As a result, our US operations generated fourth quarter adjusted earnings per share of $1. 30 at the high-end of the updated guidance we provided In January. In Canada, we worked diligently to leverage holiday traffic In an effort to clear excess inventory. Markdowns resulting from this effort drove a very low gross margin rate, but allowed us to reduce average inventory per store in Canada by approximately 30% between the beginning and end of the fourth quarter.
Canadian segment PEPS dilution was $0. 0 in the quarter, $0. 05 better than the updated guidance we provided in January. We are pleased that our early cycle Canadian stores have seen the most Improvement Glenn us confidence that we will continue to GAP PEPS of $0. 81 reflects U. S and Canadian segment performance along with costs related to our recent restructuring in data breach along with small accounting and tax matters. As we work to address the impact of the mid-December data breach, we have put the welfare of our guests at the center of every decision we’ve made.
We have communicated in early and often providing the best information we had about ewe facts in ongoing on the ongoing investigation. We consistently assured our guests that they would have zero liability for any unauthorized charges on their card accounts resulting from the breach. We increased fraud detection for Redcap holders and extended free credit monitoring and identity theft protection for any guests who has ever shopped one of our U. S stores. We are truly sorry for the impact this breach has had on our guests, team members and other stakeholders and I want to reiterate that we are committed for making things right.
We know these initial steps are part of a longer process. We continue to listen to our guests and we know that this incident and recent security breaches at other companies have shaken their confidence in both Target and the U. S payment system more broadly. To rebuild guest confidence, we’re committed to an end-to-end review in cooperation with third- party experts to understand how the breach occurred, the identification and acceleration of solutions to provide enhanced protection in the future and engagement with third-party experts to protect the industry and consumers from future threats. Accordingly, we’re taking the following steps.
We are conducting an ND-to-end forensic investigation of our processes, systems and personnel to make informed decisions on potential security enhancements. We are accelerating the adoption of advanced chip enabled technology, investing more than $100 million to equip our stores and to issue Target branded smart chip credit and debit cards. We have long supported this more secured technology; a broad adoption in the U. S market has been elusive. We believe that recent events will help the industry to reach a tipping point to an accelerated option in the U. S and we are investing to ensure that Target is a clear leader in driving this change.
We are working collaboratively with a broad set of stakeholders in the payment card space including banks, retailers, trade associations, payment processors and networks to share in advance best practices and foster future innovation. We helped launch and will be an active leader in retail industry, cyber security and data privacy initiative. In addition, we are investing $5 million in a new coalition with the Better Business Bureau and National Cyber Security Alliance and the National Cyber Forensics and Training Alliance to advance public education around cyber security and the dangers of consumer scams.
While we can’t yet assess the full impact of this crime against Target and our guests, we’re pleased that sales have started to recover from the trends we observed following breach related announcements in December and January. Importantly, because we’re in a strong financial position, we expect to absorb any near-term financial impacts while continuing to invest in projects that are key to our long-term success. Our Company has a long history of innovation, disciplined management, and a strong long-term financial performance and we are committed to upholding the principles which has have sustained this Company success for many cascades.
And while 2013 was a disappointing year financially, we have entered the improved financial performance in 2014 and beyond. In the U. S. , we have demonstrated our ability to manage the business with discipline and generate strong financial performance even in a challenging environment. In fact, Kathy will outline in more detail we were very pleased with our holiday season results prior to the announcement of the data breach. In preparation for fourth quarter, we may change this to our holiday promotion and marketing and we were pleased that our in stocks were running at all-time highs.
As a result, U. S segment fourth quarter sales were running ahead of plan prior to December 19th. Looking ahead, we will apply the insights we gained in the holiday season to connect with our guests at delivering merchandise and promotions thoughtfully designed to appeal to them based on what’s on their mind at each point in the year, moving Target beyond compelling, to becoming irresistible for our guests. We made enormous progress in our multinational efforts throughout 2013 as we meaningfully increased conversion both on our website and on our mobile APS. We acquired Chef’s Catalog, Cooking. Mom ND Dermatome, extending our online assortment by providing our guests access to additional high-end brands in key home and beauty categories. We launched Cartwheel, our unique mobile savings tool which has far exceeded expectations in both adoption and engagement and we accelerated our investments in flexible fulfillment. As a result, throughout the year, growth in our digital traffic and sales outpaced industry averages. We launched in-store pick up chain-wide at the beginning of November and with very little marketing, this new offering became a meaningful driver of digital traffic and sales.
Our store teams did an outstanding Job delivering great service when guests arrived to pick up these orders and this is particularly impressive since we launched the service during the busiest time of the year. We will continue to invest in systems, data and processes to enhance our flexible fulfillment capabilities in 2014 and beyond. In our stores we are committed to enhancing the guest experience by adding dedicated service to key categories like beauty, baby and electronics and by providing training and technology that allows our stores team to go beyond providing basic service to solving problems for our guests.
And we’re continuing to pilot innovations to our store formats. Based on the initial roll of the Citrate format and the high single digit comparable sales we’re seeing in our second year Citrate stores, we’re analyzing opportunities to redeem the size and enhance the flexibility of this format opening up a wider universe of potential sites in dense urban areas.
While on the work on Citrate continues, we’ve also developed a separate smaller format called Target Express at about 15% of the size of one of our general merchandise stores, we believe this design provides us with a fantastic opportunity to expand into new trade areas roving a convenient solution to guests who can easily visit one of our other formats. While we expect to offer a carefully curates assortment in frequency categories like food, health care, beauty and other household essentials, Target Express will also offer discretionary categories including home, electronics and seasonal.
Throughout the store we will feature our own brands which offer guests an unbeatable combination of quality and price. We plan to open our first pilot location of this format here in our home market in July so we can carefully study both format to other markets. Throughout the organization we continue to find new opportunities to optimize expenses, freeing up resources we can apply to new initiatives. In 2013 our teams saved approximately $200 million by repositioning their activities and finding more efficient ways to get things done.
Our expense optimization efforts are not a short-term project but a complete overall of the way we work and the team continues to find new opportunities. As a result, we expect the benefit of our expense optimization efforts to reach $1 billion in annulled savings by 2015. I’m proud that our entire team has embraced this effort to transform how we work. In Canada the team has moved from a year focused on opening a record number of stores to optimizing the business in run state.
As we enter 2014 with a much cleaner inventory position, the team’s number one operational focus is on in- stocks, ensuring we have the right quantity of each item in the right place at the right time. In addition, we continue to invest in technology and training to enhance both the tools our team uses and their ability to deploy them most effectively. We’re also continuing to implement innovative marketing and merchandising programs in Canada to raise awareness for our frequency categories like grocery, household essentials, beauty and healthcare.
Throughout 2014 we will focus on conveying the depth and breadth of our assortment in those categories and the unbeatable value we provide to our everyday pricing, 5% of the awards, price match and our flier. With enhanced guest awareness of our unbeatable prices combined with the benefit of improved operations, we expect guest shopping frequency to build throughout 2014, driving improvement in sales and profitability. While 2013 will clearly be remembered as the challenging year, I am proud of team’s efforts to transform our business and position the company for long-term success.
And I want to sincerely hank the Target team for their tireless effort to help our guests recover from the data breach. While there is much more work to be done, I’m inspired by their singular focus on our guests and making things right. As a result, I’m confident we will look back on this incident and see that we emerged from it even stronger than before. Now Kathy will provide more detail on our fourth quarter results and key initiatives as we enter 2014. Kathy? Kathy Testis – EVE, Merchandising Thanks, Gregg.
In our last conference call, we outlined our plans for the holiday season and mentioned that fourth quarter sales were on track through the first half f November. As we progressed through Black Friday week and the first two weeks of December, guests continued to respond to our promotions and sales ran ahead of our plan. Following the data breach announcement and the rapid change in the pace of our sales, the team reacted quickly making nimble adjustments to minimize our excess inventory.
This quick response allowed us to end the year with a clean inventory position. And while our fourth quarter gross margin reflected the addition of clearance activity resulting from the sales slowdown, our team did a great Job minimizing the impact. As we built our holiday plans, our goal was to cut through the clutter and reach our guests with compelling offers on exciting merchandise, specifically we aligned our weekly deals and events so guests were receiving a clear message across all channels.
And because our guests are budget conscious and love to find deals, we intentionally layered promotions across our circular, cartwheel and urgency at key points of the season and we offered more broad attention-getting promotions like 40% off sweaters. Consistent with past years, we featured hot deals on key items but attracted more attention by offering deeper discounts on fewer teems and we were very pleased with the guest response.
For the quarter overall, our non-discretionary categories generally saw the strongest sales performance. However, on our more discretionary categories electronics saw an increase in fourth quarter comparable sales led by mobile phones, tablets and video game hardware and software. We also saw relative strength in our sporting goods and housewives categories. Digital channels had a very strong holiday season. Thanksgiving was our biggest digital sales day ever with mobile devices accounting for a full 25% of those sales.
We were recently recognized as having the most browsed app by a marathoner and tablet in 2013 and Mobile Commerce Daily Just named Target Mobile Retailer and Commerce Website of the Year. This is the second time we’ve been named Mobile Retailer of the Year and we’re pleased to be the only retailer to be honored with the award twice. An important factor in our digital success was the fourth quarter roll of the opportunity to buy online and pick up in-store.
In-store pick up requests represented about 10% of fourth quarter digital orders but they peaked at a much higher rate before Christmas as guests relied on the service as a great solution for last-minute gift shopping. About 30% of store visits to pick up an online order resulted in store shopping on that same trip and the size of that store transaction was much larger than an average store trip. While we’ve rolled out the capabilities with an external commitment to have orders ready in four hours or less, our team quickly attained our internal goal to have most orders ready in one hour or better.
Our survey showed consistently high levels of guest satisfaction with this service and this capability has accelerated our mobile conversion rates. We’re also pleased with the continued growth of Cartwheel, our digital savings app, which need 2013 with over 5 million users who have already saved more than $43 million. Younger guests are particularly engaged by Cartwheel as more than half of its users are Millennial, a much higher percentage than they represent in our overall guest base.
Redemption rates on Cartwheel are more than 10 times higher than DC and other direct channels like receipt marketing and email and our analysis indicate that its driving incremental trips and sales. Our pre-Black Friday deals resulted in one of the biggest days ever for Cartwheel as they drove one-third of our active users into Target stores on the Wednesday before Thanksgiving. We continue to work to enhance the Cartwheel experience.
We recently added the ability to scan bar codes to find out if there’s a Cartwheel deal on an item and added the capability to sign up for Cartwheel directly through a Target account and email while continuing to provide access to the App through Backbone. As Gregg mentioned, we continue to listen to our guests to understand how we can help them move beyond the data breach and feel confident in shopping at Target. While sales have started to recover in recent weeks and sentiment metrics have begun to improve most notably among our best guests. We continue to invest to ensure this recovery continues.
Beyond our efforts in data security and chip enabled technology we’re applying insights from the holiday season to make our merchandise stores and digital channels even more product assortments and the guest experience, and we’re investing in pricing and promotions to make our value proposition even stronger. We’re very pleased with the response to Peter Pilot for Target our most recent designer partnership which launched earlier this month. This collection which features a limited edition assortment of women’s apparel, accessories and swimwear is available at most of our U. S. ND Canadian stores and on target. Mom. We have also partnered with Net-a- Porter. Com to offer a curates assortment of the collection to fans across the globe. With lots of social media buzz we a saw long lines outside many of our urban stores on the morning of the launch, and the collection quickly became Net-a-porter’s fastest selling collaboration in history. Based on last years results Target and Sports Illustrated are once again partnering in support of the magazines annual swimsuit issue which is celebrating its 50th anniversary this year. Target is the exclusive mass retail advertiser and official marketing partner for the issue.
This years partnership includes the new 20 page flip cover that celebrates swimsuit style over the past 50 years and features Target’s limited edition swimwear collection. The collection launched at Target stores and on target. Com February 17, in advance of the issues on stand date and includes 10 black, gold and ivory swimsuits priced from $15 to $30. Earlier this month, Target began offering MAMBA a new apparel collection designed with the Latin guest in mind. MAMBA is set in 50 U. S. Stores this month and is also available on target. Com. The line of apparel and accessories features vibrant prints ND flattering cuts and silhouettes.
This stylish and affordable collection has items ranging from $17 to $40. This spring Target will introduce an assortment of premium skincare featuring seven notable brands, four of which will be exclusively sold at Target. 29 by Lydia Mondale, Burghers, Lineage and MD Complete by DRP. Selection along side industry favorite Vichy, La Ruche Poss. and Own Skin Health. These brands will be merchandised in two distinct sections, dermatological skincare and specialty skincare, and they have already launched on target. Com. We’ll begin rolling out the assortment to 749 U. S. Target stores beginning in March.
So what’s likely to be the biggest Blue-ray and DVD release of the year Target will offer an exclusive addition of Catching Fire the second film in The Hunger Games trilogy in stores and on target. Com next month. The Target exclusive Blue-ray addition includes 45 minutes of exclusive content from never before seen footage and cast interviews to a behind the scenes looks at the making of the film. This spring award winning singer Shakier is teaming up with Target for her 10th studio album and our exclusive deluxe edition featuring three bonus tracks hit stores on March 25.
We announced the partnership and kicked off album prerecording with a special spot during the 56th Annual Grammar Awards in January. Last month we became the exclusive retailer to feature Beats music playbills. Beats music is curates digital music streaming services that allows it’s users to peep into the personal music libraries of their favorite artists and brands and have them create playbills Just for them. By subscribing to Target’s plastic guest can expect a very mix of songs inspired by Target’s rich heritage of music and the taste of the millions who shop for albums at Target each year.
In December we launched The Awesome Shop, a beta site that features the top target products recently pinned on Pinsetters. The site lets guests explore, get inspired and see what the best by only featuring items at the target. Com review of four stars or better. We’re also leveraging Pinsetters in another unique way to collaborate with three of the sites most influential pennies on a series of party planning collections that will make it easy to throw a Pinsetters worthy event.
Joy Choc of Oh Joy, Jan Halverson of Optical and Kate Arenas of Wit & Delight will each create limited time only collections munched over the course of 2014 including party dcore, paper products and serving pieces designed in their signature esthetics. Beyond differentiated merchandise, we continue to provide enhanced service in key areas of the store. Based on guest response to last years launch we have expanded the Target Beauty Concierge’s program to more than 300 stores across the country with new markets including New York, New Jersey, San Francisco and Dallas-Fort Worth.
These beauty consultants are brand agnostic and provide guests with detailed, unbiased information and a friendly face in what can often be an intermediating category. We also continue to see great results from the pilot of our new baby layout, a completely redesigned shopping experience that offers guests inspiring insightful solutions combined with the great value they’ve come to expect from Target. This new layout features a dedicated service desk with a knowledgeable baby advisor to help guests navigate the area and provide unbiased product information.
Digital screens and pads feature inspiration and interactive comparison tools and Babysitter content such as buying guides and product reviews We have also incorporated an in department egoists kiosk for expecting mom’s or guests looking to give a gift. Merchandised displays have been lowered so guests can more easily interact with large products by travel systems in stores. We have removed barriers to enhance navigation between apparel, gear and baby essentials and we have highlighted the availability of additional online only items in key categories.
This summer we plan to grow from 30 stores to more than 200 locations featuring this enhanced baby experience. And based on encouraging initial results in 2014 we’ll expand our test of using mannequins in apparel in our largest format U. S. Tortes to elevate the store experience, create an enhanced sense of discovery and bring our unique deigns to life. We also continued to augment our digital capabilities driving traffic and sales to all of our channels. Online our top priority in 2014 is continuing to improve the guest experience. All of our efforts will be designed to make things simple, seamless and enjoyable for our guests.
To support this priority we continue to hire external talent with deep functional expertise in online merchandising, site merchandising, mobile and analytics. We have recently made enhancements focused on search, product information and checkout making it easier for guests to browse and purchase. In addition now nearly all store products are viable online making this the only place that guests can use Target’s full assortment. Importantly we’re making enhancements while continuing to focus on stability and speed, as a result target. Mom consistently ranks in the top 10 for retailer site availability and performance. Given the profile of our guests, mobile is more important at Target than for many of our peers. For example, Target’s guest traffic from tablets and mobile phones is greater than our raffia from traditional computers and the shift towards mobile shows no signs of slowing down. In fact usage of the Target App doubled in the short period between we’re testing and learning from new features including List Building, Mapping and Cartwheel capabilities launched during the holiday season.
We’re improving conversion by streamlining checkouts and enhancing product information and dynamic content and we are investing to amplify the in-store mobile experience by rolling out guided maps, in-store search and expanded assortment chain wide later this year. We also continue to invest in our flexible fulfillment capabilities which imbibe the strengths of our digital, store and distribution aspects to provide speed and convenience for our guests. These capabilities allow our stores to add value in new ways, serve our guests as both showroom and fulfillment centers.
Following the holiday seasons success of in-store pick up we are moving quickly to roll out the capabilities to shift online orders from our stores this fall. This new capability will create multiple benefits for both Target as our guests, including shorter shipping times, reduced expenses, lower markdown rates and improved in-stocks. And cause our investments in flexible fulfillment drive greater utilization of our existing stores and distribution center assets, we expect to earn an outstanding return on these investments over time.
Finally, we’re pleased with initial performance of Target Ticket, our streaming video service and we continue to invest in features to better serve guest changing needs and behaviors both inside and outside their home. In 2014 we will coordinate our promotions across channels to provide irresistible video offers across our stores, Target. Com and Target Ticket. While our fourth quarter exults softened following the December 19 announcement of the data breach, we are pleased with the guest response to our holiday season merchandising and marketing efforts and we’re confident in our plans for 2014.
As always our focus remains on our guests helping them regain their confidence in their Target while delivering irresistible content and experiences in every channel. We believe that our efforts will drive a continued recovery in the pace of our sales and position Target for profitable growth in 2014 and beyond. Now, John will share his insights on our fourth quarter financial performance and our plans for the coming year. John? John Mulligan – EVE and SCOFF Thanks, Kathy. Our fourth quarter financial results reflect strong efforts by our team to handle separate challenges in both our U.
S. And Canadian segments. In the U. S. Comparable sales declined 2. 5% consistent with the updated guidance we provided in our January press release. This sales performance reflects a 5. 5% decline in transactions partially offset by an increase in average ticket. Prior to the announcement of the data breach, fourth quarter comparable sales were running positive reflecting the success of our holiday merchandising marketing plan. Immediately following news of the breach, sales turned meaningfully negative but began to recover in January.
And while it’s impossible to measure precisely, we believe we would have seen even more improvement had there not been extreme weather across much of the country. Fourth quarter sales penetration on our Redcaps was 20. 9%, up 5. 4 percentage points from a year ago. While the rate of increase slowed down following the breach, year-over-year penetration continued to grow hundreds of basis points through the end of the quarter. Fourth quarter U. S. EBITDA and BIT margin rates were down more than a percentage point from last detail and credit card segments.
These profit margins were below our expectations going into the quarter, driven almost entirely by gross margin rate which declined about 20 basis points from the year ago. This performance reflects about 20 basis points of benefit from this year’s change in vendor payments offset by higher than expected markdowns related to the 10% off we offered prior to Christmas as well as the impact of clearance markdowns at the end of the holiday season. Margin mix was somewhat less favorable than the recent quarters, driven by strong sales in electronics.
While below our expectations, fourth quarter U. S. Segment gross margin rate was remarkably strong considering the team had to rapidly manage excess inventory in the middle of the quarter when we experienced a sudden change in the pace of sales following the data breach announcement. Our fourth quarter U. S. Segment SO&A rate was 18. 4%, about 110 basis points above last year’s revised rate. About 50 basis points of this headwind was related to the credit card portfolio reflecting a smaller asset base, last year’s reserve release and this year’s profit sharing arrangement with AD Bank.
Another 20 basis points of headwind was driven by this year’s change in member payments. The remaining unavailability reflects the delivering effort of negative come sales. The fact that we experienced only 40 basis points of deliverable reflects strong control of variable expenses, given the magnitude of our comparable sales decline. In the Canadian segment, sales came in just below expectations. Importantly, as Gregg mentioned, we took advantage of holiday traffic to clear through a significant amount of excess inventory in the quarter.
And while we expect some small lingering issues with long lean receipts this ear, the Canadian segment ended 2013 in a much cleaner inventory position, paving the way for smoother operations in 2014. In all, the segment drove $0. 40 of PEPS dilution in the fourth quarter better than the expectations we provided in our January press release. Turning now to our consolidated metrics, fourth quarter interest expense was 21% lower than last year reflecting the continued benefit of debt retirement funded by the proceeds from the sale of the credit card portfolio. We paid dividends of $0. 3 per share in the quarter, an increase of more than 19% from fourth quarter 2012. This was our 18th consecutive quarter in which our company has paid a dividend and 2013 marked the 42nd year of annual dividend increases, a track record of few companies to match. Consistent with last quarter, we didn’t purchase any shares in the fourth quarter reflecting current performance and our desire to maintain our debt rating in the middle A range. This approach aligns with our longstanding point of view on capital deployment. First, we invest what we believe is appropriate in our core business.
Second, we support the dividend which we’ve grown annually for more than four decades. And third, we use share purchase to return cash within the limits of our middle A debt rating. We believe a middle A rating is strategically important as it supports our ability to reliably deliver on our unbeatable pricing strategy over time. In addition, our balance sheet provides the flexibility to maintain our long-term focus in the face of unexpected events like the data breach enabling investment and strategic initiatives like flexible fulfillment while we deal with a temporary setback in traffic to sales along with other costs related to the breach.
In addition to operating results in the U. S. And Canada, our approximately $0. 09. These items include charges related to our January restructuring, data breach related costs net of an insurance receivable and continued reduction in a beneficial interest asset partially offset by a small benefit from a resolution of income tax matters. Combining fourth quarter results with performance in the first nine months of 2013 yields full year results that reflect the impact of clear successes and certain challenges.
In our U. S. Segment, full year comparable sales declined 0. 4% well below our expectations going into the year. This reflects the tougher than expected consumer environment including the impact on he payroll tax increase which Just annulled last month, the fourth quarter impact of the data breach and recent headwinds from unfavorable weather, as you’ve heard from many other retailers. On our U. S. Sales, we earned a gross margin rate of 29. 8% in 2013, up about 10 basis points from 2012.
This rate reflects about 20 basis points of benefit from this year’s change in vendor payments combined with very strong underlying margin performance in the face of softer than expected sales. Throughout the year, Kitty’s team did a great Job managing inventory resulting in outstanding in- tock levels while avoiding unnecessary clearance markdowns. Our full year SO expense rate in the U. S. Was 20%, up about 90 basis points from last year’s revised rate.
Contrary to what you might initially think, this reflects outstanding performance in light of softer than expected sales and some notable challenges representing more than $600 million of incremental pressure. Including credit card portfolio income, which as you know reduces our SO&A rate, about $400 million lower than 2012 reflecting profit sharing with AD, prior year reserve reductions and a smaller asset base this year. And more than $200 million of expense pressure from incremental investments in technology and supply chain to support our multinational efforts.
Without these impacts, our SO&A expense rate would have been slightly higher than 2012 but would have been neutral without this year’s change in vendor payments. This is better expense performance than we’d expect on a decline in comparable sales and was driven primarily by two factors; outstanding performance by our stores organization which continued to provide outstanding guest service while delivering productivity increases and our company-wide expense optimization efforts through which our teams are finding better ways to work while deprogramming less productive activities.
As Gregg mentioned, the team continues to find new opportunities to optimize expenses and we expect to reach $1 billion in annulled savings by 201 5 helping to fund our efforts to drive profitable growth over the next several years. For full year 2013, U. S. Redcap penetration grew nearly 6 percentage points to 19. 3% of sales as more and more guests increased their level of engagement and their spending with Target. Penetration in Kansas City where we began offering Redcap wards a year ahead of the rest of the country continued to run well ahead of the U.
S. Overall. Importantly, as part of our broader effort to rebuild traffic and sales in 2014 we will work to recalibrate Redcap growth in light of the recent slowdown in growth we’ve seen following the data breach. In Canada in 2013 we generated Just over $1. 3 billion in sales on 124 stores which were opened on average for a little more than half the year. These sales were well below our plan going into the year leading to greater than expected markdowns on a meaningful amount of excess
