Target Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Target Corporation 2021 first quarter earnings release conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will invite you to participate in a question and answer session. At the close of prepared remarks, we will open the queue for the Q&A session. At that time, if you have a question, you will need to press star 1 on your telephone. As a reminder, this conference is being recorded Wednesday, May 19th, 2021. I would now like to turn the conference over to Mr. John Hulbert, Vice President, Investor Relations. Please go ahead, sir.

Good morning, everyone, and thank you for joining us on our first quarter 2021 earnings conference call. On the line with me today are Brian Cornell, Chairman and Chief Executive Officer, Christina Hennington, Chief Growth Officer, John Mulligan, Chief Operating Officer, and Michael Fidelke, Chief Financial Officer. In a few moments, Brian, Christina, John, and Michael will provide their perspective on the first quarter and their thoughts on our outlook for the second quarter and beyond. Following your remarks, we'll open the phone lines for a question and answer session. This morning, we're joined on this conference call by investors and others who are listening to our comments via webcast. Following the call, Michael and I will be available to answer your follow-up questions. And finally, 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 our most recently filed 10-K. Also in these remarks, we refer to non-GAAP financial measures, including adjusted earnings per share. Reconciliations of all non-GAAP numbers to the most directly comparable GAAP number are included in this morning's press release, which is posted on our Investor Relations website. With that, I'll turn it over to Brian for his thoughts on the first quarter and his perspective on our outlook. Brian?

Thanks, John, and good morning, everyone. The first quarter felt like a first step towards a post-pandemic world, and our team and operating model continues to walk alongside our guests and communities, serving them well through another chapter of growth and healing. From our unique mix of categories to our unmatched set of fulfillment options, our business is delivering what consumers want and need each and every day. The results we delivered in Q1 are nothing short of outstanding. Corporate sales grew by nearly 23%, making it our fourth consecutive quarter in which comp sales grew more than 20%. Maintaining that pace this quarter was especially notable, given that we were comping over double growth a year ago. Over the last two years, comp sales have grown about 36%. And total sales have expanded by $6.5 billion in the first quarter alone. This year, sales growth reflected more than $1 billion in market share gains, a clear signal of how relevant guests find our experience, even though they have many more shopping options available, compared with this time last year. In a quarter featuring many things to celebrate, I'm most proud of the performance of our stores. With vaccinations rolling out across the country and consumers increasingly comfortable venturing out, we've seen an enthusiastic return to in-store shopping. Guests are happy to come back to our stores because they love the environment we've created and invested in over time. As a result, our store comp sales increased 18% in Q1, driven almost entirely by higher traffic and accounting for the vast majority of our growth. Contrast that to a year ago, when the channel mix of our business was changing rapidly, with guests leaning heavily into our digital fulfillment options, especially our same-day services, in the midst of a nationwide lockdown. A year ago on this call, we were highlighting a digital comp of 141%, driven by growth in our same-day services of more than 275%. These two contrasting scenarios clearly demonstrate the flexibility of our operating model, but they also show how our stores and digital channels complement each other to drive guest engagement. Even though digital stole the headlines a year ago, our store comps actually increased about 1% in the first quarter last year. And this year, while store sales accounted for most of our growth, first quarter digital comp sales also grew 50%. on top of last year's enormous numbers. This is the power of and. Guests turn to Target because of our stores and our digital options, not one versus the other. And for us, the distinction between a store sale and a digital sale is largely irrelevant. Because of our unique store-as-a-hub model, more than three quarters of our first quarter of digital sales were fulfilled by our stores. That means, in total, More than 95% of Target's first quarter sales were driven by our store assets, store inventory, and store teams. This store-driven growth is translating to outstanding bottom-line performance. Our first quarter adjusted EPS of $3.69 established a new all-time high for the company. Compared to 2020, when profitability took a temporary dip, this year's performance represents an astounding increase. more than six-fold. If we look back to first quarter 2019, this year's adjusted EPS was more than 140% higher, demonstrating how far our business has advanced in a short time. I want to pause here and thank our team members across the world. They have consistently demonstrated incredible passion, commitment, and focus to serve our guests and take care of each other. I am grateful and proud to serve with this outstanding team and to share the incredible business results they're delivering quarter after quarter. It's also important to highlight how the category mix plays a key role in the flexibility of our model. For instance, with guests venturing out, we've seen an incredible rebound in apparel sales with Q1 comp growth of more than 60%. On the other hand, and as expected, we experienced slower growth in food, beverages, and essentials as we annualized the peak stock-up period a year ago. Most notably, we saw continued strength in our home and hard-line categories, which delivered outsized growth on top of very strong numbers a year ago. Christina will provide more details in a few minutes. A relentless focus on operational excellence is another key factor in our performance. This is best summarized by our guest satisfaction scores, which, across all of our services, have remained stable or moved higher despite record growth that's now compounding on a two-year basis. This is a clear testament to the diligence of our team and the return on our investments in training, hours, and wages over the last several years. Over those years, sales on our same-day services, order pickup, drive-up and shift, have accounted for the bulk of our digital growth, and they grew to well over half of our digital sales in the first quarter. Same-day penetration has more than doubled since Q1 of 2019, when sales through these services accounted for less than a third of our digital sales. While all three same-day services continue to grow faster than overall digital, DriveUp has been a standout and consistently receives the highest ratings of anything we do. This service only accounted for about 5% of our first quarter digital sales two years ago, and that ratio expanded to more than 30% this year. Put another way, in the first quarter alone, DriveUp sales have grown by well over $1 billion in the last two years. As John will outline in more detail, we continue to expand the assortment available for DriveUp, and we've earmarked capital investments to make DriveUp even more convenient for our guests and efficient for our team given that we anticipate continued rapid growth of this service. While it's gratifying to see what our team has accomplished over the last several years, there's much more opportunity in front of us. We're planning significant investments in our store assets as we remodel hundreds more locations, roll out new Ulta and Apple shopping environments, invest in the efficiency of our same-day services, and enter new neighborhoods by opening new small and medium-sized stores. We're also investing in our brand portfolio as we focus on presenting the best-owned and national brands to our guests, which we highlight through the best-in-store and digital shopping experience in the market. We're also making continued investments in safety and cleanliness, reinforcing the trust and confidence we've already established with our guests. And we continue to invest in our team, in their pay, benefits, training, and advancement. to ensure the target continues to be a destination for top talent. And as you've seen for many of our recent announcements, we're investing to leverage our size and scale, purpose and values to work for all families. This summer, we'll share more information about our refreshed enterprise sustainability strategy that further draws on our company legacy of corporate responsibility, diversity and inclusion, and community engagement. As part of our immediate efforts, we'll focus on designing and elevating sustainable brands, innovating to eliminate waste, and accelerating opportunity and equity in all communities, all in service to a safe and prosperous future for all. It was four years ago, at the beginning of 2017, that we first announced our plan to double down on investment and growth. The decisions we announced that day and the investments we made in the intervening years left us well prepared to handle all the challenges and opportunities presented by the pandemic. In that first quarter of 2017, our business generated sales of just over $16 billion and adjusted EPS of $1.21. Four years later, first quarter sales have grown nearly 50% and adjusted earnings per share have tripled. From today's vantage point, The opportunities ahead of us, both this year and over time, are just as bright as they were on that day four years ago. Despite what's already been accomplished, we've only scratched the surface of what this brand and this team can accomplish over time. I'm excited to stand with them as we write the next chapter in this great company's history. Now, I'll turn it over to Christina, who will share more perspective on our first quarter results and her priorities going forward. Christina?