Target Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Target Corporation 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 22, 2024. I would now like to turn the conference over to Mr. John Holbert, Vice President, Investor Relations. Please go ahead, sir.

Good morning, everyone, and thank you for joining us on our first quarter 2024 earnings conference call. On the line with me today are Brian Cornell, Chair and Chief Executive Officer, Christina Hennington, Chief Growth Officer, and Michael Fidelke. Chief Operating Officer and Chief Financial Officer. In a few moments, Brian, Christina, and Michael will provide their insights on our first quarter performance, along with our outlook and priorities for the second quarter and remainder of the year. Following their 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, including those described in this morning's earnings press release and 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 priorities for the second quarter and beyond. Brian?

Thanks, John, and good morning, everyone. At our financial community meeting in March, we outlined our long-term vision for profitable growth and the broad range of investments we're making to support those ambitions. We talked about our goal to open more than 300 new stores over the next decade as we continue investing in the vast majority of our existing stores. We discussed the supply chain investments we're making to modernize how we distribute merchandise, including the rollout of additional sortation centers to increase the speed and efficiency of our last mile delivery. We highlighted investments in technology, including AI and machine learning, to make it easier and more reliable for our team to serve guests in every channel. We previewed the relaunch of our loyalty ecosystem, making it simpler and easier for us to deliver even more value to our guests. We outlined changes to the digital experience and our focus on bringing the joy of discovery to the digital channel, just like we've done in our stores for years. We highlighted the value of Rondell, our advertising business, which helps us deepen the connection between Target, our guests, and our vendors. Rondell is already making a meaningful contribution to our performance, and it's the fastest-growing part of our business. We talked about the value of Target's unique, multi-category assortment, including the launch of new owned brands like Figment and Dealworthy, and our work to widen the footprint of national brand partnerships like Ulta Beauty. And we discussed our commitment to making continued investments in our team, in their pay, benefits, training, and more, because we know when we take care of our team, they can focus on taking care of our guests. Also in March, we provided our financial guidance for 2024, a year in which we expect Target to get back to growth and build on the enormous gains in guest engagement and top-line sales we've seen over the last five years. And today, With the first quarter behind us, I'm happy to report we're firmly on track to deliver on that guidance. More specifically, our first quarter comp sales were just above the midpoint of our guidance range, and our Q1 EPS was near the upper end of our expectations. And I'll quickly note, while we're not yet satisfied with our current top line performance, and we're far short where we expect to operate over time, we've seen a sustained improvement in multiple business drivers over the last several quarters. This reinforces our confidence that we're moving in the right direction and we're on track to deliver on our longer-term vision. As we continue to monitor the external environment, our view of the U.S. consumer remains the same as we shared three months ago. More specifically, U.S. consumers continue to exhibit a high degree of resilience in the face of multiple challenges, including a rapid rise in prices and interest rates over the last few years. In addition, business trends continue to reflect a normalization in spending patterns that first emerged more than two years ago, a pattern where consumers are remixing their spending back into services and entertainment outside of their homes after curtailing those activities during the pandemic. This normalization, combined with the cumulative impact of higher prices on consumer budgets, is resulting in continued soft trends in discretionary categories, most notably in home and hard lines. And today, even as price levels remain high, inflation rates have moderated significantly over the last few quarters. And we've seen a meaningful improvement in discretionary trends, most notably in apparel, where our performance improved by approximately four percentage points in Q1 when compared with last year's fourth quarter. This gives us some optimism that we could see a better balance of spending between discretionary and frequency categories in the years ahead. However, Given that we're facing continued uncertainty in the near term, our team remains focused on operational excellence and the agility to respond quickly to changes in the environment. In addition, we're focused on delivering newness to our guests and leaning into seasonal moments, both of which have long served as hallmarks of our brand. Among the highlights in Q1, we were really pleased with the response to our limited-time partnership with the iconic designer, Diane von Furstenberg. and the assortment of pickleball equipment and apparel we offered in partnership with the athletic brand Prince. Of course, beyond newness and seasons, we continue to focus on delivering unbeatable value to our guests. While our team is always committed to value, it's particularly important in today's environment, as consumers look for ways they can stretch their budgets in the face of stubbornly high prices. To help our guests in the face of these pressures, this week we announced that we've made price cuts on 1,500 frequently shopped items in many markets, and we're planning additional price cuts on 1,000 more items this summer. These cuts are focused on everyday items in our food and essential categories and are designed to help our guests make the most of their budgets. Collectively, they'll save our guests millions of dollars this summer, but low prices are only one of the many ways we deliver value. Another way is through our Target Circle loyalty program. which we relaunched in April. At well over 100 million members, Target Circle is already one of the largest loyalty programs in the United States. And we redesigned the program to deliver even more value while making it easier to use and understand. More specifically, we integrated our credit and debit card programs, along with same-day delivery capabilities, under a single umbrella, allowing our guests to choose from a range of services and rewards based on their needs and preferences. Christina will provide more detail in a few minutes, but we're really pleased with the consumer response we've seen so far. Most notably, we added more than 1 million new members to Target's circle in the quarter, and we're committed to making sustained investments in this program over the next few years. I want to pause and thank our team for making this relaunch a success. It required a remarkable degree of collaboration and communication. across a huge swath of our team, including marketing, stores, digital, financial services, merchandising, technology, and finance teams. In addition to value, our team is focused on convenience and reliability, including through the digital channel, where trends have improved meaningfully over the last few quarters. In the first quarter, we saw an increase in digital sales for the first time in more than a year. This growth was driven by our same-day services, DriveUp, in-store pickup, and same-day delivery, which has been rapidly embraced by our guests in recent years. In the first quarter, our same-day services saw high single-digit growth over last year, led by drive-up, which grew in the low teens. This builds on the explosive growth of drive-up that occurred during the pandemic, which was followed by double-digit increases in both 2022 and 2023. Altogether, at more than $2 billion in Q1, drive-up sales were more than 30 times larger than we saw in the first quarter of 2019. I want to pause and highlight the outstanding efforts of our operations teams to enhance the guest experience. As Michael will cover in a few minutes, their focus on retail fundamentals is delivering multiple benefits, ranging from better in stocks to rising guest satisfaction. And, of course, our results continue to highlight the benefit of our stores and submodel, which offers speed, reliability, and efficiency. regardless of how our guests choose to shop. In the first quarter, our store fulfilled nearly 98% of our total sales, as we relied on our store assets, inventory, and team to support every one of the fulfillment services we provide. So now, as I get ready to turn the call over to Christina, I want to pause and take note of how our business has evolved over time, providing perspective that allows us to look beyond the volatility we've seen in recent years. In the first quarter of 2024, our business generated over $24.5 billion in revenue. That represents growth of just under $7 billion, or 39%, compared with the first quarter of 2019, the year before the pandemic began. We've also seen healthy growth on the bottom line, where our business delivered EPS of $2.03 in Q1, which is 50 cents, or 33% higher than in 2019. While that pace of bottom line growth is somewhat slower than we've seen on the top line and below what we'd expect to see over time, it reflects some unique profit rate pressures that we faced during the period, a portion of which we expect to offset over the next several years. As we look ahead to the remainder of 2024, our team is focused on getting back to top line growth. We expect that will begin in the second quarter as we build on the remarkable gains we've seen over time. Like the U.S. consumer, Our team has shown remarkable resilience during an extended period of exceptional volatility. I'm incredibly proud and appreciative of the passion they demonstrate for our guests and for our brand and their strong desire to win in the marketplace. Our team has long been the key to Target's success, and they're the number one reason I remain confident in our ability to grow profitably in the years ahead. With that, I'll turn the call over to Christina.