TGT - Earnings call transcript Q3 2017

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Target Corporation Third 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.

As a reminder, this conference is being recorded, Wednesday, November 15, 2017. I would now like to turn the conference over to Mr. Investor President, Vice Hulbert, Relations. John sir. Please go ahead,

John Hulbert

joining Good third our for call. morning, and thank everyone, us quarter on you XXXX conference earnings

and On and a Mulligan, provide Target's today going Chief me and Cathy Cathy priorities Tritton, the will Cornell, Financial Officer; our Brian, line and Officer. third John, Chief Chairman and In Chief are Merchandising on Executive moments, Operating quarter their Chief Brian John plans perspective Smith, performance Officer; few Mark forward. Officer; with Mark

Following we'll question-and-answer the lines session. phone their open remarks, for a

reminder, As call listening others are to a investors are we conference joined on who webcast. by this our via comments and

Cathy questions. answer and call, be will your the available follow-up to Following I

subject are to earnings and of Reconciliations refer to most important As remarks, in in measures, described the including risks Brian? comparable numbers Investor most directly which that, priorities adjusted quarter per we website. reminder, posted a forward-looking are thoughts performance statements on uncertainties, our to which for on any SEC are non-GAAP financial we press forward. morning's and his I'll GAAP that these release With share. filings. our Brian the going included Relations to it Also all morning make our this third of this over is non-GAAP in turn our number

Brian C. Cornell

Thanks, everyone. John, morning, good and

of innovative that digital We continue of performance, the ago. a comparable top provide on clearly Google brands new a continuation to communicate that expand our difficult right work the sales We meaningful and reflected our and comparisons XX% percent brand. four trends the home in And reflecting benefit Pinterest comparable the our is grew third XX% of will sales our which of partnership in called emerged priced more all Digital an we designer of our and both measures. We categories, value owned second we Target quarter. which sales our a in new assortment off announced buzz across of We with both unprecedented at increase year partnerships an with in Joanna saw and new to a And quarter start. are saw reach Target's the great on more daily. and guests when which of launched Chip out and apparel regular generated we pleased Hand really price, rolled amazing positive with that continued Gaines amount are week. prior-year traffic confidence Hearth announced last with Magnolia, face both of the growth to

location stores opened the are transform new from We Square our October. These all of in the in new to support stores of also year, remodeled XX our country, the ranging XX Herald neighborhoods and this stores New located City, we single a location our week to newest in way quarter stores York in in diverse XXX across a array in Honolulu. in plan

never nationally efforts to we are XX,XXX September, of additional both we we up an Beyond October a to ago. peak would announcements season, in to and strength provide the XXX,XXX guests some outstanding announced value hour more to of are national XXXX. raise them, need. of team feedback in in $XX our early of month, we members our day. and evident our an And a hour for that unfortunately, through commitment The holiday our quarter, than decisions our service shopping every $XX faced team we our is for to hire These And this California. our on financial their together they of to end supporting reflect investments, later support their increase team by these times team confirm team. In the as made the paying continue of returns investments Florida, communities, our guests in the to in to several hurricanes heartbreaking the wildfires intent each announced other minimum stories from direct devastation. Texas quarter, the face of us that to and of support their from regarding these off. in our disasters challenges, face finally, coming the And wage there an and our In seeing meaningful in natural we year are our commitment countless minimum

families, the long safety move process our the country ensuring their and also of stores on focused rebuilding of other guests, to returned parts homes. was essentials support team as own they and home in of tirelessly worked they of our quickly While their needed reopen the from began

the So, success in best our through a our detailed Target environment. hard for dedication position only for a that will in every business team, work times to February need. thank It you to their we but I to and was just our guests of continued not investments rapidly walked last in that communities changing accelerate day, want plan

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more enter As we season X,XXX in ship-from-store than than holiday of locations count year, tenfold across it's more the locations country. this now grown and the the has

investment that asking of available only the And We've a attract invested model and on our delivering services with experience. play experience, assist moving guests. deliver experience product more this invested stores the that's differentiated fulfillment why sales We've the team and right specialized every example support guest been This away wages team and execution new consistently stronger ensure deliver retain from a be been before, of models can to note continuing operating hours a the that We've additional in rollout our for one to expertise has support we in key invested we've more ever the floor. new than You'll to roles members the guest-focused our in more important. so to to is who elevate Target that task-driven mind-set. year's training members day. in we've while in to from each invested ways in these of our team role the options,

healthy the we that being have the lots We together seen that our to this So new of prepared a up deliver national Target we'll healthy store the year's of innovative XX where cash as every highlight remodel the decision business, nearly of the that very this that of holidays. of season. lineup busiest partners. the season, that holiday increased time before. will to that margin as in launched are Also, of across we we at have first us investments and both business shop stores getting played be season, courtesy and our to season holiday two will to addition Today, quarters us ramp confident up progress. brands intended a store the throughout able important the enjoy XXX into for of environment Across consecutive of holiday operating move time. We to inspiring our investments during eight holiday enter business joy guests in guests be are more local our feel brand traffic we in on today. year's healthy role year, a enjoying will this than in very made this to better lots generates to than from And, And new holiday cash. be started their we and cash, newly-transformed with a to a speed has shopping marketing stores, country, this one growth confidence course, the outstanding the program. capital of unique generates year of exclusive in remember neighborhoods and nearby a ever I It's able items Target.com, that in XXXX our guests giving

quarter the fourth of always plans entering outstanding and competitive, this we team, this the investments we Target the year. with Hand, year's to an early, week's While set we've as have the our encouraged And is album, lots version this launch the with last of guest Taylor exclusive while been of by are very and as it's tireless season Hearth response efforts of Reputation. of confidence. release Enabled well of new intensely holiday Swift's still

that will us, bulk experiences With season, is these the the John? have tone how still happy While for season showing are we to anywhere I and the unique our his already over you for merchandise see of we guests Target to very set can't are call ahead find comments. offer the turn the early that of efforts holiday will else. John that, as

John J. Mulligan

Thanks, Brian, morning, good and everyone.

fulfillment mentioned priority on earlier, work and to based reliable the and for operations a our options Brian guests. provide As is our of key new goal

digital multiple today, of of rollout orders, across locations. As all in-store new some we that network. store We offer have testing phase or our in in available fulfillment our of pickup options are of

now in Of is Drive we the relatively our testing already Twin City. that peak and fulfilling ship-from-store through in for have available XX pickup by the have two in fulfillment guests as million total is just options, mature, Cities. entered available New in five and we have days are those which our half And stores are locations York more more ship-from-store at Restock, ship-from-store. We to increase than up in-store We continue of digital capabilities, Up Target the delivery through pickup those the of our only to which four same-day of we leading the handled a XX in now now our we're than markets. X,XXX Today, and we options well were year, above the a XX testing which at next-day volume stores which digital And amount of began both offer We volume Christmas. delivery capability locations. XX% at stores. while will service

new million In to fulfillment Among up in capabilities million are units ship up XX four over fact, of quickly. year. the last planning digital about Restock this the our XX related the year, units stores from orders been holiday we've peak Target season, weeks to ramping has launched

this the service rolled During country. quarter, across additional XX markets we third to an the out

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As we scaling delivery. capabilities, to new including look same-day all our fulfillment and year, next continue we'll of next-day ahead

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these stores high per Specifically, space. and very to foot nonexistent generate backroom little have storage square sales

replenishment. a require rapid result, As they

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their into facility, elsewhere guests. move incorporate rapidly the shelves within time and on replenish As a more these maturity, new devote the be from floors bins. higher of their right up the deliveries level sales team quickly automation and the to serving allowing the replicating Once model reaches a can in amount of replenishment the to able begin minimizes to scale process process this pre-sorted network. This store of result, devoted to to stores we'll the the labor

fulfillment only hope I I priority. clear while the it's clear that's areas to want be team, for now, speed are operations our of focus huge So that and not

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financial In a Beyond an more will the X%, for our program. growing the We're average convenience, training level our the beyond hours in responsible next in can carefully characteristics for on And more more in and investments each of fewer as in stores, we're all the physical upgrade than also to continue our investing new and in team, better and to category can creating a incorporating across an we and rolled in of the team quickly team to our in remodeled ability was including pickup. assist We custom of merchandising XXXX our we're specific incorporation changing sales program up we recruit self-checkout We're stores, condition our guests. store, operating environment, to can four remodel remodel when we categories with for the team so XXX our opportunities. from see of so line wages quarter. of they right strength performance stores, team specialized acceleration our focus based elevate year. measure become a locations, guests, area new store model, investing in than experts their remodel of our stores. XX we're we scaling that small from And approach for third store X% The can we Like neighborhood. But outstanding teams rapidly of differentiate as our on experience stores the cases, our the is continue to shopping we to existing apply separate projects our brands the goals in and to investing our teams who Target evident provide. to competitors. finally, retain shopping new our out continue our stores service we a

new these for an early of modernize as has their we nearly a we presented better role moving in implement year playing amazing team. change been than before our We're and team success. we brands bigger before, ever than operations to plans key have we have Our and everything do. ever create This thinking faster

isn't season focused guests the to season. on all stress to is busiest all thank laser holiday their So to of upcoming their work for I our while team the future down, and want the the hard prepare make during during it serving for for our to want time year. clear slowing I efforts our our that want team I across everyone that also focus

Mark a I'll and Mark? Our that, to performance holiday great merchandising. quarter more over who third and team brand detail call Target our is is turn place on the will and provide With special a work. our reason to plans the

Mark J. Tritton

John. Thanks,

our Going positioning highest day sure invest market; our positioning resonate thoughtful, into proposition which meaningful our our to making with this own would value and merchandising we're year, to brand. strengthening the and Target's strategic reinforce of every further in and in with priorities brand exclusive our promotions guests first, that support two right reinforce were: second, daily in portfolio priced differentiated

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consumer growth the they that brand Beyond we've new these survey brands, seen the to are sales from immediate strong show overall. contributing Target

exceeded much have we Target at for launched which benefit team guests recently Cat saw a pace moved of & will our response our sales and also differentiation risen with over value Jack. when guests scores to has we the consumer has To our in to traffic year, a categories expectations. high, this provide and like a proposition our Specifically, from our XX-year time, reinforce rapid all

a Target daily marketing demonstrates Specifically, and and only and is Supported offsetting This in than regular our great we've traffic increasingly deal. so discount. the basket relying rapid are driven priced campaign, confidence has are not at far multibillion-dollar guests see by sales by which a in year, that confident trends. that right you our that and seen in to more on quick in this clearly a price pricing increase decline increase on can Done promotions get Run trips sales fill-in

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quarter. we digit reflecting double-digit continued essentials, organics, comp measure store we quarter. in the labor been work increase the encouragingly, specialized on investing. progress its best saw We decline strength country. third continued evidenced food continue in in-store we comp comp high-single Adult assortment across seeing where also lastly, the we're we've freshness, steady And and a where This investing is strongest in growth, beverage beverage presentation the slight been produce and most results and in to we've a and in saw in in-stocks saw our where where

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the saw comp look the our review kids benefited back-to-college, the after in result and to and growth holiday holidays, the of I results apparel year, moved sales Before In to be of in the timing In fiscal In ahead without recap reflecting the supplies. complete quarter our positive strongest I third based results of quarter earlier. we early electronics, newness the Halloween, in key fourth positive relative the back-to-school, a of into strongest logging from to final on further we season seasons. mentioned the saw late-season our share wouldn't surge calendar. as we all of added year our we our long record part

changes position. As strategic have this to to and made our holiday we significant of the year's season, inventory quality we look ahead level

reduced delivering. have for all the now are room network we teams which our unproductive has newness Our across created inventory

in the fourth planned inventory intentional inventory which higher new to reflecting specific a Hand quarter. be with the to As for of the we launches along of Magnolia, our electronics with support beginning quarter, we early investments ago, year than position third the ended and Hearth items to launched support at

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Catherine R. Smith

overall all sales performance and our comparable stronger second our Consistent Thanks, the Mark. expectations. were with quarter, quarter traffic, financial third than

both increased tougher increase we prior-year X.X%, by these comparison. driven faced of Third-quarter of traffic a as sequentially comparable numbers decelerated sales X.X%, a

in However, traffic accelerated quarter. sales third two-year basis, the both on stacked comp and a

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note, adjusted week to of continuing Regarding cost both net our consistent year. recognize expect this full we quarter many driven the accounting retailers. include year $X.XX, the debt lower $X.XX recognition than other with a of EPS other $X.XX throughout the tax of EPS, operations, from range One benefits GAAP XXrd year year, fourth by and and full a expectations impact we retirement

week billion From SG&A $X margin than average about to and said relatively year, somewhat in sales. we expect for margin we this operating that As is an gross smaller before, at averages. our standpoint, week, an week similar rates to annual the in see

as an we Tuesday, today plan that season on financial fourth plays announced important from is one post-holiday on In performance, update D&A And addition, note, leverage issue will a week holiday we an January that given our we X. such on final annual to season expense in basis. quarter that recognized benefit role that the

the earlier, its enabled strong cash the and investments today. forward mentioned flow of health have Brian moving our underlying that business As business our are

new our we're stores, in while business, is to confidence ahead planning long-term supply-chain, importantly, years, brands right reinforced our to remodeled investments our those for that cash technology, have our repurchase. with our that team. investments in the sustain enough this when in We share we're in news only our business and the business good we the confidence. and investments our few support The we our can debt results within generating room year dividend and year next As the and, have look continued that making ratings, entered unique

and capital our As us an stronger to return to we capacity expect shareholders into to ample in company. business our we have look ahead, to allowing invest grow even

for over the will to turn call I Now, final Brian some back remarks.

Brian C. Cornell

I going We're your first. Cathy. but Thanks, final one quickly wanted to questions, note move to to add

end now, but March We for the and are out will to on the more X. Xth. dates hold attendees Xth X to at Financial We'll our afternoon so your details able the host you'll wanted before the arrive you here on on scheduling Minneapolis that in you John in Spring and January, of Community can of be you home the we be XXXX meeting let to hope Hulbert on return allow the meeting. know the planning to We to Meeting see calendar. them to send day

with So, conclude that, we will prepared our remarks.

I be Cathy and Mark, your take John, will questions. to Now, happy

Operator

from Research, ahead. you Edge may Schick Consumer David Thank you. go

David A. Schick

my taking for Hi. Good morning. Thanks question.

– frankly the you obviously mentioned that call, merchandising. strength the a shares reacting this as for us confidence are just planning, conservatism You prior versus throughout in quarter traffic have you confidence. reported you us? and the you happened mentioned guidance this that the trying times you also in mentioned morning, quarter Can the help so that the year, frame the but several take to to also throughout sort and and the of conservative and approach square – are to circle Because you

Brian C. Cornell

David, thank you and good morning.

here very good that of think new we're today, eight we response progress seeing launched. that year. sitting set our that If we out earlier I very brands this we've business the today, the a great feel think we're confident to the state about I against plans making

all were that been in and new Herald stores, new you we've Square the we've Hawaii, XXX as this now seen up And we well. in we've small seen X% in over in formats has lift the quarter. a a continue to responded that our neighborhoods the X%. campuses. opening number way We've of it we know, or results And out guest up very, whether we on As the opened up very stores see projecting response tremendous to remodeled to college was new last

by strong again, by performance digital saw factor. underpinned been remarks. a outpacing prepared a very we've of continue from talked a the the standpoint and progress very We digital from strong And that things made to growth, his we and John quarter the the digital standpoint, during about some that's industry Xx fulfillment see during

we're think I making great into fourth think progress, we'll today, see here I quarter. the sitting and So continue extend progress to that

We confidence. place. as good the Hearth a quarter that to off entered to we're and and a other start very there's of well done business know we as initiatives So to has Hand, in lot lot with a that led of by be the in are reaction the

think confidence set year. against that I earlier initiative we're So of making approach, a a lot taking with the right progress this lot and every entered of forth we've but literally we the quarter

David A. Schick

you to guide. against up confidence there Help key what the dollar is understand of sort comp? gross to comp, follow any variables, be Just backslide in any in that traction expect with profit that, do – the this to us would –

Brian C. Cornell

expect David, progress to making we the been in any we've throughout year. the don't that see deterioration

fourth performing enter suite great quarter and well. we terrific expanded highly with think and an confident very fulfillment strong I stores a the a capabilities our campaign, digital marketing again, of position So, digital incredibly merchandise, capability. Great

fourth perform to quarter. set the about So good is entire we feel very how business in the

David A. Schick

Thank you so much.

Brian C. Cornell

you. Thank

Operator

Peter Benedict Baird, you. ahead. go Thank you may from

Peter S. Benedict

Thanks, hi. Oh, guys.

work quarter. doing, the pleased the you're with mean, perception, end of that it you've sounds like price you've on third been where I just now gotten So at

you you to let no year, are further mean, to you process understand have you next spot just but here reassess on feel to gotten where quarter then the measurements ongoing that, to – you're a that fourth do are going How that's something the that some of mentioned you yourself adjustments to trying ride do for I and think Just going an be you've using required? is you're where you do? there's or that like –

Brian C. Cornell

we've is our regular now, important the business the number Mark price as I year. seeing the times tremendous which shift and his of team over made term. Peter, over of everyday progress And think we're of really course a have talked a towards significant long about

to that So items priced committed that sure interested support are be to exciting make fourth great Target. shopping we're offering going provide our we're continue promotions value, that in going we'll we're And at to we quarter, know daily. to during those guests the to right for

that quarter. make the we're that ongoing value So deliver commitment. sure want fourth exciting and we promotions couple to with it's make great going in across We we seasons an the sure to

David A. Schick

of follow as Okay. going through impact options John, on. labor And working are talked does up one lot about Help that you a you forward? how us maybe see kind Thank – model a of it's within the the as how that fulfillment for you plan, you. look store guys quarter And that, those the do question, minimum having out the more wage I Thank just impact a few we years, you see it's on that's $XX you. next not fourth – labor? not that an understand the then

John J. Mulligan

do I add as that. to we fulfillment support labor out clearly we store, Well, think more will the of

the operating model said in changing experts in we've for our in training, February, think I people in having those invest since to labor the on sales in the stores. stores, we're and invest store, invest having the floor in invest going

backroom. handling teams building hours doing are we So that important that – take the that's don't the independently, away else and everything an fulfillment from we're doing. of we're what we're part so separately in that Almost

guests' really that's capabilities guests. our day, the cheapest about And merchandise So a get pickup, guests. think the can capabilities and in of good operating Up, now. day, our way using as efficient have the use our of it's hub. we utilizing They needs, doing two fastest way and We're that to same stores question highly I the we the that day, ways the to need think important really have teams closest, And meet meet the the are evolving. and it's a model the for feel to that store significant store next factor, around great kinds we Drive to all centered all assets that's we

David A. Schick

you. Thank Great. Okay.

Brian C. Cornell

Peter, thank you.

Operator

you. thank And

Wells from Fargo. question Kelly comes Edward Our from next

ahead. go may You

Edward J. Kelly

Yes. guys. Hi. Good morning,

first my really guess year. the were is comparisons and that fourth you question facing quarter last I the around So

the you can were expect momentum talk particularly talk but issues not comps issues about was lot, stalling down the year? all, a how gross you about those – in-store you So soft, there margin of business digital I around last guess from was at to cycle underlying fulfillment.

Brian C. Cornell

as again, capabilities. the a expanded I think talked we're Ed, season, fulfillment fact stronger underscored the of digital standpoint. much but we we've Mark's that got John in position. from a about a also brand made an this progress enter value array standpoint, we've both

capabilities. I enhance think to digital continue we our

we think what's recognize our to this our as position. team us fourth season enter we a and really stores very quarter. the stronger I a position is investments enter the I puts made in important in And we've much strong So in think

fourth throughout hiring, going we've quarter. drive digital about our and the I business feel wages, investments seasonal think in the great hours, I in stores our store business and So made our both to are in

enter seen the the we've a versus fourth very quarter. we in So different the start taking think year. I And approach I season the the reflected that in season position to throughout think last and that's we're

Edward J. Kelly

guidance don't modest on hoping The could than and you should want price what Street's takes – to be earnings. to for D&A be is in year, a they'll And wages you see that investment. outsized for all in I Brian, that possible. that, thinking but decline that you here. Okay. from like about I Seems we – of areas think something thoughts the it the can just investments a wrestling seem a headwind headwind, at next larger sort don't with talk I that's going – next we're like of is give point, this maybe just an much area puts about, terms looking with. I question be clearly to your year, for second want I how you, sort help know you I could was know but of like that

Brian C. Cornell

Financial not give guidance year's Well, Obviously, us hopeful that you But we're you'll Ed, preview. for going we're today. in a XXXX I'll next provide to Community Day. March join

talk to commitment same year: store hear to the this we've across about about going things and us many continuing the been Our talking stores country. experience You're the remodel to of

and small formats Our in commitment campuses. new up college new to opening neighborhoods on

continued commitment digital. to Our

Our commitment to capabilities. fulfillment our enhancing

by brands, proprietary commitment to new will to continued commitment our our and of be commitment our Our of ongoing to value. And brands an that fleet building all underscored and team.

great suite been detail So be in talking progress. that as March. the about a same about we'll this year initiatives We exact much go going we're more about of But through that to feel talking the we've next year. in preview,

strategy those is one and Our of schedule, or working. initiatives of in on XXXX. to is those Each we track initiatives accelerate ahead expect

Edward J. Kelly

Thank Okay. you.

Operator

Thank you. Horvers Chris may from go you JPMorgan, ahead.

Christopher Horvers

Two Thanks. Good questions. morning.

So you category first, the essentials can how about – talk was down slightly. it

being the behind the share talk how taken of about the more growth put over more and investments? in price muscle quarters essentials unit that's couple as mentioned unit you side. You on you've past Can progressed

Brian C. Cornell

investments don't why approaching in we Chris, we're essentials. through let our Mark Sure. how you walk

Mark J. Tritton

me with Hi, share you. Chris. Yeah, let

deeper priced end communicate that and that create completed terms the third were in we started sharing with the the our value, with to this seen guests that immediate and quarter. ensuring reaction, took (XX:XX) to positive been that. had journey the that of and of to this we What guests to in able that fast year get that we we that April expectation we've we to really ethos right build, them a we've were through right response and that's ongoing So and seen of daily year connect priced daily a an need with trust a is, and we right reaction not an we've

continue short-term XXXX. see some and a expected with traffic trips we quarter – banked expect out fourth priced as daily. increase through to deflation in velocity our and adjustment stability creating be in sales And result. in right of we're would So we the we're that starting and on fully the seeing equal result, a as we that and an into our But that and we're see to unit to

Christopher Horvers

second the essentials think I So, in I think slightly. quarter, was up

its essentially So – maintained and accelerate? did that or was it maintain unit accelerated velocity positive investment it trajectory price the did it or the –

Brian C. Cornell

increase I think time. thing seeing, we're an going we across exactly And Chris, increase the talked ultimately categories. an that's is in Yeah. drive investment about, first in as and comps positive continued to Mark over trips units, multiple see that's what

the about I quickly are efforts paying relatively think So, off really we response. and feel guest the good

Christopher Horvers

holiday. Understood. Have a great

Brian C. Cornell

Thank you.

Operator

you. Thank

comes from next question Guggenheim. from Drbul Our Bob

ahead. go You may

Robert Drbul

Hi. Good morning.

Brian C. Cornell

Bob. Hey,

Robert Drbul

questions. Good two morning. Just had

digital you XX% the stores the or Cathy costs than When fulfillment fourth said second have levels where and fulfilling the you – I by there? that that – look I look that of increased And in-stocks said think quarter are about it levels the about, think around stores, John a basis one is in the XX%. you out-of-stocks, terms fulfillment digital, them one-for-one at then the peak you is of are of more of inventory level increases on you first at you'd question costs, is this The I talked seeing around the point? at think like when in-stock at

John J. Mulligan

the in-stock with start question. I'll

to order the in we've in It's around need last current know, fix We supply in-stocks February. are really where talked said progress speed, for capabilities of about I lot we in and we in fundamental solve problem, we I but inventory think, our on to chain also us. year the given reliability, Bob, capabilities, placement, in-stocks journey. a that's think we journey made some our a

Mark where positions, more with do the less we're said, in management advance Hand, increase us of of of Hearth sure in-stocks/out-of-stocks. intentional the categories ready quarter inventories like day-to-day fourth positions, inventory quarter, being for end and to the inventory the QX, to fourth we to electronics, in increase So, as our at related took

and those. comes that our current And capabilities said, within term on as improve we supply working chain work solve term the our I continue longer We capabilities. continue to short to then as the overall there's

it. Your question, I could second understand – clear, going. clarify Bob, – where how entirely question, fulfillment, you're you the your quite didn't I'm Maybe on not labor store I'm related to not fulfill

Robert Drbul

Yeah.

Sorry.

levels, pressure XX% the fulfilling Just saw in expectation the the specifically. the more like quarter from of than third on in pressure stores that expense the you perspective the versus the of expense the line,

John J. Mulligan

Yeah. last I quarter. more wouldn't doing fulfillment to Compared we compare to third year, are in-store.

I efficient P&L, labor, shipping up of say, last to year, so the we most total end and long, quarter, approaching day take is plus As that's think said, cost-effective the we given spikes way highly saw XX% to the significant it. perspective. way all fulfillment. a think model would most do near year we'll we XX% store the us, And range cost-effective we that when that's really store Compared into last that what from pickup, profitable digital we get highly for goes the

like economics in-store, high actually that we a So, when mix our gets the lot.

Robert Drbul

very you much. Thank

Operator

Matt Fassler you you. Thank from go Goldman ahead. may Sachs,

Matthew J. Fassler

so relates to have questions, and much. I margin. first morning. you my gross got Thank two Good

very do of depressed fact traction. Just margin are from that this really down entering new to a some QX year your good you're and you only actually QX momentum, gross get with to the brands ago very starting revisit, compare as pretty have nominally in

you're of introducing of of you're of your pressure? the each margin a to that some more gross yourself and absorb somewhat cost options associated giving costly just that, factor that more are and declining expectation year with the is the on online done being rooms business simply thinking fulfillment a or new fulfillment So,

Catherine R. Smith

Cathy. This Matt. morning, is Good

Matthew J. Fassler

Hi.

Catherine R. Smith

what digital the it year trying it's We're the And prudent The quarter. important quarter. early all very seen – around but value. fourth would the to about work offsetting in fourth so we're all continuing we that with which fulfillment, is I have plan as a continue quarter. are we around pressure do is about into cost way to as we as savings that think approaching anticipating we've well we're far, I into look we always it, be the we excited

business prudent, it at just long, we So would is look the I what year set we make which said would doing as plan we all for do be sure up appropriately, and that success.

Brian C. Cornell

continue our feel of a we both build Yes, of made: the on short Cathy performance capabilities, digital from Matt, the One, good see we to margin I'd in very a and about beneficial that and going very strong clearly quarter. standpoint, expect that digital be to we're comments fourth couple brands, term Two, the going only investing and gross our to owned in that's mix. digital to and long-term, growth are

on and that the we're owned returns So brands But it that that our brands long and sure beneficial both the across track. of performance. seeing have term with our our our done results team eight Mark that to business gross makes the mix very term is our work and stay his rate is short margin margin new really gross

Matthew J. Fassler

The helpful. super penetration. REDcard follow-up That's quick relates to

the time. to the we some glean penetration year-on-year from have after to this shown of a increases stabilized that trend? having period seems of for So stabilization quarter noted Anything that

Catherine R. Smith

excited this some convenient fourth we're wallet REDcard capabilities really to about early the into coming are and quarter. for for our the of you, to and fast tell We it phenomenally one and the I of is application, adding guests. users great have I'm experience

I responding. that guests So additional are continuing quarter, best some our we've to would favorable. to REDcard come be into see guests continued into trend up that seeing around ramp our so expect We're capabilities exclusives as REDcard, holders, the we'll fourth

Brian C. Cornell

in Yeah. stores, moving Matt, new I think our into new guests bringing the brands, we're making we've of in a we neighborhoods, our also Target. recognize byproduct to that as been investments

convert think But that Over want are time, new adapting move catchments, over these them our REDcard. seeing we holders. start Target. are we're they'll is, what into shopping as time, we to So at to REDcard new certainly to guests I

new think attracting think new around the are into brands a placed guests our I bringing stores, that new value our shopper. and focus is also I we've

but the that call and So the often, continue that's site. tremendous existing shopping to we over talked the one metrics fact that haven't traffic it provides is about penetration. also more was coming our X.X%. time, is And guests guests that to REDcard of us stores up And our on to build opportunities new

time, are we we XXXX. see go conversion prospects into expect to that our for certainly potential new REDcard, and over So as those

Matthew J. Fassler

guys. so much, you Thank

Brian C. Cornell

you. Thank

Operator

you America of Bank Merrill from you. Ohmes Thank Robby Lynch, ahead. go may

Robert Ohmes

thanks. Oh,

questions. quick two Just

low-end customer Just just early Drive question range, had the of much the breadth sort the of bigger is or Thanks. there? is Anything fourth just about results versus the give that there, of plain home? versus And I you you're us shopper the wondering just I what the which shopper would $X.XX can the to share the of if you other and pickup scenarios, you basket can share basket like you metrics of gets whose quarter quarter, better, on the the the online sort shipped brings about was on the Up versus the the was fourth some to range what store $X.XX? the how customer, bigger, excited is the

Brian C. Cornell

back Robby, the our then for guidance quarter? why we'll don't about start to and let come we talking shopper, pickup John that by

John J. Mulligan

with I might the shopper there. Up start Drive

NPS back, I high It's doesn't scores, and want off who just frankly utility. of there, it's it's the think car. our core the are with get the two kids guest We mom a Target outside to doesn't scores our survey – see charts. shopper out in raining

lots And scores it's are I driven by that thing. be basket by than So we've very important imagine, for them glean seen they're driven need very NPS be so both the varies. we The and can option, sometimes There's choose promotional scores it as driven our which is other different very, of reasons really can our Sometimes one see high guests right? for pickup in-store, of mixed, from nothing same convenience. high most – that the baskets larger, perspective. There's to very for from people thing by is you'd the true it cadence, there.

Brian C. Cornell

up question the on focus I and why around clear really Robby, the year. guidance quarter, the for I'll don't full

back as fourth full year is discussed, the and go And our quarter guidance a year. our note, up we've think delivering the I'll I $X.XX. is performance reflection Cathy of guidance throughout been

That's guidance. for $XXX versus improvement Now, original our the math I'll do of you. million

we've in level fourth we we a good year the So approach the the quarter. but our about have conservatism, certainly that delivering balance and with been reflected feel be and of the fourth throughout we quarter will momentum performance think

X% our a approach feel of range be taking EPS still standpoint to we making quarter, approach lot done been we've reflects business progress. So the and and confident, throughout year. I the an think fourth of we're from the of taking flat we're the comp good to just There's in

we've time one question. think, I last that, got with operator, So for

Operator

go ahead. Kate you. Thank McShane from may you Citi,

Kate McShane

regards terms My the ship-from-store. indications Up same-day that. if limitations early taking of I longer was for might how my the question. had a little fulfillment around you and to of and Thank of bit well you delivery, in fulfillment introduce Drive two term the the to question there can Hi. profitability any with nature. as the then also are what be regards in where to those relate with And options wondered

Brian C. Cornell

those country. talk as great but, things think play. X,XXX our And about that I'll strategy of we Yeah. be in we to the about let Kate, important our profitability Up, about the are same-day, component, about going around think Drive John the think I by stores neighborhoods role one is the are enabled stores the

So expand shop where time meet and we should store no matter be and live our able over in. to they they guests that continue which needs to the of

John J. Mulligan

we one the shelf, comes that great, there profitability, in disadvantage about takes to closer we because on to is the When a question it economically it. pickup a would and but us. the Only solution guest off your or better really clearly, touch, again the store, be slightly great. And Drive Up like for more great are

question at the that in get they charge all that. it we leads a least at is, They six may us expensive. is research great York, times guest As highly, There's And them convenience, charge. to pushback as in believe a they nine guests during and want understand today, transaction thing that about for we I up to time we seen they ends there the get the said, the see more being larger, the into we've New our shipping, no no priced stores profitable it right, so to highly to And that. wanted in same-day the delivery it want understand four be at delivery day. baskets, – And us.

there'll where the type to markets really there. you well. standard in We're that are while hard be – speed. shipping cost will markets two-day that improving working work that where, work will transaction there said, shipping so of are other And There as throughout reduce

so the so guests as well. that's we get team make And that great service transaction economic and on Target for great our that the a

Brian C. Cornell

right. All

John J. Mulligan

work. about good all our But of make ability feel it to we

Brian C. Cornell

happy operator, thank So that third to I participating, call. holiday wish want with that, concludes earnings everyone conference and a everybody season. XXXX quarter for our

So, thank you.

Target (TGT) 15 Nov 172017 Q3 Earnings call transcript