TGT - Earnings call transcript Q1 2018

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Operator

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 listen-only mode. Afterwards, we will invite you to participate in a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, May 23rd, 2018. to conference like to now would turn over the Mr. I Vice President, Hulbert, Investor John Relations. sir. ahead go Please

John Hulbert

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

Cornell, performance, will with few John, today quarter John line our moments, for Chief Mark Cathy Brian, Officer; Officer; provide Mark, full on year, Chief Operating Chief first Officer. Smith, the On Chief Mulligan, are Brian Financial their Executive the Chairman perspective me outlook progress strategic Officer; Merchandising and Cathy our on Triton, and initiatives. and In a and long-term

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

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

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

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

Brian Cornell

Thanks everyone. John good and morning

in of of performance business our the the the quarter, portfolio. with pleased our really are multi-category which first We demonstrates resilience

digital have offset quarter. This entered consistent beverage. strength which impact guidance, of in maintaining the our the dramatically both by in & of categories these a as balanced food than temperature-sensitive the in our of strongest channels. seen and more late categories, increases a second years, portfolio X.X%, accelerated on driven we home, as XX strength reflecting the spring and benefits is traffic stores essentials demonstrates growth with healthy household X% Comparable sales up we've growth, Our was our in

or channels, from We limited-time growth see we in also quarter compare digital benefited we rapid and years. Home in this partnership as owned and successful In past the of apparel even with our over Hunter. continue to three exclusive trends strong brands new launch a

quarter, For grew a year of first Target's digital the on top sales XX%, channel ago. XX%

While our operating transform to to near-term last are last our benefiting reform investments late enacted some income from tax business, we continues and traffic driven headwinds year. reflect accelerated and year's federal legislation sales by

first strong share As a earnings EPS the and we're than remainder the in of our result, growth expecting per for X% quarter the grew more year.

Given all acceleration drivers our supply responding. chain, our the CVS. ongoing and contributing with made we've changes recent success multiple new our our guests we in in business, team, seeing investments our in of from is partnership to the Everything and performance our even stores, our brands, are are

full the given that the we in result, current And a that we earnings consistent of year. generate mid-single-digit to the year business our plans second sales and trends provided guidance the our forward, quarter the sales beginning our range. confident share will accelerate our at low and we per remain As into comparable will with growth going expect

our our promise. many business Expect best As support when performs sides both Pay times, said we we have of brand Less More.

optimize from great see investments the marketplace. in promise, we of support On results daily. And benefit are year's we're the assortment, ensure we on right the of everyone to More side priced continue the and differentiate last Less Target our from to seeing to fundamentals, Pay of else focus side, Expect work that in

remodels great experience guests. quarter, double more continue year we provide remodel we a stores, our number In the ago. we to of the completed to We have committed significant our than delivered first for a capital ensuring

from hearing continue the X% we're to completion feedback a X% see following lifts our remodel. direct to in of the incremental guests, stores sales we Beyond

presentation that broader roll hours, to stores, a transformations, parking tools, food up wall-to-wall in beauty, allow front our of to and to orders the & team sales enhancements these invest our we store now, on like a digital continue or home their the the set floor, beverage. of on training will they as provide lot. walk experience we And to in apparel, continue Beyond and the richer out our even guests pick key stores categories, focused at

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Beyond is that consumers. our high a price their right addresses assortment and wants, needs for priority convenience a

costs At we're capacity with beginning and on last the make out increasingly result, free that because capabilities out Target.com rolled year, to rolling place on a no control We're on to of easiest rapidly America's few hundreds to rely the our and for two-day the stores years, As of thousands orders. services shipping annual items make and designed shipping shop. of as able we've over a we to digital commitment Target serve fee. point developed the

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way courier in and for we With that our areas. also most is day, but same quarter, Instead, worry rolling fee this common delivered to need their fill of time service, further. in expand choosing. same items also day our this carrying we our delivery even to have fee industry-leading guests a window metro basket order to later deliver the via service out version options continue finally, rapidly home. distinct pay they dense In don't we're stores their a to of Restock. next-day their to about a Shipt nationwide dropped own delivery first essentials, expanded Target same-day And delivery small While their located

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and of our time, Beyond supply these and this to To team our replenishment, that the stores entire the in rolling transform an facilities, needs distribution labor stores, reducing new as and chain bringing of cutting-edge over to new to will, support investments workload shipment the our they team out dramatically store, implementing all guest-facing will of customize these each our DC provide fulfillment individual our without up store automation to in are options transformation, teams is invest to possible the that the to of business. investing sort unlike serving match capacity teams competitors, to investments to And testing meaningful new our changes of fulfillment guests. fund With model support be need financial the square our the to footage guests. creating allow these investments. the have in will focus portion changes our reduce our we our upstream making is our these across store facilities. on of dedicated many store we're None demands without we

we're CapEx, making wage starting In a first and and the national leading reach do on commitment minimum and more grow learn our new a to to or support more members they $XX taking to team Beyond wages. increased with we're national of investments our in more guests the ways business, provide to of as and to end support we our $XX team for quarter, XXXX. a our by additional position

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John Mulligan

both you that we Thanks you our work the our about how modernizing good it's across about assets. see use When and Brian model think all morning doing the work, quickly we team, operations and physical everybody. we're operating how

best and are designed side, asset trained stores. but strong news Similarly, optimized good well-maintained on already we but primarily the the shopping. distribution and routines a are store have were base guests they they team is focused physical that facilities, stores exclusively with processes well-designed, retail, tasks shopping we On of for and our the and for well-located, started only in in who

very the be to me future, in shop. clear. way important Store no but remains only continue will so let it's the longer Now, be and people shopping to choose

physical stocks virtually are want to you convenience, assets are and both out Across speed the facility we includes more people, the best we Jersey, have our our how could shopping stores, more to new everything to the New provides providing impressive. facility processes our our Out and and of been nimble, Amboy, have the do you new Amboy previous physical completely investment designed continue other about for analytics us allows we that than that right about and which Perth and store inventory in to told by Perth results reliable. testing developed send develop our a by lower running we team rolling we been XX% in new chain, ensure our clean right in reliability the slate us were supply accomplished by ways and in faster, the a all guests a facilities. what to So, At results shop. and the applying which logic, refine we're benchmark. today. our Last work, items same measure than the of make way to positioning a quantity new our meaningful served year, on replenish reorganizing provide where much accurate, we time, These unit means data modernizing faster

developing year served to these testing movement While of algorithms, And be the last another up about model. Target and was early this new physical year, on scale next focused will beginning by by this year is XX stores inventory.

new Beyond which, This the focus and across focused we've changes role item to our created also simply accuracy on us allocation. on were entirely in to to stock, a year, inventory the response team, increased allocations upstream our sales. half chain in DC supply has an our allows network. associated historically, processes to inventory change, at led With upstream quickly network. more our the Last optimize headquarters accelerating facilities, of level, this at in made forecast safety which we stocks inventory were management enhanced availability not units because replenish of in out we've with

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we While and our process, business improve. the early seeing at our lows still benefit continuing we're the out is are as to historic in of in already position stock

address the of inventory, the to so positioning at And done, end we're work want on just by encouraged total to the of be While which position mentioned. I inventory our reflects I more topic while progress the quarter, we're the there's strategic far.

inventory these and their higher example, that For increased can we competitors categories. as to other meet in our have liquidate ensure teams toys baby exit and demand investment

positions very last receipts we far quarter quarter heavier the feel and little us about already good until level, for sales being market in but and in back-to-school we've weren't and reflected first back-to-college seen than in so strong gains our these quarter, this some beyond. categories, inventory early has that in ended our And in also finally, accelerating which share as which the shift second very recognized year. calendar Bottom-line, quarter year's moderated weather-sensitive categories resulted expected second in We May. a growth

field, our as serving of All the year. and ship about stores, placing fulfilled digital both the possible in by quickly first our at account focused we're about to volume our XX quarter, volume percentage of from store on the was efficiently continued two-thirds effort. volume, from us, points, store at last grown than more In to and that more headquarters up stores for fulfilled are store XX%. and as that our center guests while Of XX% has than pickup of

provide on launched the to to that when of guests. two-day until The to extend and sales. an size, develop our immediate convenient today, additional continue number our day. to in enhancements stores us in capacity. the directly later free quarter, we We we have new, enable make orders, more two-day retrofit expand units, our increase cutoff shipping for much team Target.com, faster efforts the and basket X,XXX saw guests' and first the more homes will In there's and shipping fulfillment for continues than digital store shipping But capabilities we backrooms options to to

and of XXX than expand in the One is quarter, we We country. the second rapidly in more our XXX we'll into first in across Drive-Up, and quarter. services the stores out this added rolling this service more capability newest are

test the in for service stores the we is recent fall, more which and in Shipt, and added from over Also to By will second XXX is our available in stores more any available Twin highest our total we is a Cities net the score up saw nearly the we same-day Midwest, the majority first have vast stores. climbed of adoption multiple than states. provide. in holiday now markets in For last weeks, well promoter quarter, stores XX in moving markets our quarter, the launch service the has than in delivery expect XX to guest states. ramping to X,XXX XX through quickly new of this season, XX In we

receiving really on well. service as feedback We positive this are

gross continue join merchandise approximately to platform, first reach year's a last retailers As other in result, volume Shipt's volume three the the which helps quarter. times

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next-day guests essentials flat continue tested in in of $X.XX, XX% reduced As stores results, shopping guests week, box five XX York Target service located we by now to all delivery Boston, which same-day boroughs out into this orders, fee the items, and to population. deliver to from as change. sales make I pack don't York, New to mention, In this to service guests the shop now And in for Francisco. quarter, of Brian when later Guests service. to and enjoy deliver service we offer fee in we service, in fee should bigger baskets with free nationwide, in explained, a and $X And Chicago, from essential a which first we we service a guest-friendly this more category Washington, price XX,XXX response rolled more DC, And announced as Restock. XX% total shipping, San this leading And and annual this next the the REDcard in holders. more simplified last from-store our a food build improvements. And basket spiked upfront to moving and delivery, stores of selection rate. store, is a the three Order structure from these pay last based their this Home York to they than This the day. U.S. of day. year. is and cart-sized on covering $X.XX rates Drive-Up continues much use a it New well we the half an we the two-day delivery New in five we dollars. accounting improvements, XX% The We as reduction to service speaking we've ask the be and than for guest-friendly service, than of allows volumes shop

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allocated key We guest hours key seasons, shopping like what response, these to and to Mother's back-to-school Day, measure like enhancements roll out seeing. we've addition, more happy the times, started back-to-college. In and and around weekends, with we're and we're

attachment seen of and guests example, sales in For they're electronics respond the and there. we've expertise higher better to level warranty rates as finding service

finish broadly. new of new out the will monitor quarter, roll stores we large-format to formats are the response making we We And early around can't continue these stages Los more the we metro covering changes the guest in We first as country. six and including them in one location and opening locations Chicago. opened the we're like small areas, Boston in and seven without Angeles,

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Mark Tritton

is we're At doing our John. everything Thanks focused on Target, guests.

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really more in apparel brands: already denim, the is is While much our Thread we accessories; Opal pleased there results ahead, women's exclusive first sporting home. Umbro in delivering. and goods; quarter, with new and X Kids team In in launched or and I'm the House owned Universal

we partnership to delivered reaction limited-time for an Hunter fantastic. brands all addition, guest new with an and In British been has brand exciting Target, iconic these the

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an these acceleration guest score is also all promoter nor Target's surprising been we've seen overall it's results, increasing, that net of in Given not it traffic. a has that surprise

Hardlines our some arrived. of living quarter of weather as sales of which as category traffic warm well weather the it's sustained reinforce our multiple clear warmer in And category balanced in mix, before temperature-sensitive timing parts Apparel of first affects value that results our including care categories, the sporting overall while Our the outdoor strong our and lower In we comps for XX% average generally nearly quarter in rest than of or positive categories, in sun which first our normal our goods in essentials. temperature saw were these accounted very home, of regions, assortment. total sales, growth

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A positive saw we standout gains result, returned quarter. business, which has was a growth another this strong As yet key market our to in Baby year. share

preference exit assortment, having moment, lot a others making innovation are for of launch a quality, In baby of year life and successful competitors and this electronics, guest we in Switch space. we're on Hardlines, we're heavy by continue caused our performance the growth very long drive particularly seeing a baby basics new in maintain pressure key near-term elsewhere the marketplace, the the the we Nintendo game Given have registry. In easier a infant And life a of liquidation year, softer the upping on on focus that in broad is saw work to and Target. newness We've from comping as for we'll which done value parents, we pricing area. including had offset our in the our results, ago. toys, this we second strongest quarter, in out despite benefits our category, our as focus where

partnered in be happens featuring Summer and week, to Disney and all XXth exclusive his long. we Mouse, food, collection distinctly be will these beauty, we an Target.com year. Mickey way, in the with Just apparel, Target birthday stores this in both summer Magic toys, unmistakable who celebrates all of even pet This items a and of collection treats, to items more than celebrating inspired by silhouette that the have we XXX announced launch of bedding, Mickey style last and

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key we've mentioned, and us. liquidating making market As inventory for already sales represent are categories in strategic been as additional others strengths investments that some he share core

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them partner driving down. with we've slowing we're and lot listen year. bring we and and meaningful progress it to though is what already of on the rest relationship seen we they Target seeing that, of that even ahead to our what preference that last a our If launch growth to Cathy, our this vendors, over to we Target newness In growing, can to who reaching will helping grow a also Cathy? exclusive create everyday quickly outlook quarter and to we're develop provide addition opportunity inspiration, over and reminding to key not see we're and their With for content, is with build to they and eager items us guests: like, momentum, we're our them more guests, how brand the to investing them the out deeper the year. are The brand can joy continue healthy, turn confident guests. to deliver continue we on more and move we stronger mission I'll and and deliver the to performance already to more to a are lives. our detail their both and focus want, an Even lot convenience, on of financial first we

Cathy Smith

on-track in We've Thanks position both earnings year from accomplish to are profitable business And Mark. stability core embarked on delivered transform to Last for transition and now our the year. deliver And we our long-term happy and guidance we Target which year, I'm our last in a to we more. one say, with We journey would a to goals an expect team our moved multiyear and to we business. and to financial said XXXX generate quarter on planned strategic into year, growth. books, year. be XXXX, this everything achieve investment

a growth average by driven a Our increase This compares first guidance favorably increase. quarter small ticket. our by was comparable low for X% a offset traffic, single-digit sales in X.X% decline of in to

year long-term second-highest quarter's to and in and equal Target that the best growth success. of for XX growth us XX% noted, notable, at historic year, growth Brian at Target's pace seeing seen Also on more to we're first last traffic the increased XX XX%, last to than of was the X.X% traffic of X.X% years. right we've years. is been the Traffic investment last than has prior was position gives for us the more strategies first highs compounds over accelerating quarter right a focus top making Target a now for pursuing key as quarter the confidence strongest years. in growth Our digital and of the XX% two

categories. weather This temperature-sensitive bit gross mix of of quarter spring the our last basis in down margin, late a impact surge below year. from expectations first caused Our was margin points rate as was higher later-than-usual about XX XX.X% a

has As deliver April, second surge, up the expect this to it into we continued move to we previous quarter. it's late temperatures sales change, remain With guidance of warmed that confident our that the in to in growth and reasons higher beginning mid and we quarter. on-track we this comparable saw are year the for of one the

was and investments our last right our basis stores. XX.X% team, increase and other This quarter on increased by items including expense investment about XX higher rate was of points driven was than in Our and year. SG&A wages expectations first planned in

compared prior May year, of $X.XX. interest as reflects first up lower year. mix because lower Our margin Below the ramps drove quarter that driven and updated and of This policies. provided changes on last with detail compared remarks Both X-K first X% press reflect $X.XX quarter. more adopted note, in Form year EPS a in primarily these XX.X% depreciation was D&A XX.X% than income margin adjusted tax basis in than effective impact from a last quarter was activity. program results Altogether, of higher tax first this than reform our retirement rate little my the operating last XX income EPS of federal of release X.X% quarter, was finally, on expense and GAAP to year's that in was refinancing filing these our increased these new gross operations year. about rate our sales. on expense operating continuing Altogether, from our quarter last the than last it by income accounting We year. pace. legislation. reflecting metrics that million points our numbers the filing, change expectations new rate these XXth. year's of year's net This reflect accelerated today's we And One the last remodel several last standards included our And line, was first debt $XX we've

So, to you new accounting. models reflect could adjust your the

Hulbert changes in the encourage affected the already, you haven't you our and review any how review, if I filing. you these they've out And was the of to work will we your a answer up year about and the with inventory compared reach that John questions. of presentation end about to our If please have materials that questions At first following X% ago. financials, to quarter,

couple stores will John a as market gain position issues, liquidate us competitors Mulligan As which impact of categories, reflects increase the share with this operations. of key investments their we've to mentioned, strategic or close best made in timing along

shareholders form middle repurchase going the Turning of made capital on of and cash the sheet returns in into the as additional to increases excess shareholder our balance limits the for funded approximately to from well We commitment of deployment, ratings. deployment and year, including operation as within share dividends capital quarterly more We repurchases. we all and $XXX through our remain our year. $X.X of on track A expenditures to annual a now $XXX than to with quarter on dividend capital our and of these continued capital maintaining investments of deliver share returned goals credit billion, capital million in the more than first we investments million cash held

was with first our reported, XX.X% year. last ROIC quarter XX.X% As compared after-tax

remeasurement deferred reflects result the a metric benefit year's our nonrecurring of of of tax as this liabilities However, reform. occurred the federal that tax

this benefit, our quarter was first Excluding XX.X%. ROIC

that both measure, result, expected performance. very when we operating benefit time, was this is And healthy expect mid-teens repositioning ROIC absolute that position began decline Target a ROIC to income last as long-term. the capital the While for from still of is down initiated this year's year's we investments from last the we year. to and Over long-term grow the best it given see a is trailing last into

guidance quarter, momentum we're year. our let's from the benefited sales quarter second beyond and in in our the In the second have in for May the seeing full warm turn categories. to surge a So, already now business, weather

the our into second the week quarter year's moves comp May. an quarter, benefit week sales addition, in shift, In early calendar of which this extra will replacing season a from back-to-school

expect mid-single-digit into low the benefits, from these growth our combined with quarter traffic, of the to comparable underlying strength sales increase range. we our first our it moving Given pace, to

points margin On the roughly income reflects from last expect rate rate. gross we a decline operating year's This the SG&A margin and about line, changes lines. expense on XX of equal basis

initiation. in of D&A expected higher year, taken In service as out about than due addition, reflecting recently reduction a improvement originally to our program. note, we timing than that has team expectation resulted led expense project time accelerated in D&A last approval to between remodel expected in accelerated quarter the $XX implemented million One in within the D&A second is increase in depreciation we our our which a come expect remodel this depreciation reduces and process change This assets for the to quarter. lower year, of on second the

together. reshape believed five and to Target strong embark what historically were than expected a the and has expect second down the been GAAP lead a long-term second expense and $XX back to lower interest without rate a XX% are making tireless further tax $X.XX. the quarter year, little P&L, of you EPS have Moving Altogether, we effective that making. adjusted the EPS range responding quarters Today, at guidance guests later, deliver When on-track None move. right about to comparable our expectations the of sales as confident to increase we And last our of an but accomplish decision is the to ago, always put the we team are than in more $X.XX. last been Only on journey. bold, could changes we business. net year we traffic XX%. were expect efforts of previous outstanding of we in have to this our financial for can ambitious to at to decision who the in quarter our a come happened adjusted made performance, near-term, million we've and low-single-digit year, and the for year, on plan rates pressure full team $X.XX we a to quite will in growing look we our In on knew $X.XX our an GAAP

As a member, I'm side. I'm and grateful proud by incredibly their team for efforts fellow a shareholder, as to their work incredibly

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

Brian Cornell

and of guests version another what the a because of and you've someone loyalty But to model, convenience, in even Target Based you And because by different, what our we because and deliver small that's else. the investing investing human today's being changing. version we're brands, why seeing full Cathy. being are earned ourselves, can not business. unique assortment thrived in And matters we our focusing digital encouraged of feel I aspirational, deep a our always for optimistic, by has greatest experience, our we've today, different, and on deliver stores. our so are in in touch of differentiator, time your operating today. one formats, team, world. we're Right existing of digital on possibilities. the best we're we heard look differentiation see matters that Thanks world, by still hope Thanks always different means being now,

Cathy will questions. Mark, Now, your to move I John, and

Operator

Thank you.

We will now from begin question-and-answer The McClintock [Operator the Barclays. question Matt from first Instructions] comes session.

now open. line Your is

Matthew McClintock

you're Is things that build benefit? Drive-Up material having just of year? material help I've best Because Could the just probably with the traffic the having that really Shipt us career. going a you result -- probably -- now, was you strength is Or parse merchandising it's initiatives there? Thanks. over traffic the And best right I best retail results your we everyone. seen a could morning the one we traffic, benefit? also lot traffic traffic of wondering is out if last seeing a have good the the industry. that my on of just are in Yes, across start

Brian Cornell

summarized well. you've it think I

in really several we all strategic our our generated business said true it's the really I've as of the prepared as our we've working indicator guest now, in here of acceleration some of QX. we've we the that And a today, traffic and feel the we health about together. as to of go reaction about quarter And of key sit for good initiatives. of importance combination that think these the as first of I and the traffic remarks, the traffic initiatives years into talked

coming So, well. they're all together

to new doing reacting the a new to our options, is fulfillment I to digital to standpoint. brands, our from we're what think new the guest remodels,

traffic. us increased All elements guest come together, rewarding the have these with of is and

into felt traffic over great traffic the decade. the as in traffic QX. go growth number X.X%, by And growing about a seen we So, that growth importantly, we best we've continuing is

it's and culmination making all So, at initiatives the the of of the Target. really coming we're recognizing changes together guests the

Matthew McClintock

-- remodels follow-up, doing just on And XXX have drag and line would thought? I a you stores into they the are can and you've commission, then little impact that impressive number Or are if remodels Is is of year than a themselves. with you XX this much So, right? some a that this you is that you're I Or your traffic of assume out major it help you're expectations? going could down taking doing Thanks. remodels ahead bit more quarter? a of negative into lot now pretty those expectations? why about so in Partially is me of another done the are from think the

Brian Cornell

remodels. we we But very had complete the team reacting way exactly the disruption, planned. Obviously, accelerating there time frame. Matt, at disruption minimizing the remodel And better is and a period. as better performing the is the construction is during guest remodel our getting is well the these

the X% is and to the remodel we're the been well for So, lift us. working reaction generating projecting, We're guest has superb. initiative that X% exceptionally

Matthew McClintock

the Appreciate Best color. of luck.

Brian Cornell

Thank you.

Operator

comes from Chen. Oliver question next The

Your line is open. now

Oliver Chen

were We becoming to and delivery shop. you. options place Good America's easiest the curious Hi. morning. about Thank

your job the ones with terms about the you the more in driving would models? innovation done may the terms You've customers top which financial really think options Thank the year at perception like important the the with of prioritize you. sounds be positioned half better of back our driving have trips gotten stock-up, as about your respect list How of to equation, you're algorithm, part It Also, the a all of there. good are that where what we of Less for have how value. fill-in and to scores thoughts respect and see and opportunities? you fill-in with versus Pay the in the customer

Brian Cornell

store. that for we in different make them. recognize our to alternative as in so guests, we provide I'll to in ease a guest balanced want unpack that sure the why in each experience investing But one services ways sure investing great And approach. It's a Oliver, questions, we of of from we're a team, time-to-time, in-store making experience. remodels, number specialized shop. about try is looking we're our and taking then think We investing to the overall very to provide we our

service. really the online guests Shipt, the service, reaction, Obviously, about to their So, we're enjoy them in And is now up we minutes to with to in now stores. continue much our and for our as has want of to as Drive-Up our order homes a one we to it very hear expand We're that over talk to markets, been that. guest how goods mentioned, they reaction make great pick being and seeing John in XX superb. easy we And ability well-received. deliver conveniently

encouraging about doing comp well-received. no guests experience, that initiatives are full guest in-store to the is to experience. all a portfolio and want And traffic while they're we're or with of what more the and Restock, how very shopping we great overall and our rolling wants coming more numbers, make what's of feel But reaction importantly, matter experience very to out, the and And I great shop. the the we're they're seeing Drive-Up being a while whether enjoying expansion provide positive that stores the we sure numbers there. the So, really think we're it's we Shipt, to

Oliver Chen

a picked Thank with trends really quick have encouraging you. business up weather. And improving Cathy. It's that one, the

impact on it you wanted wasn't to the where However, quite the be. gross mix margin

you what of where to conviction in diving your in into comments? Just you. you can gives some on of terms relation be guidance the Thank

Cathy Smith

Good morning Oliver. Yes.

so category, that every back pressure, into confidence all and toward for. give we're the of of as addition, quarter, reinvestments we and this drove much of seen some in which have stuff, cycle end And will confident. than about really a to year, beginning clearly, said, us -- start started then Other and exactly then promo played come last -- over we about and have initiatives and beginning April we've the initiatives. cost price we the out that and thinking half year that -- of late As of mix planned first number temperature-sensitive would we the the quarter back our some hoped

Oliver Chen

new that brands stores. on job Great and Best regards.

Brian Cornell

you. thank Oliver,

John Mulligan

Thank you.

Operator

The next Fargo. question with comes Kelly from Wells Edward

Your line is open. now

Edward Kelly

you've to through the little we may as of year, of like about think it's get half better the you bit Yes, weather plus shift, think within QX? that hi. trying QX the Good the calendar this, harder. on morning guys. had Could I'm comparison a back a the comp. of guess, and cadence the understanding progressing have seems bit And the provide just the may more then you benefit little a have will imposed, within I impact color maybe

the about should progression Just think year? this we how

Cathy Smith

Yes.

April, categories we obviously, We & home, of the It little weather, see was So, do back. food that there great. saw -- which those came assortment, early challenge multi-category strong really our of temperature-sensitive strength. great really we beauty, some bit because in a are trends did have we in essentials, beverage, which straight

happening, So, we weather can and I the of and/or see could strength tells it, we the not. strength where was you that tell us, would see

strong your Ed, coming second through confidence the of was what throughout part the I'm sorry, And around multi-category really So, question? assortment the year.

Edward Kelly

underlying calendar about we the how comp? Just think the QX impact and

Cathy Smith

all guidance a confidence we more little in benefit us gives a a in into little Yes, bit QX. additional benefit of we've saw into But given. so benefit -- Yes. bit or little guidance our bit the that's of and obviously, contemplated that QX,

Edward Kelly

an does year-over-year a will more the guess, something the bit to can guess, in But back be Cathy, QX? headwind. drives and I improvement to to But of then, you look try -- margin you D&A in bit the we to I impact. relative to digital a let's do the expect that. important. it at improvement side? the minimize year, give detail the Wages what we we're with mix continue about And to as what So, as like a obviously $XX ramp going EBITDA think an that, I margins, year on Can little just us throughout through than go seem progress and softer, margin like sort on, it was had expected hour, just seeing QX

Cathy Smith

Yes.

some out Obviously, great QX play strong would really So, have did really expected. traffic drove we much comp the as sales.

investing we were that We to invest. going the are in we said SG&A

all fairness, gross that So, out in we would very little very, different played have as a was expected, really mix. consistent. exactly except margin And for

And so back a & little the beverage, beauty stronger food categories that and and little temperature-sensitive essentials with quarter. toward end came weaker a bit the the of bit

have continue it's plans, conversation rest invest me gives which confidence the business, What initiatives, just year those as we'll as a in so got and the of guidance. into cost obviously, got long-term. And last through some gross planned we've our going said, investments for the we've as We've consistent. literally our That's in mixed QX. as planned year, of those we margin cycle over well to

Brian Cornell

to in standpoint and our in brands apparel our the full a standpoint. point, EPS both reaction over We've comp our QX, home confident into comments, launch mix brands alluded very Ed, I'll season. very guidance, and go influence from we business owned year, got just strong. Mark in holiday of as expect And the and of of balance we'll his new a year we're the has to reinforce the the going an certainly the as been we that's QX number to and

gives a We're increased acceleration off is very our So, the strong we're business us in seeing very a QX. confident what consider to of And guidance. start year the in start strong confidence performing. we with very it to the QX, year full way

Edward Kelly

Great. Thank you.

Brian Cornell

Thank you.

Operator

Sigman Credit The from comes next Suisse. Seth from question

now open. Your line is

Seth Sigman

guys. very Thanks much. Hey

of couple the a on follow-up Just here questions margins.

are pretty year-over-year, at, price up looking pretty said we value those move and we're regular you good about as price benefit seems fully making, feel you billion, you proposition, we mix, that which interpret as remind could us investments first, And been price do when I cycle that see the was the the the investments? as changes done through and $X from biggest guess, think, you've Should you Aside year? actually meaningful. the I

Mark Tritton

over through really changes end QX and were Yes, is starting Seth, to maturing we're Mark cycle QX through leading What implement a our We at here. Thanks. really seeing price QX. LY. of the right very

see balance process, out evolutionary start to an that we in by and QX. still we're So,

into benefits value with stability again private the QX and from some still to there's mix onwards. So, going LY QX in

Seth Sigman

us Okay, the ship mitigate the included some that's of you helpful. the cost benefit And more part to the of this sense of then also cost, that, us quarter? is year? I give and you have from had digital think, pressures. expect the gross through And on outlook, update margin something on the that on fulfillment may fulfillment impact store a to from that Can improve

John Mulligan

Yes.

of on more margin as the new continue business. to of that, nothing pointed on as other the the as the, gross lift pressure grow think thing guest; you other I efficient our two-day our the most continues is would fastest rest see to than in sales faster point things for it's So, that us. I side here, perspective and really. put the second, to cost from well. introduce we units is first, that stores, But Digital And the fulfillment when ship for like a from have way to ship shipping, we as out, we

meaningfully. double where as cost the we and to basket down goes The unit units, is are basket with chain Shipt, down average unit that per fulfill almost the increase we cost see so true so size goes fulfill the dramatically. to in And the sizes per those same

lower that's per drive actual cost team continuing is cost McNamara size so we focused unit business. deliver, continues the on digital unit to driving economics And the thing. one to lower improve are the to -- Mike basket the the on of as all team to across digital the average focus and our and

Seth Sigman

you. Thank Okay.

Operator

MoffettNathanson. The Greg from comes with Melich next question

is line now open. Your

Greg Melich

frame bigger-picture Hi, the cost involved. for thanks. but results, the to I a question maybe great also really had help traffic

look and be by math your XX% we the first years. you down if right, it think restatements all up in EBIT the EBIT going quarter made at best in year, the have sounds you dollars But I were investments this So, guidance, dollar traffic be like to the given does back should we that's get to what my half, -- given that should mid-single-digit. seeing? Is sound my Cathy, last

Cathy Smith

Yes. Greg, Yes, on. you're no, right

Greg Melich

of a typically for so Just housekeeping the comp that's Got week bigger? it. in July that And on versus May, is shifts, week then question. back-to-school a XX% bigger, or there that in we a the do something shift. can XX% sort math The week

Cathy Smith

it think literally way, week-for-week. about just just this so Yes, we Greg, map

back-to-college, first weeks So, of seeing out. roll we're XX just the does kind going you're XX bit which the first little were it why that is weeks to inventory come pull not but back-to-school, well, some quarter Obviously, of quantify a and through of as this that.

Greg Melich

margins. of Okay, last, great. And bit then maybe on big-picture a question the just the

if it, the you the to continue be of years guess, if about keep If traffic I'll you a it. around let what would number? here, to took and I you it given leave to And up about this out, sort willing could this now few keep that's think rate X% margin surge traffic slip to X% think to, traffic in you

Brian Cornell

again, something great I strong throughout new to the think, continue brands, going the online. at changes The both We've that very to made results talking good in multiple and is seeing reacting and whether is deliver our we the the in we've deliver to some guest been offerings, it's the us. food is multi-category margins time. I feel our Greg, and to quarter they're strength household about Target beverage, Beauty, in-store strength But think essentials, this categories & experience, for in for saw guest really are in which in reacting shopping about. we home,

we remodel great stores in So, offer brands expect neighborhoods, stores, we to as we continue. to new continue as and new we to expect continue And as new up services, that more grow. traffic to we open

grew we traffic over good comps XX% our by our the we that think digital we to X%, highlights grew fact quarter, also really was the and grew by but of X%. So, the one about feel EPS channel in

So, XXXX. the line delivering key that solid are our all in we and initiatives very results are feel like for of coming with plan together, we're

Greg Melich

Congrats, great. That's good luck.

Brian Cornell

Thanks Greg.

Operator

from Mushkin Research. question comes next from The Scott Wolfe

Your line now is open.

Scott Mushkin

guys taking questions. for the Hey thanks

So, I'm -- a to so I'd one but I getting horse beat I comp the cadence, do not e-mails, figured here lots just dead of more. on

back the the look step down that because calendar of and at is the year, shift we of going As the Is to expectation? tough half it compares? the

Brian Cornell

Scott, we quarter. we're throughout into the to expecting go see the strong But we grow we go as see great We're acceleration expect is year. single-digit year. comp guidance QX, throughout expansion got something as seeing in, solid again our confidence the and that to comps really second so we we growth into comp low expect

Scott Mushkin

what's maybe you I And at All right, is you're we're the some least why research store seeing coming our the store better of are store. perfect. going my changes made on at I some to it. Then kind explain the off, regarding consumables. in-stock managing just operations. question at wondered in think second The the levels, according how at maybe stores especially could and if you in-stock conditions

Brian Cornell

about talk making John operating some with let changes our we don't model? of why store we're Yes, the

John Mulligan

process districts in the Yes. store experts been business. we they really in the model. right team where in the I it's mean, operating XX across our call what out The modernizing a -- here through is has store going to country. It's now would of pilot the areas know idea get in

or price the the day, it, over area They past help in business. because have same team, the apparel a we are those person weeks sure goes this stocked. further are guest doing, that the understand own what have Similarly, everything But too. that's seen people the they out-of-stocks in restocking. the of business, on They know big change. we've in They and beauty do electronics and restock. for we're they as they or single improve the in see own businesses, ahead do the also and that part beauty, every is make it's who own business. that they They beauty we Food business, of XX and specialty accountable to we food totality for own expertise and in intraday that they So, and

store Scott, a too, inventory we're positioning, of it a as we of So, of than some there. out-of-stocks. are focus our But chain in entirety upstream couple the little great things in a are and like we areas We're apparel speed doing improving the that's operations. progress some bit And of to across big the -- would the further part food our I others. well. than say, beauty also relates as There's recovery and that's been across

but there's there very you very, know, out-of-stocks, it as to are something of moving lot as focused So, a obviously, on. parts we relates it's

Scott Mushkin

And now? how end is your And many we of store year? the get in John, right it you. through as the what's expectation Thank

John Mulligan

as of of chain chain is lots & entire most It right across -- model the the on well. moving parts. depends operating food is beverage there's now, probably Beauty across and

changes testing across the different of about of the we're a pieces, other Some business. quarter

So, it and the it's in and roll continue various chain stages, we as to move we'll out refine that forward. across

Brian Cornell

Special years Scott, teams out few merchandising the entire last just over been across years. ago was of few is making we investments the our the chain, visual beauty, a a our in & It part rolled that. we've a in-stock in Look, store this of we're results grow but beverage, by-product performance, and both us also as certainly helping food condition. and great that's investing share, seeing resources improving improving the behind

driving those time the over saw changes, comp increases quarter. investments have is question. in guest we to But for we'll and important the very make importantly, So, responding those balance year. the the of the they've continue we first part last one Operator, a to been in

Operator

last Horvers The Chris Thank you. Morgan. question from J.P. from comes

line is open. Your now

Chris Horvers

good Thanks and morning.

a to So, shift I'm at take shot the question. going

it the growth rolled seems other about seems does offset like are fulfillment more comp So, the the show XQ, you that out. the it It does big And front, as in ship XQ so Drive-Up and as come well? e-commerce like comp? XQ you over shift, in or it does Shipt store digital think Because these or being options, actually was which they're helper accelerates then as throughout the the impact versus that the still on in mean year? free year, in digital up impact does scaling

Brian Cornell

Yes.

and lot. we care it. So, don't they great up about show we standpoint, throughout convenient and a them fact Chris, From the digital our things this like I we've we've think Drive-Up just year. in offer account a that Shipt care really these services comp, about for guest They got the that how talked now

you is one the digital to year. that we that comp. to part balance we're seeing So, continue talk of last part in the the the about shift time? of It's Cathy, over our digital. performance of And strong expect want

Cathy Smith

what -- you're a we a little Yes. that bit little a of quarter, to this we so more kind the little year. really just regards a the next and QX, course the going bit map of little more less again With throughout saw little in of bit and is quarter, it's benefit a which means in headwind a QX -- it's bit simple, do, see to little calendar, week-for-week

Chris Horvers

you. Thank

Brian Cornell

confidence QX, Hopefully, we're you guidance. our We year have about and Good. confidence seeing great the in in Well, we full we business. joining today. in you sense start our acceleration year our QX appreciate feel of the us the the in

I all for you conference XXXX So, call of joining thank operator, that earnings concludes us. our and first quarter

Target (TGT) 23 May 182018 Q1 Earnings call transcript